(PRWEB) January 11, 2011
A recent analysis by http://www.GuideMeHongKong.com shows that increasing number of foreign companies that are keen to explore business opportunities in mainland China via a China Representative Offfice prefer to first register a Hong Kong company and use it as a special purpose vehicle to structure investments to and from China and is an easier route to access the China market. GuideMeHongKong.com has identified the following benefits of setting up a China Representative Office (RO) through a Hong Kong holding company.
#1: Limited liability of the foreign company. A Representative Office is a promotion and liasion office that is used to explore a given market before long term investments are made. A RO has no legal standing and the foreign company bears direct liability for for all the actions of the RO. The foreign company can limit its liability exposure by setting up a Hong Kong offshore company, which will act as the parent company. This way, the China RO is deemed as the Hong Kong company's subsidiary and not that of the foreign company.
#2: Reduced tax liability. If a foreign company sets up a Foreign Investment Enterprise (FIE) or a Wholly Foreign Owned Enterprise (WFOE) for its China sourcing or selling operations it would be subject to a tax rate of 33% in China. By contrast, a China RO is subject to a lower corporate income tax rate of 25% on its taxable income. RO's are taxed either on the basis of their actual revenue or on the basis of deemed revenue or expenses. A China RO can also claim tax exemptions under the China-Hong Kong DTA.
#3: Low setup costs. A share capital in the range of CNY 100,000 – CNY 1 million is required for setting up a Wholly Owned Foreign Enterprise in China whereas there is no minimum share capital requirement for setting up a company in Hong Kong. Similarly, there is no share capital requirement for registering a China RO.
According to Mr. Andrew Chen – a senior member of editorial team at GuideMeHongKong.com, "It makes a lot of sense for international businesses to register Hong Kong company in order to channel their investments into China. Moreover, setting up a RO in China becomes much easier when done through a Hong Kong company because of the close political linkages between the two regions."