International Trade – Case studies
Using Hong Kong for International Trade
Although just 1104 square kilometers in size, Hong Kong is one of the world’s major financial centers, and consistently ranked as one of the busiest ports on the globe.
Hong Kong has long been considered the “Gateway To China” and it has worn this badge proudly. Not surprisingly, it is one of the largest investors into China, and the most commonly used location for foreign companies to base their international trading operations – whether it be sourcing products from China to sell into overseas markets, creating joint ventures with local Hong Kong or Chinese companies, or setting up Wholly Foreign Owned Enterprises in China to sell products and services locally – in one of the world’s largest and fastest growing economies.
Now a special administrative region of China, Hong Kong has a very deep-rooted competitive business doctrine demanding low taxation. The current rate of corporate income tax is just 16.5% and this is only applied on a territorial basis thus earnings outside Hong Kong are not taxed and there is no imposition of capital gains taxation.
Hong Kong is now firmly a service-based economy, which accounts for over 90% of its GDP. Its economy is open, has a strong and sophisticated banking system, mature and stable legal system, is market driven and designed as a base for foreign business to launch their international operations.
Hong Kong, an extraordinary location for International Trade
The basic concept central to most trading structures set up by foreign companies using a Hong Kong trading entity is that of outsourcing their back office functions, while retaining full control of their international trading business. Let us give you an example to better explain it to you.
Hong Kong company as an importer
Many importers from North American and, European countries have been buying products from China, India, and many other Asian countries over several years, to sell to their home markets – typically to large retail chains, or through their own stores.
As their businesses grow and develop, most of these importers look for an effective way to manage this process while giving them an international presence, often enable their larger customers to buy FOB from an Asian port, and expand their sales into new markets around the globe.
The importer now has a truly international business with a local presence in Hong Kong, they retain control of their expanding business and its costs, and profits are retained in their Hong Kong Company – usually tax free under Hong Kong’s territorial tax system.
TBA can also assist by setting up representative offices in China so that the importer may have their own staff on the ground to work with their suppliers typically on quality control and shipments.
Hong Kong company as the manufacturer
In recent years, foreign trading companies have been increasingly establishing their own manufacturing facilities in China and other Asian countries, to ensure that they have full control of their supply chain and enable them to sell into local Asian markets (particularly China).
In China, many manufacturing plants set up by foreign companies have been established through Joint Venture arrangements, or direct investment (through the establishment of a Wholly Foreign Owned Enterprise or WFOE) usually in conjunction with a local advisor. While the opportunity for such trading companies can be substantial, the associated benefits are also significant.
As was the case with the importer, TBA can set up and maintain this structure for the manufacturer. The manufacturer gets a Hong Kong company, a WFOE in China, Hong Kong virtual office (prestigious office address in Central with mail forwarding, telephone, fax and email), preparation of management accounts and audited profits tax returns, and full assistance to open local bank account for trade financing, if required by the client.
Should you require additional information, have a quotation or might need to clarify any related matter, please contact one of our consultants who will be happy to assist with your enquiries.
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