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….
Hey Dan, love the blog and trust you are doing well. I wondered if you had any comments and the best way to make regular payments to Chinese businesses from the west. We make regular payments to Chinese companies from UK banks.
Hi Jason,
I make all my payments from My HK company to my Chinese company and then to the supplier. In the past when i was a bit more trigger happy i used to pay suppliers directly from the UK but I’m not sure i would do that now knowing what i know. Try to give yourself some protection and if you have to pay direct from the UK try get some kind of advantageous LC agreement in place.
Cover your bases.
Daniel
Thanks Dan, yes we have a level of protection through LC and also pay a deposit and not full payment until receipt of scanned BoL. More looking to save the fees of transferring the money and getting the best rate but suppose that is just shopping around.
Thanks again keep up the good work, really impressed.
Ok i see you point, you could of course hedge fund the usd if your paying in usd but lately the RMB seems to be falling quite a bit.
I can transfer from Hong Kong to China with no fees. Some UK banks also offer this service without a fee though.
My HK account allows me to keep money in several currencies which is handy, might be useful for you?
A lot of Chinese companies also have HK companies so again you could pay them directly this way for instant payments with no charges.
Not much useful info there I’m afraid but I don’t have to make regular payments from the UK to China anymore so I don’t really have any great solutions.
Thanks
Was following you. Why you stopped blogging about your journey ?
Sorry for the lack of updates on the blog, i have been very busy with business here. If you want to keep more up to date please follow me on instagram, my username is youngmoneychina.
Thanks
Thank you for the info. Perhaps you can help me with an odd question I haven’t really been able to find on the internet. Basically, I have an importing company in the states but I was considering setting up a hong kong entity for trading and manufacturing.
We work with companies in the US that design new gadgets and want them produced in China so we deal with contracts and (mostly) a prayer that nothing goes wrong or is copied. From some limited advice, we have heard that if we want to make sure our contracts are more enforceable and respected we should have the contracts written between the Chinese Factory and a HK entity rather than a Chinese Company and the US (or other foreign) company. What are your thoughts on this? Thanks again and jia you!
Hi,
Thanks for the question, its a good one.
Im not an expert on law but in my understanding and through what i have personally been through here, contracts are really only useful in a Chinese to Chinese company situation. So you would need a Chinese company set up to deal with your Chinese supplier. I think this is the main reason people use agents here for sourcing and manufacturing. You can try paying your Chinese supplier to their HK company account and making the paper trail start there but then it may be a worthless shell company with no liability.
In short setting up a HK company for legal enforcement is kind of pointless but at the same time it will likely make your supplier a little more on edge if they think you might really have a presence in HK and could send a staff member over the boarder at the drop of a hat.
Thanks
haiii, my name is David from indonesia. you have a nice and inspirative blog here. I am just wondering what kind of legal process that you needed when you acquired factory in china? Do you need to form WFOE or Joint venture to start a factory there? i Heard that the process quite complicated and costly there for licences. Anyway, thanks for sharing your success story, it will inspirations for a lot of people who have dreams of doing business in china. Keep up your good works…..thanks
Hi David thanks for the comment.
Yes you will need to either do a joint venture of wfoe. Depending on your location you will need to register 50-150,000 usd in order to get the license.
Thanks
Hi, great post’s, im really interested in importing into the uk. This blog has me more intrigued to export to this country, sounds nice.
How much capital would one need, to set up, two factories and an office?
Hi warren,
That would depend what factory you want to open.
My last factory has taken a very large sum of investment to date where as the clothes factory was much cheaper to open.
Thanks
Great post Dan! I just decided to incorporate in HK. Moved to Shanghai some months back. It’s inspiring to read about your leap to China & how you are doing well!
Thanks Ryan,
Enjoy your time up in Shanghai.
Daniel
How much do you think is needed to start a business that sources suppliers inside china? Also how much if you dont mind me asking did you pay for your factory, just a ballpark figure would be great.
Hi Cameron,
To open an office here and take on staff won’t take much investment, I would guess coming here with 20,000 usd would be enough.
To open a factory will take a fair whack more, and to be honest I’m not sure i would advise doing so.
Thanks
Hey brother. Awesome post as always. How is business going for you in China? Are you going to expand into other markets and industries?
Hi Ed,
Things going well here and spending a lot of my time getting really into foam products over at our foam factory. Underlay has been doing well so really looking at what else we can do there.
Hope things are good with you.
Great post! Do you know any of the guys in the Dynamite Circle? If not, you should look into that entrepreneur group. Among other things, they are very big on setting up a HK company for a variety of reasons- taxation being one of the big ones.
I did look at setting up a HK company a few years back. This was when I was thinking about moving to HK, and one of the benefits my HK lawyer mentioned to me was that my HK company could sponsor my visa, and potentially residence permit. So- no need for visa runs!
Thanks for stopping by Pete, your blog is a great read too. Your a bit of a redneck like me it looks like. Ha ha.
I have never heard of this group, I will have a look.
Thanks.
I know you do exporting business there, but did you think about importing as well? I read that Chinese are buying lots of merchandise “made in Eu” etc because they respect that.
Could importing be a branch of your business in the future? Just random idea for you, interested to see what you think about that.
I know some people importing into china but those doing well tend to have a good inside contact here due to the very heavy taxes, sometimes up to 300%. Kind of kills off a lot of things worth looking at but I would assume if you had a very very direct source of a product stateside or in the eu it would still be worth looking at. Anyone have a father in law who owns a baby milk plant?