Just like Donald Trump, Mr. Dan was adept at making deals. So successful was he, his business profits kept growing at astronomical rates and quite naturally, his hometown became too small for his prospects. He had to expand to Africa, Asia, Europe, especially in Asia. He couldn’t wait to grab his own share of all the money available in China and India. So he assembled his management team and got to work.
This business mogul did his best. He tried to avoid all the pitfalls and common mistakes business owners make when registering businesses in a complex business environment like Asia. The management team worked with every important piece of information they could find; they even installed the right safeguards. Mr Dan had never failed in business. (Okay once, he had declared bankruptcy, but financial institutions had jumped in to save his empire from sinking. Even then, he had never really failed at business.)
Many world business experts recommend Hong Kong as the best place to register and start your business. Leading lawyers also give the same advice at business conferences. “If you are going to start a business in China, you will be better off registering it in Hong Kong,” an American lawyer once announced to a crowd of startup founders. When asked why he thought that, he gave the following reasons.
1. Innovative Simplified Guidelines For Wholly Owned Foreign Enterprises
Recently, the Chinese government provided a lot of kickbacks and incentives for new companies. Many of the company registration requirements were waived and the overall registration process was simplified.
For instance, no one will ask you for a minimum balance of registered capital. That requirement had discouraged many entrepreneurs. After China waived that requirement, many business owners moved into Hong Kong to register their businesses.
Capital verification reports have been waived too. If you were discouraged by requests for annual audits, you can rest assured that no one will ask for them when next you try to register your business in Hong Kong. But it is important to note that you may have to send your company’s financial reports.
This development has attracted a lot of tech and financial companies. Too bad this development can long before Mr Dan set up a branch in China.
2. Fantastic Tax Benefits
If you are trying to establish a foreign company in China, register a Hong Kong Special Purpose Vehicles (HKSPV). That’s the first step.
The second step: Go to China mainland to establish a Wholly Owned Foreign Enterprise (also called WOFE).
This is actually easier than it seems. And it is worth all the trouble if any/ Here’s why:
- The Wholly Owned Foreign Enterprise can earn money in China, and then transfer it back to the Hong Kong company. Transfer charges of about 5%t apply, but it a lot more inexpensive than China’s 25% income tax.
- There is also a zero percent tax rate on income not earned in Hong Kong. However, all profits earned in Hong Kong are taxed5%. Talk about getting a good deal.
The tax benefits are even better for startup founders. This is because startups are entitled to VAT refunds. But that’s not all. You can easily manage and transfer your money between the WOFE and Hong Kong Special Purpose Vehicles. You can do all these without the hassles of currency restrictions.
3. Superb Protection of Intellectual Property
Apart from the fantastic tax benefits available for business owners, there is also a strong protection of the intellectual properties of registered companies. The business mogul I mentioned in the intro didn’t make this mistake, but his son did. And the consequences were dire.
As much as this article is about the reasons to register your business in Hong Kong, it is also about what mistakes you can avoid. It is dangerous to run a foreign company in China without legally registering it. Anything can go wrong. It is even more precarious for entrepreneurs who are running companies that haven’t even been registered anywhere. Think about the safety of your intellectual property.
Hong Kong registered companies enjoy the full protection of all trademarks, copyrights, patents, design patents, and domain names. All you have to do is ensure that your documents are filed and held by the Hong Kong business. Note that China employs a first-to-file method.
Companies can easily transfer funds from China to accounts anywhere in the world as long as they have licensing agreements. All this can be done once the company has a registered Wholly Owned Foreign Enterprise and HKSPV.
4. Fewer Disputes
Wholly Owned Foreign Enterprises offers a wide safety net for business owners. This reduces the potential for disagreements and lawsuits.
This is largely because the HKSPV is a limited liability corporation. This means that the liability of every shareholder is restricted to their invested capital.
Your Hong Kong-registered company will be liable for the contributed registered capital for the China-based business. So if for some reason beyond your control, a lawsuit ever comes up, you can protect your interests. Alternatively, you can run a joint-venture in the mainland. However, government rules require that an indigenous partner own at least half the enterprise.
5. Not Only Is It Easier; It Is also Cost-Effective
Every business owner wants to cut cost. That’s one crucial way to guaranty growth and productivity.
Business experts have shown that the company registration process can make or mar the business management process.
Registering your HKSPV in a business-friendly environment like Hong Kong will make it easier for you to save a lot of money. Moreover, transmittal of funds is very stress-free than it might have been if foreigners were to commence a joint venture in China. Mr Dan hadn’t considered this one thing.
When Mr Dan eventually threw in the towel, he found that closing a business in China was no small feat. It took him almost one year to make an exit whereas Hong Kong would have made it easier for him. In fact, it takes only one day to close a business in Hong Kong.
Registering your company in Hong Kong is your best bet. My Dan expressed this view just as much as other global experts did. Do your research and you’ll find that registering a business is a piece of cake when compared to other tax havens. Nobody enjoys setting up a business in an unfriendly environment.