Investment opportunities in Asia Pacific via the
Hong Kong platform
Siegfried Verstappen,
Invest Hong Kong
Brussels office
21 March 2013
Practical advantages of a Hong Kong office
TDC Budapest seminar
Sofia, Bulgaria
RIGHT PLACE,
RIGHT TIME
Hong Kong’s
Enduring Advantages
Heart of Asia
• The world's 4th busiest
international passenger
airport
• Around 90 scheduled
airlines operating some
750 flights per day to
about150 destinations
• One of the world’s busiest
container ports
• 23 minutes from central
business districts to
Airport by high-speed
train
Hong Kong and its reach within Asia
Shenyang
Beijing
Flights from Hong Kong to Shanghai
Seoul
Qingdao
Tokyo
Chongqing
Shanghai
Wuhan
ca. 100 daily connections
first 8:00 am
last 9:20 pm
Flight time ca. 2 ½ h
Fuzhou
Taipei
Guangzhou
Hong Kong
Conclusions?
Hanoi
Sell to China? Choose HK or SHA
Manila
Sell to Asia-Pacific? Choose HK
Kuala
Lumpur
Ho-ChiMinh-City
Sell to SEA? Choose Singapore
Singapore
Return daytrip from HK to SHA is
possible but not from Singapore
Jakarta
The circle represents approx.
3 h of flight or 1800 km
Low and simple tax rates
Hong Kong
Singapore
Mainland China
Corporate tax
16.5% maximum rate
18% maximum rate
Standard rate = 25%
High/New Tech Enterprises
(HNTE) = 15%
HNTE some regions 0%
Income tax
15% maximum rate
(salaries)
20% maximum rate
5 - 45%
VAT/GST
Nil
7%
Certain exemptions apply
17%
Certain exemptions apply
Income not
subject to tax
Offshore income;
dividends; capital
gains; tax exemption
for interest income
from deposits placed
with authorised
financial institutions
Certain remitted income;
certain shipping income;
certain Singapore dividends;
prescribed income of foreign
investors arising from certain
funds; capital gains
All income subject to tax
(certain preferential tax
treatments for foreign-invested
enterprises)
Withholding tax
Nil for dividends,
management fees/,
interest, rent
5.25% for royalties
Nil for dividends
10% for royalties
15% for interest & rent
20% for mgt/ tech svc fees &
directors’ remuneration
10% for dividends
10% for royalties
10% for interest
10% for capital gains
HK is in more favourable position than
Singapore in double-taxation avoidance with
the Mainland
Dividends
Hong Kong-Mainland China Singapore-Mainland China
Note
Withholding
Note
Withholding
Tax Rate
Tax Rate
Singapore does not
Hong Kong does
0%
0%
levy withholding tax
on dividends.
not impose
withholding tax
on dividends
paid to a
nonresident.
Interest
0%
Royalties
Domestic rate,
i.e. 4.95%
Source: Deloitte International Tax Source
Hong Kong does
not levy
withholding tax
on interest paid
to nonresidents.
7% / 10%
10%
The 7% rate applies
to interest received
by a bank or
financial institution;
the rate is 10% in
all other cases.
Low and simple tax system
Forbes Tax Misery
Index 2009
Hong Kong - 3rd lowest tax misery score = 41.5
Singapore - eight positions higher, score = 78.5
Bulgaria – five positions higher, score = 73.5
China – nr 2, score = 159
France – nr 1, score = 167
Low and Simple Tax System
Corporate Income
16.5
Employer Social Security
45
25
17
Personal Income
20
15
14.5
49
20
Employee Social Security
23
7
17
VAT
China
Singapore
5 5 0
Hong Kong
Only 3 direct taxes in HK: profits, salaries, property
• NO VAT/GST or sales tax
•NO Estate duty
• NO Capital gains tax
•NO Global taxation (offshore
income allowed/only HK-sourced
income is taxable)
• NO Withholding tax on
dividends and interest
•NO Wine duty
Source: Forbes Tax Misery Index 2009, Inland Revenue
Why Hong Kong instead of mainland China?
Source: Fiducia Management -Doing Business 2011, World Bank Report
WHY HONG KONG?
• Direct sales and direct invoicing from Hong Kong to overseas‘
•
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subsidiaries and to customers
FOB shipment to the customer, No direct contact between
customer and manufacturer
Profits are “locked“ in Hong Kong and not in China:
taxed in Hong Kong and not in China!
Goods do not touch the intermediary’s warehouse
No VAT refund complications
Reduced cost and risks:
• Transport and shipment cost
• Finance cost
• Credit risk

Customer benefits from lower price
• Reliable legislation, easy taxation, low corruption
The ideal combination:
The Hong Kong Limited Company executes the trade transactions and
the Representative Office / WFOE in China manages quality control and/or manufacturing.
Asia’s Leading City
for International Business
0
100
200
U.S.
500
600
234
95
Germany
128
77
133
59
Netherlands
50
Singapore
46
Switzerland
53
111
51
98
R egional Headquarters
R egional O ffices
63
Taiwan 26
32
800
494
119
China
700
612
238
U.K
Italy
400
311
Japan
France
300
158
52
Australia 19 61
Others
173
389
No. 1 in Asia for international companies
3,882 regional offices and headquarters
Source: 2008 Annual Survey of Companies in Hong Kong Representing Parent Companies Located outside Hong
Kong, Census & Statistics Dept, HKSARG
900
Hong Kong is China’s Risk Manager
“””No other city in the world can help overseas
investors manage the risks inherent in entering
Mainland markets as well as Hong Kong. This is an
important part of the reason why overseas firms
prefer Hong Kong for the highest-value activities that
they perform in the Asia-Pacific region.”
Michael Enright, Sun Hung Kai Properties Professor,
School of Business, University of Hong Kong
Foreign entrepreneur’s perspective
What is the most crucial element in the
decision making process regarding an
investment abroad for an entrepreneur?
Foreign entrepreneur’s perspective
CONFIDENCE!
The foreign entrepreneur’s perspective
CONFIDENCE that
he will achieve the
greatest added value
by choosing a
particular route
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Hong Kong’s Elements
of Strategic Confidence
Intellectual property rights
Legal recourse
Access to the Chinese market (CEPA)
Credit risk insurance
Chinese wall between suppliers/customers
Lower financing cost
Market research
Support for SME loans and marketing
RMB currency developments
Taxes
Legal recourse: problem
• Mainland China has no tradition of Western style law and
jurisprudence
• Many lower courts are not yet fully conversant with new
laws regulating commercial, investment or IPR issues
• Non-Chinese firms (and most Chinese firms) find it very
difficult and time-consuming to obtain their rights through
the Chinese courts
Solution A: HK International
Arbitration Centre
• Insert clause in contract with the mainland Chinese partner
that any disputes regarding the execution of the contract
will be submitted to the Hong Kong International Arbitration
Centre.
• Both Hong Kong and mainland China have signed the
Convention of New York : any arbitration award from HK is
immediately executable in China*
• HK based law cabinets confirm that the system is working
speedily, smoothly and satisfactorily
• Website: www.hkiac.org
*(enforceable between HK and mainland China since February 2000)
Sol. B: Sue in HK, enforce in China
• A new agreement on July 16, 2006, between HK and
mainland China : if parties provide for this in their contract,
verdicts from the Hong Kong courts are immediately
executable in mainland China*
• It covers money judgments and commercial cases
• The contract has to stipulate expressly in writing that the
HK court has exclusive jurisdiction
• Applicable whenever the judgment debtor keeps his assets
in mainland China
*(enforceable between HK and mainland China since August 2008)
Hong Kong’s credit risk insurance
advantage
• Hong Kong based firms exporting goods to other markets can
obtain both country risk and buyer risk insurance from a
HKSAR agency called:
• Hong Kong Export Credit Insurance Corporation (ECIC)
• Website: http://www.hkecic.com/eclink/infoCenter.jsp
• Insurance premium can be as low as 0.39%
Hong Kong’s lower financing cost
advantage
• Hong Kong based firms trading goods
with other markets can obtain a lower
financing cost as the base rate HIBOR
is consistently lower than EURIBOR,
since Hong Kong in effect follows U.S.
monetary policy
Support for SME’s
Background to the RMB Trade Settlement
Scheme
Pilot Cities (initially)
– 5 pilot cities (Shanghai, Guangzhou,
Dongguan, Zhuhai and Shenzhen)
Now expanded to all of China (vice premier
Li Keqiang August 2011)
Eligible transactions:
– Cross border trade
– Service trade
Eligible Enterprises in Mainland China:
– 365 Mainland Designated Enterprises
(initially)
– Transactions with non-MDEs now
allowed after PBOC registration
Coverage:
– Hong Kong / Macau / ASEAN
member countries
– Countries beyond ASEAN allowed
(highly dependent on access)
RMB Trade Settlement Scheme:
implications for sourcing from China
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Old system of paying in hard currency has following consequences for
the Chinese supplier:
A) he has a currency risk exposure of about 6 weeks before SAFE informs
him at what rate the conversion will take place
B) he has to finance his foreign customer for 2 months before he receives the
payment in his Chinese account
C) therefore his export prices are up to 10% more expensive than his
domestic prices to compensate these risks
New system allowing renminbi payment has following consequences for
the Chinese supplier:
A) no longer currency risk exposure
B) no intervention by SAFE = payment occurs 4 weeks faster
CONCLUSION: You can negotiate lower prices from your supplier:
his 10% cushion is no longer required
SINCE HE IS ALLOWED TO TRADE IN RENMINBI !!!
Chinese taxes: problem
• China is nr 2 worldwide on the Forbes Tax Misery Index
Corporate Income
16.5
Employer Social Security
45
25
17
Personal Income
20
15
14.5
5 5 0
49
20
7
Employee Social Security
23
17
VAT
China
Singapore
Hong Kong
Chinese taxes: solutions
• Objective: reduce your taxable income in mainland China
• The Double-taxation avoidance treaty between HK and
mainland China allows, to a certain degree, the imputation
of expenses by HK parent companies to mainland affiliates
• Examples that could qualify under certain conditions:
market research, personnel support or recruitment, quality
control inspectors, logistics coordination, etc….
• Hong Kong corporate tax rate is 16.5% and even 0% for
offshore incomes
• Hong Kong companies can deduct 50% of their income
from joint ventures with mainland Chinese firms from
taxable revenue
Chinese taxes: solutions
• The Double-taxation avoidance treaty (DTAT) between HK
and mainland China brings in new and highly favourable
rates for transfer of dividends, interest, and royalty
payments from mainland China firms to their HK parent
companies
• In practice, withholding taxes are now greatly reduced on
these forms of transactions:
• 5% for dividend payments
• 7% for interest payments
• 7% for royalty payments
Double Taxation Agreements
Confirmed Double Taxation Relief Agreements with 23 trading partners:
• New Zealand
• Japan
• Austria
• Belgium
• Jersey
• Portugal
• Brunei
• Kuwait
• Spain
• Czech Republic
• Liechtenstein
• Switzerland
• France
• Luxembourg
• Thailand
• Hungary
• Mainland of China
• UK
• Indonesia
• Malta
• Vietnam
• Ireland
• Netherlands
In negotiations: • Bangladesh
(to be entered into force
on 16-04-2012)
As of 24 February 2012
* - Pending entry into force
• Italy
• Malaysia
• Canada
• Korea
• Mexico
• Finland
• Macau
• Saudi Arabia
• India
• the United Arab
Emirates
Invest Hong Kong: how we can help
Enjoy our free of charge services
• Latest information on business environment and opportunities
• Contacts for all aspects of business establishment
• Arranging tailored visit programmes
• Support and assistance with visa applications, trade
regulations etc.
• Public relations services during your launch/expansion
• Advice on settling in Hong Kong – housing, schooling,
healthcare
Invest Hong Kong Brussels office
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Rue d’Arlon/Aarlenstraat 118, B-1040 Brussels, Belgium
Telephone +32/2/775 00 76
E-mail: siegfried_verstappen@hongkong-eu.org
Websites: www.investhk.gov.hk and: www.hongkong-eu.org
Hong Kong background information:
http://www.brandhk.gov.hk/en/#/en/facts/factsheets/index.html