Successfully Setting up a Business
in Hong Kong
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Teresa Tam, Business Development Manager, Primasia Corporate Services Limited
François Rossignol, CEO, Lea Trade Finance
Raphaël Chantelot, Partner, Lefèvre Pelletier & associés
Stéphane Grand, CEO, SJ Grand
September 28th, 2012
Primasia Corporate Services Limited
Teresa Tam – Business Development Manager
Founded in 1980s
 One Stop Corporate Service Firm
 Services: Company Formation, Company
Secretary, Accounting, Tax advisory, Audit
Coordination, Visa Application, Payroll
Arrangement, Trade Documentation and Office
Rental.
 Language – English, Mandarin, French
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1) Hong Kong’s advantages :
 Geographical and Historical
 Tax
 Investing into China
2) Ease of Setup and Supporting Services
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Good geographical location: Part of China but
under “ One Country, Two Systems” policy
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Hong Kong continues to use English common
law
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English is an official language, including in the
courts
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The profit tax rate in HK is 16.5%
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It is possible for HKCo to apply to the IRD for tax exemption in Hong
Kong on its offshore-sourced income.
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Source of trading profits is determined by the place where the
contracts for purchase and sale are initially negotiated, concluded
and subsequently executed.
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No tax on dividends received
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No withholding tax on dividends or interest
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No VAT/GST
There are various forms of foreign investments
(FIEs):
 Wholly Foreign Owned Enterprises (WFOE)
 Representative Offices(RO)
 Joint Ventures (JV)
Overseas Ultimate
Parent Company
Investment
______________________________________________________________________
0 % rate on Dividend Payment
HK Company
Investment
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5% withholding tax on dividend
WFOE/ JV in China
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Benefit from Hong Kong’s DTA with China
(5% withholding tax vs. 10% for other treaty
countries or 20% for non-treaty countries)
China is very familiar with Hong Kong
companies as investment or immediate
holding companies hence registration of
WFOE or Rep Office is easier
Tap into Hong Kong’s pool of talent

By using a Hong Kong holding company,
ownership transfer is much easier and less
time consuming than in China.

Transfer of ownership of a China entity
requires approval from government.

No transfer tax in Hong Kong, only levies a
stamp duty 0.2% on the consideration
Company Type to suit your business
requirements:
1)
2)
3)
Limited Company
Branch Office – Not a separate
legal entity
Representative Office – Cannot
engage in profit making activities
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One-man companies - one shareholder and one director
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Anonymous director and shareholder is permitted.
Corporate director and shareholder is allowed.
No requirement on the residency of the directors.
Registered office address in HK must be maintained.
(can be a virtual office)
Local resident statutory secretary must be appointed.
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Share Capital - Standard issued share capital of
HK$1
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No foreign currency control
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Easy to set up a multi currency bank account
(EURO , USD, RMB)
Timeline
5 days
Officially Registered
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Prepare up to date accounting records
Annual Profit Tax Return filings
Annual Employers’ Tax Return filings
Annual Audit by local CPA
Annual return providing updated information of
the directors and shareholders has to be filed to
the Companies Registry.
Being an employer, HK Company has to enroll its
staff into the Mandatory Provident Fund Scheme
and to contribute 5% of the staff salary (capped at
HK$1,250) to the Scheme on a monthly basis.
See you in Hong Kong
Access to funding in Hong Kong
Paris, Friday septembre 28th
Presentation by: Lea
Trade Hong Kong Ltd.
Financing: 2 different needs
Investment
Cash flow financing
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Commercial banking
Medium to long term bank loans
Private Equity
Venture capital
Investment fund/banking
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Overdraft
Stock financing
Trade lines
Factoring
Independent financial services company
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Factoring
Purchase Order Financing
Trade finance
Or your friends/ family…
Lea Trade Hong Kong Ltd.
Investment / capital injection
More Risk Taking (ROE <20%)
Less Risk Taking (ROE between 10 to 20%)
Private equity
(USD 50K to 1M)
Investment fund / Banking
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2nd to 3rd stage investment
Early stage investment
Take part in your capital
Bring value/ or not
Governement subsidies
Venture capital
(USD 200K to 2/3M)
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More professional/structured
More control
Capital control/shares
• OSEO France
• OSEO Chine
• Hong Kong Government Schemes
Lea Trade Hong Kong Ltd.
Commercial banking
– Overdraft (decouvert)
– Stock financing
– Trade line
• L/C lines
• Mixed line
Advantages
Drawbacks
- You know what you have
- Cheapest way of financing
- Requires often 100% collateral for 80%
financing
- Difficult to obtain/Long process
- Require and analyze 3yrs of operation
- Not flexible
- A lot of hidden cost
- Fund limited to your past history
Financial services company
Factoring / Account receivables financing
– Finance the terms of payment of your buyers
– Quickly free cash flow
– Debt collection
Advantages
Drawbacks
- Easy way to free cashflow
- Provide you a selling tool by offering
terms of payment to your buyers
- Silent factoring
- Manage debt collection
- Not flexible
- More expensive then banks (2 to 3% of your
turnover)
- They control your cash supplies
- Finance only 70% of your receivables on
average
- You MUST give all the invoices of designated
clients
- Only work well with blue chips clients
Lea Trade Hong Kong Ltd.
Financing houses (2)
Trade finance/Puchase order financing
• Secure the all supply chain and secure payment to your
suppliers
• Finance the complete cash flow cycle of a transaction
• Provide L/C lines = secure production and deadlines
Advantages
Drawbacks
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- More expensive than banks 4% to 8%
of purchase Value (and not Turnover)
- Work with quality buyers
Secure the supply chain
Credit insurance and Debt collection
Flexible, use it when you need it
Handle the administrative burden
Lea Trade Hong Kong Ltd.
Successfully Setting up a Business
in Hong Kong
Raphaël Chantelot– Partner,
Lefèvre Pelletier & associés
136 avenue des Champs-Elysées 75008 Paris - Tél. : +33 (0)1 53 93 30 00 – Fax : +33 (0)1 53 93 30 30 – www.lpalaw.com
Summary
1. Comparison of the major features of the French and Hong Kong
tax systems
2. France-Hong Kong Double Tax Treaty
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Introduction
Tax residency
Taxation of individuals
Taxation of legal entities
Taxation of passive income
Taxation of capital gains
Exchange of information
Anti-abuse provisions
3. Hong Kong: a privileged gateway to Mainland China
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A business-friendly and flexible corporate system
A legal framework favourable to foreign investments
A simple and attractive tax system
Some important corporate and tax advantages
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1. Comparison of the Hong Kong and
French and tax systems
France
Taxation of corporate income
Hong Kong
Companies: Terroriality principle (Taxation of the income derived Companies: Terroriality principle (Taxation of the income derived
in France)
in Hong Kong)
Corporate income tax rate
Standard tax rate of 33,33% (34,43 or 36,1% with surcharge for
large companies). Reduced tax rate of 15% for SME's for the first
38.120 € of their taxable result
16.5%
Tax losses
Carry forward: Possible without time restriction. There is a 1M€
threshold under which losses imputation is unrestricted. Above
this threshhold, only 60% of the taxable result may be offset
against losses originating from previous years.
Carry back: limited to one year. No more than 1M€ losses may
be offset against profits originating from previous years
Carry forward: Unlimited
Carry back: No
Dividends: 95%-tax exemption if the shareholder owns at least a
Participation exemption regime (Only
5% participation during two years
on sale of shares of non real estate
Capital gains: 90%-exemption if the shareholder owns at least a
companies)
5% participation during two years
No
Tax consolidation regime
Yes ("intégration fiscale")
No
Others major tax regimes
Special reduced rate (19%) for capital gains derived from the sale
of listed real estate companies
Special corporate income tax rate for interest income and
trading profits derived by corporations from qualifying debt
instruments. Specific favorable regimes for investment funds.
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2. France-Hong Kong DTT
Introduction
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Date of signature of the double tax treaty “DTT”: 21st October 2010
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Entry into force: 1st December 2011 (applicable effectively in France since
1st January 2012 and in Hong Kong since 1st April 2012)
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DTT is not applicable in mainland China
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The DTT contains provisions regarding:
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Another DTT has been signed between France and mainland China
Elimination of double taxation
Information exchanges
Non-discrimination rules
Mutual agreement procedure
Tax covered
France
Corporate income tax and additional contributions
Income tax
Tax on salaries
Social contributions
Wealth tax
Hong Kong
Profits tax
Salaries tax
Property tax
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2. France-Hong Kong DTT
Tax residency
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Who can benefit from the DTT ?
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Residents of a Contracting State:
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Individuals
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Legal entities (companies, partnership, etc.)
INDIVIDUALS
LEGAL ENTITIES
Tax residency provided by the local law of each Contracting State
Applicable criteria in case the individual/legal entity is resident in both Contracting States:
1. Permanent home
2. Center of vital interest
3. Habitual abode
4. Citizenship (France) / right of abode (Hong Kong)
5. Joint determination by France and Hong Kong
Place of effective management
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2. France-Hong Kong DTT
Taxation of Individuals
 Elimination of double taxation
Example: a French tax resident individual receives a salary of €150,000 splited as follows:
€100,000 in France for his work in France
€50,000 in Hong Kong for his work exercised in Hong Kong
Before the entry into force of the DTT
After the entry into force of the DTT
Taxation
Taxation
France
Salary €100K
In France
Income tax on €150K
Hong Kong
Salary €50K
In Hong Kong
Income tax on €50K
Double taxation of the income
derived from Hong Kong (i.e.,
taxation in France and in
Hong Kong)
France
Salary €100K
In France
Income tax on €100K
Hong Kong
Salary €50K
In Hong Kong
Income tax on €50K
Taxation only in the territory
where the activity is
performed (except in some
specific cases)
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2. France-Hong Kong DTT
Taxation of legal entities
 Territorial taxation system in France and Hong Kong
 Taxation in the state where a permanent establishment is located
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The concept of permanent establishment is defined by the DTT
 Taxation of legal entities and transfer pricing
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Hong Kong or France can make transfer pricing adjustments for transactions
between Hong Kong/French related entities which may give rise to double
taxation
Before the entry into force of the DTT
After the entry into force of the DTT
Possibility of appropriate tax adjustment in case of
transfer pricing reassessment linked to the transfer
of profits from France to Hong Kong (and reverse)
Double taxation risk but no possibility to benefit
However, adjustment is not automatic
from a correlative adjustment in Hong Kong in case
Mutual agreement procedure can be used in case of
of tax reassessment in France
difficulty to eliminate double taxation (the file shall
be submitted within 3 years from the tax
reassessment)
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2. France-Hong Kong DTT
Taxation of passive income
 Passive income: dividendes, interest, royalties
Withholding tax rates
Dividends
Interest
Royalties
France (local legislation)
30%
0% (except in some cases)
33.33%
Hong Kong (local legislation)
0%
0%
4.95% (16.5% in some cases)
DTT
Limited to 10%
Limited to 10%
Limited to 10%
Example: a French tax resident receives royalties from a Hong Kong company for the use
of a trademark in Hong Kong. Royalties are taxable in France and shall be subject to
taxation in Hong Kong at the global rate of 4.95%.
Before the entry into force of the DTT
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Double taxation occurs on royalties paid from Hong Kong to France
After the entry into force of the DTT
 Withholding tax rate is limited to 10% (however withholding tax in the present case was
already lower than 10%, i.e., 4.95%)
 Double taxation is avoided by the granting of a tax credit in France equal to the amount of
tax paid in Hong Kong (within the limit of French tax attributable to such income)
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2. France-Hong Kong DTT
Taxation of capital gains
No change regarding capital gains taxation
 Real estate capital gains
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Taxation where the immovable property is located
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French withholding tax on the sale of immovable property or of shares of
real estate companies can still apply (Article 244 bis A of the French Tax
Code « FTC »)
Currently : no risk of double taxation since Hong Kong does not tax capital gains
 Other capital gains
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Principle: taxation only in the State where the seller is resident
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Exception : possible taxation in the State where the companies whose shares are
sold is located, when the seller holds at least 25% of the capital
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French withholding tax on the sale of substantial shareholding can apply
(Article 244 bis B of the FTC)
Currently : no risk of double taxation since Hong Kong does not tax capital gains
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2. France-Hong Kong DTT
Exchange of information
 Tax cooperation: a controlled exchange of information
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DTT provision on exchange of information (Article 25 of DTT) is based on the
OCDE model
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The exchange is limited to the sole tax covered by the DTT
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No retroactivity (exchange of information does not apply to income received
before the entry into force of the DTT)
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No obligation to proceed to spontaneous or automatic transfer of information
(point 10 of the protocol)
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Safeguard procedures need to be followed by Hong Kong’s tax authorities in
relation to the exchange of information so as to avoid any fishing expeditions
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2. France-Hong Kong DTT
Anti-abuse provisions
 Specific French anti-avoidance measure are maintained (Article 27
of the DTT)
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Hong Kong is considered by France as a low tax country as Hong Kong
corporate income tax « CIT » rate is twice lower than the French CIT rate
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French law provides for some specific mechanism to avoid tax fraud when
operating with entities located in low tax country (such as Hong Kong)
Example: Article 209 B of the FTC subjects the profits of subsidiaries in which a French company
holds a stake of more than 50% to CIT in France, if these entities are located in low-tax country
and do not provide proof of any truly industrial or commercial activity carried on locally
Similar mechanism exists for individuals residing in France who hold a stake of more than 10% in
company located in a low-tax country, whose assets are primarily financial or monetary (Article
123 bis of the FTC)
 Hence substance issues are crucial
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Hong Kong companies should have enough substance and not be mere
shell companies otherwise the benefit of DTT may be denied
 To be noted: DTT does not apply to offshore income
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3. Hong Kong: a privileged gateway to
Mainland China
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Hong Kong offers a business-friendly and flexible corporate system
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Law in Hong Kong is steady, predictable and can be easily enforced
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Setting up a company in Hong Kong is simple and fast (about a week)
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Private Limited Company (PLC) is the most commonly used and flexible vehicle:
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Setting up costs are among the lowest in the world
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Annual administrative formalities are simple
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Simple management structure (one or several directors)
Can be created with only 1 shareholder
Director(s) and shareholder(s) might be non local residents
No minimum share capital requirement (HKD1 minimum)
Great flexibilities in allocating rights/obligations between business partners (e.g. corporate
governance rules, transfers of shares, voting rights, right to dividends)
Limited to the approval of the annual accounts, the signature of an annual return and the renewal of
the business registration certificate
Filing the annual accounts is not a requirement
Hong Kong legal framework is favourable to foreign investments
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No distinction between foreign and local investors when setting up a business
No restrictions on sectors in which foreign companies can invest
Flexibility to finance activities / project investments (e.g. flexibility of capital
contributions, absence of debt/equity ratio)
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3. Hong Kong: a privileged gateway to
Mainland China
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Hong Kong has a simple and attractive tax system …
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… compared to China
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Only 3 direct taxes on profits, salaries and property
Profits tax is set at 16.5% and applies only to revenues derived from Hong Kong
No tax on dividends received and capital gain realized
No withholding tax on dividends and interest
No business tax or VAT, or custom duties (a few exceptions)
Salaries tax capped at 15%
Profits tax and capital gains are taxed at 25% (a few exceptions)
10% withholding tax on outbound dividends, interest and royalties
Business tax (5% - non recoverable), VAT (standard rate 17%) and custom duties
Salaries tax: progressive scale up to 45%
Structuring its investment through Hong Kong present some
corporate and tax advantages
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Closer Economic Partnership Arrangement « CEPA »: withholding tax in China => Hong
Kong limited to 5%
Setting up a joint-venture in Hong Kong (and not directly in China) is more safe
Selling a Hong Kong company is more fast and easy (obtaining an administrative
approval is not necessary)
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3. Hong Kong: a privileged gateway to
Mainland China
 Investing in China from France through Hong Kong : some tax
optimisation opportunities
Direct investment in China
Dividend
100
France
China
France
Taxation 1.66
(participation
exemption
regime)
China
Withholding tax
10
Global
taxation
11.66
Indirect investment in China through Hong Kong
Dividend
95
Dividend
100
France
France
Taxation 1.58
(participation
exemption regime)
HK
Hong Kong
No taxation
No withholding tax
China
China
Withholding tax 5
Global
taxation 6.58
(tax gain of
5.08)
NB: Hong Kong
company needs to
have a effective
and real substance
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Lefèvre Pelletier & associés (« LPA »)

Founding in 1983
Paris
Hong Kong

Francfurt
Direction in Paris, France
Shanghai
Algiers
 More than 100 attorneys
worldwide
Guangzhou

Casablanca
7 bureaux:
in Europe, Asia, and Maghreb
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Contacts
Raphaël Chantelot
Avocat associé
Responsable du China Desk
[email protected]
Tél : + 33 1 53 93 39 79
Paul-Emmanuel Benachi
Avocat associé
Responsable des bureaux Asie
[email protected]
Tél : +86 21 6135 9966
Nicolas Vanderchmitt
Avocat associé
Responsable du bureau de Hong Kong
[email protected]
Tél : +852 2907 7882
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PARIS, France
136, avenue des Champs Elysées - 75008 Paris – France
Tél. : +33 (0)1 53 93 30 00 - Fax : +33 (0)1 53 93 30 30 – Email : [email protected]
ALGER, Algérie
Villa 02 B - Cité Elchahid Djaouab - chemin Doudou Mokhtar, Ben Aknoun - Alger– Algérie
Tél. : +213 (0)21 91 67 66 – Email : [email protected]
CASABLANCA, Maroc
269 Boulevard Zerktouni - 2e étage, N°3 - 20 050 Casablanca – Maroc
Tél. : +212 (0)522 97 96 60 - Fax : +212 (0)522 94 19 18 – Email : [email protected]
FRANCFORT, Allemagne
Lefèvre Pelletier & associés Rechtsanwaltsgesellschaft mbH Taunusanlage 19 D-60325 Francfort - Allemagne
Tél. : +49 69 133 84 56 59 – Email : [email protected]
GUANGZHOU, Chine
Suite 1610, Guangdong International Hotel Main Tower 339 Huanshi Dong Lu 510098 Guangzhou - Chine
Tél. : +86 20 2237 8609 - Fax : +86 20 2237 8619 – Email : [email protected]
HONG KONG, Chine
44/F, Cosco Tower, Unit 4405 183 Queen's Road Central Hong Kong
Tél. : +852 2907 7882 - Fax : +852 2907 6682 – Email : [email protected]
SHANGHAI, Chine
41/F, Hong Kong New World Tower, Unit 4102, 300 Middle Huai Hai Road - Lu Wan District Shanghai 200021
Tél. : +86 21 6135 9966 - Fax : +86 21 6135 9955 – Email : [email protected]
www.lpalaw.com
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OPPORTUNITIES AND RISKS
IN MAINLAND CHINA
September 2012
www.sjgrand.cn
MARKET
OPPORTUNITIES FOR DEVELOPMENT
• A market full of promise but plagued by difficulties
• The life cycle of a company is influenced by these
conditions
S.J. GRAND
42
IMPLANTATION
• Initial phase, business planning
• Most common FIE structures: RO, WFOE, EJV, CJV
• Offshore holding structure
• Acquisition of a business
S.J. GRAND
43
OPERATIONS
• Risk management
• Intellectual property
• Regulatory risks
• Due diligence: tax, operational, legal, environmental
S.J. GRAND
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SUMMARY
• You can make money in China, just be very careful
• Do not take anything for granted
• This is not a level playing field, you will not benefit from
the relationships and informal arrangements
• Law applies to you all the way
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OUR SERVICES
CORPORATE FINANCE
Mergers and Acquisitions – Debt and Equity Financing – Capital Markets
FINANCIAL ADVISORY
Risk Management – Due Diligence – Forensic Accounting
OPTIMIZATION
Restructuring – Reengineering – Strategic Planning
TAX AND ACCOUNTANCY
Tax – Payroll – Audit – Incorporation
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CONTACT
Please contact or address EOIs to:
STEPHANE GRAND
CEO
E: [email protected]
GREGORY RASTELLO
General Manager, France
E: [email protected]
S.J. GRAND
57, rue d’Amsterdam
75008 Paris
BEIJING – SHANGHAI – SHENZHEN – HONGKONG – PARIS
www.sjgrand.cn
© 2012 S.J. Grand
CONFIDENTIAL
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