International Trade – Case Studies
Hong Kong
A Prime Hub for International Trade
Despite its relatively small size, covering an area of only 1,104 square kilometers, Hong Kong stands as a prominent global financial hub and consistently ranks among the world’s busiest ports.
For years, Hong Kong has proudly held the title of the “Gateway To China.” It serves as a primary destination for foreign companies looking to establish their international trading operations. This includes sourcing products from China for distribution in overseas markets, forming joint ventures with local Hong Kong or Chinese enterprises, or creating Wholly Foreign Owned Enterprises in China to sell goods and services within one of the world’s most expansive and rapidly growing economies.
As a special administrative region of China, Hong Kong upholds a business philosophy rooted in competitive advantages, characterized by low taxation. The current corporate income tax rate is a mere 16.5%, applied on a territorial basis, meaning that earnings generated outside of Hong Kong remain untaxed, and capital gains are exempt from taxation.
Hong Kong has transitioned into a service-based economy, with over 90% of its GDP attributed to this sector. It boasts an open economy, a robust and advanced banking system, a mature and stable legal framework, and a market-driven environment, making it an ideal platform for foreign enterprises to launch their global operations.
Hong Kong Benefits
- A commitment to open trade and investment.
- Ensuring a fair and equitable business environment.
- A steadfast dedication to the Rule of Law.
- Unrestricted capital flow.
- An administration known for its transparency and efficiency.
- A straightforward and low-tax system.
- A resilient and effective financial market.
- Strategic proximity to Asian markets, notably Mainland China.
Using Hong Kong for International Trade
The Hong Kong Limited Company has gained significant popularity in the realm of international trade, with over 1 million companies currently registered in the city. The fundamental concept underpinning most trading structures employed by foreign businesses through a Hong Kong trading entity is to outsource back-office functions while maintaining full control of their international trading activities. Let us illustrate this concept with an example.
Using a HK Company as an Importer
Numerous importers from North American and European countries have been procuring goods from various Asian countries, including China and India, for many years. They sell these products in their home markets, often to large retail chains or through their own stores.
As their businesses expand, many of these importers seek an effective way to manage this process while establishing an international presence. This enables them to facilitate their larger customers to purchase FOB from an Asian port and broaden their market reach globally.
By adopting this structure, importers operate a truly international business with a local presence in Hong Kong. They maintain control over their growing business and its costs, and their profits are typically tax-free under Hong Kong’s territorial tax system.
TBA assists importers by providing a Hong Kong virtual office (complete with a prestigious office address in Central, mail forwarding, exclusive telephone and fax lines), preparation of management accounts, and audited profits tax returns.
TBA can also facilitate the establishment of representative offices in China, allowing importers to have their own staff on the ground to oversee quality control and shipments.
Using a HK Company as a Manufacturer
In recent years, foreign trading companies have increasingly established their manufacturing facilities in China and other Asian countries to ensure full control over their supply chain and access local Asian markets, particularly China.
In China, many manufacturing plants set up by foreign companies have been established through Joint Venture agreements or direct investment, often involving a Wholly Foreign Owned Enterprise (WFOE) in conjunction with local advisors. While the potential for such trading companies is substantial, it comes with significant advantages.
The process described earlier for importers in the first example serves as the foundation for manufacturers. TBA can also assist manufacturers in setting up the right structure effectively, identifying and managing risks from the outset.
Similar to the importer’s setup, TBA provides manufacturers with a Hong Kong company, a WFOE in China, a Hong Kong virtual office (including a prestigious office address in Central with mail forwarding, telephone, fax, and email services), preparation of management accounts and audited profits tax returns, as well as comprehensive assistance in opening a local bank account for trade financing if needed.
If you require further information, a quote, or clarification on any related matters, please do not hesitate to contact one of our consultants, who will be delighted to assist with your inquiries.
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