Operating as a Hong Kong company has a lot of advantages for people operating a business in China. It has a lot of advantages for people operating a business period but really as I am operating my business from China I will only talk about the specific benefits for someone like me.
I will talk about my own experiences of when I opened my first Hong Kong company and talk about why and how I did it and what I have learnt along the way. Im not an accountant but I hope some of you out there will find some useful information here that I would have liked to find when I was searching the net a few years ago.
For me when I opened my Hong Kong company I primarily needed one thing, a way to receive a multiple range of currencies from multiple sources across the world. My business was just starting to open up and I was helping a broad range of individuals and small companies source products from China. I was at the stage where people in various countries were willing to send me reasonably large sums of money and I needed a safe and efficient way of doing it. Nice position to be in right?
Now obviously I could receive those funds to my UK account but that has a few drawbacks. Firstly the funds would be in the UK and, as much as it would be nice to stash it away there, the money being sent to me is not mine to keep and must be used to pay factories for the products people are sending me the money for. Arranging to then have these funds forwarded to me in China would be both costly and time consuming.
Secondly my business here is operating entirely offshore from the UK and thus has no reason to enter the tax system there. I am not breaking any laws, I live and work outside the UK, my business is generated and operated outside of the UK and naturally any funds generated by this business should not be entered into the UK tax system.
When I was setting up this company I did not own any “physical” business here in China like I do now, I was operating only the sourcing company in its very early stages and opening the Factories was still just an idea in my head. This means that I didn’t have to consider the more complicated company I currently have and the simplicity of a Hong Kong company was ample for what I needed. I’m happy to give advice on the slightly more complicated Representative Office or WFOE company structures to those who may need it, if there is enough interest I will write up a blog on how I operate my business now as a foreigner with 2 factories and on office in China.
There are a truck load of other pull factors for opening a HK Company too so without boring you with the details here are some of the benefits that appealed to me.
All funds generated by the Hong Kong company outside of Hong Kong are completely tax free. This is great as I actually don’t physically generate any revenue in HK only receive money there. This isn’t a grey area or a loophole it’s the straight up law. I don’t like grey areas. It is worth mentioning that HK is still ruled using the British law system, as much as we all like to moan about the UK you cant say the law system isn’t fair.
As a foreigner I am able to completely own all the shares of the company. I think only HK and Singapore allow this in Asia. Obviously this is a great advantage and avoids having to involve a local shareholder you don’t really want to be involved with. You will require a company secretary but the account you use to set up the company can do this for you or nominate a suitable agency.
These two points are really enough reasons for most of us to see the benefits but I guess if you want the full stars and stripes info you can get it from google. After all I’m not trying to sell you a HK company and the chances are that if you’re here reading this you already know the benefits.
Setting up the company is relatively straight forward. I would say that if your serious about this it is worth visiting an agent here in China or in Hong Kong in order to thrash out the questions and concerns you might have. Chances are you will bump into an awesome car in the parking lot which will either make you smile or make you cry depending on how much money you have to deposit in this new HK company account of yours.
You can buy an off the shelf company or make a brand new one, from what I could gather the off the shelf company was slightly quicker to set up but cost a little more. If you buy one more than 2 years old it costs maybe 5 times more but would mean you could immediately apply for a Representative Office here in China which will appeal to some of you. If you already have another LTD company like a UK company that’s also more than 2 years old you may use this to set up the RO office so its not essential to consider the off the shelf company in that instance.
Like many of you will do I went for a brand new HK company so I could start everything clean and fresh with a name that related to me. I went with an agency here in China and paid around 600 GBP for the admin and set up costs. Cheap right?
You need to nominate a company Director and Secretary, Just like in the UK. There also must be one shareholder – obviously, but this can also be you as the company Director. Like I said before the accountant or agency you use can be the secretary for a fee.
You will also need a physical address for your company office in Hong Kong, if you don’t actually have or want an office there you can rent an address to use and even set up mail and call handling should you require it.
The process takes around 14 days and then you are given an appointment to visit the Bank of your choice in HK and open a business account. I opted for HSBC and went in branch for an acceptance interview. There was an option to do this interview by video call from China but physically going to HK meant I could clarify any questions I had face to face and also collect my cards and login details on the day. You are asked some basic questions such as annual turnover, expected countries the credits will come from and the type of business you are in.
On opening the account I had to credit $50,000 hkd of which half should remain in the account at all times. I think this figure varies but its not a lot of money either way.
After that initial deposit is made and you have managed to convince the manager at HSBC that your not part of the mafia you are handed your rather disappointing welcome pack and your free to send and receive money to your hearts content.
Some of you will be aware of the issues HSBC have had of late with some of their less desirable customers and as such transactions and account activity is monitored, I have heard from time to time of friends that have had transactions looked into but as long as your keeping all your paperwork in order and your not doing anything you shouldn’t be then you will be fine.
Each year you will have an annual accountants fee and filing to do as with all LTD companies. This costs around 200gbp plus the accounts fee depending on your transactions that year. Again, a straight forward process that the agency or accountant you used to register your company will be happy to do for you.
So there you go, how to be a high flying international business man of mystery, I hope its of use to some of you out there – if only HSBC paid me a commission for each $1 they received in international deposits from new accounts….