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ICS TRUST Webinar: Hong Kong as an International Hub for Trading in China

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This workshop will discuss How Hong Kong is an ideal hub for trading in China as well as other parts of Asia. Advantages of the city include leveraging its beneficial tax regime, excellent logistics …

This workshop will discuss How Hong Kong is an ideal hub for trading in China as well as other parts of Asia. Advantages of the city include leveraging its beneficial tax regime, excellent logistics and sophisticated banking.

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  • Why Hong Kong: Economy, Banking & Finance, Location, Legal System, Tax System, Business EnvironmentHong Kong as a market: Opportunity in the Greater Pearl River Delta Region, Closer Economic Partnership Agreement (CEPA), The Pacific Bridge Initiative (PBI)Trading through Hong Kong: Setting up a Hong Kong Entity, Common issues when doing business in Hong Kong, Hong Kong as a trading hub, Profit Repatriation
  • Global Cities index: A Ranking of global cities, published by the American journal Foreign Policy, in conjunction with consulting firm A.T. Kearney and the Chicago Council on Global Affairs, based on consultation with Saskia Sassen, Witold Rybczynski, and others. Foreign Policy noted that "the world’s biggest, most interconnected cities help set global agendas, weather transnational dangers, and serve as the hubs of global integration. They are the engines of growth for their countries and the gateways to the resources of their regions.
  • The annual growth rate in Gross Domestic Product measures the increase in value of the goods and services produced by an economy over the period of a year. Therefore, unlike the commonly used quarterly GDP growth rate the annual GDP growth rate takes into account a full year of economic activity, thus avoiding the need to make any type of seasonal adjustment. This page includes a chart with historical data for Hong Kong GDP Annual Growth Rate.
  • Complete absence of foreign exchange controls
  • Located within 4 hours of most of Asia’s key markets50% of the world’s population within a 5-hour flight
  • Hong Kong well equipped, in a lot of ‘soft’ infrastructure ways China isn’t yet. This is why most multinationals still use Hong Kong as their regional base.
  • Key Characteristics:World-class infrastructure; free flow of information; no restrictions on inward or outward investment; no foreign exchange controls; no nationality restrictions on corporate or sectoral ownership; simple, low-tax regime; and world financial hub.Leading export sectors for U.S. firms include electronic components, medical equipment and pharmaceuticals, environmental technologies and services, aviation and airport equipment, transportation infrastructure, environmental technologies, safety and security equipment, financial services, education and training services, travel and tourism services, retail, and consumer goods such as packaged food, wine, cosmetics, and toiletries.
  • Public infrastructure include Hong Kong International Airport Expansion Plan, Kai Tak Airport Redevelopment, Tourism Infrastructure and City Improvement, West Kowloon Cultural District, Hong Kong University Campus Expansion, Ocean Park amusement park enhancement, Harbor Area Treatment Scheme, the Hong Kong-Macau-Zhuhai Bridge, multiple subway and light rail lines, and the Guangzhou-Shenzhen-Hong Kong Express Rail Link. Notably, over 11 percent of all Hong Kong Government procurement contracts were awarded to U.S. firms in 2011.SelectUSA: Established in 2011 by Executive Order of the President, SelectUSA is a government-wide initiative to promote foreign direct investment (FDI) in the United States to create jobs, spur economic growth, and promote American competitiveness. SelectUSA works in partnership with state, regional, and local economic development organizations to promote FDI into the U.S. and works on behalf of the entire nation, exercising strict geographic neutrality. SelectUSA has chosen 10 pilot markets, including Hong Kong, to initiate the program in 2012, because of the territory’s special role as a commercial and financial hub through which over 60% of China’s overseas investment flows.
  • National Export Initiative (NEI): The First U.S.-Government-wide export promotion strategy that was announced in January 2010 State-of-the-Union address.Objectives of NEI: 1.) Double US exports over the next 5 years 2.) support 2 million jobs in AmericaThe PBI was the first-ever collaboration with a foreign statutory trade body to support NEI objectives and has brought additional resources to U.S. exporters interested in selling to, or through, Hong Kong to reach the China or Asian regional markets. 
  • Benefits: Can Sell FOB “Any Asian Port” Goods are shipped directly to your customers: -eliminating your need for a warehouse -reducing the costs of storage and transit An Asian presence without the cost of renting a physical office or having your own staff Profits booked “offshore” can be structured to be taxed at 0% or 16.5% tax in Hong Kong
  • This slide shows the flow of dividends back to the parent company. Although recent tax changes such as Circular 698 will make it more difficult to claim this 5% advantage, as Chinese tax law will now require more substance in the Hong Kong company. This substance, while still being defined, will include having an office, at least a virtual office, and doing banking transactions through Hong Kong.
  • Transcript

    • 1. ICS TRUST Webinar SeriesHong Kong as an International Hubfor Trading in ChinaJune 20 2012By: Barrett Bingley
    • 2. Table of Contents• Why Hong Kong?• Hong Kong as a market• Hong Kong’s China Access• Trading structures utilizing Hong Kong• Future Trends• Resources• Key Takeaways• Contacts Copyright © 2012 ICS TRUST (ASIA) LIMITED. All rights reserved 2
    • 3. ABOUT ICS TRUSTAbout ICS TRUST• Established since 1980, ICS TRUST is a award-winning, private Hong Kong-based company that provides integrated business solutions for corporations doing business in China using Hong Kong as the gateway. ICS TRUST’s Approved Business Service Provider Corporate Services U.S.C.S. United States Commercial Service • Doing Business in Hong Kong ICS TRUST was the Executive Partner for Hong Kong / Macau for APBO April 2011 (Los Angeles) • Doing Business in China (DBC) • Virtual CFO DFAIT T.C.S. • China Remedy Services Department of Foreign Affairs and International Trade Trade Commissioner Service • Trade Services Hong Kong as a Gateway to Doing Business in Asia Copyright © 2012 ICS TRUST (ASIA) LIMITED. All rights reserved 3
    • 4. WHY HONG KONG?Why Hong Kong? Economy Banking & Finance Location Legal System Tax System Business Environment Copyright © 2012 ICS TRUST (ASIA) LIMITED. All rights reserved 4
    • 5. WHY HONG KONG? Economy• Hong Kong is a free market, rule of law based economy• Hong Kong ranked 5th in Global Cities Index 2012• World’s largest IPO hub in 2010 and Asia’s largest venture capital centre• Largest external investor in China, accounting for US$223 billion or 45% of total Source: Survey condecuted by the American Journal Foreign Policy, in conjuction with A.T. Kearnery and the Chicago Council on Global Affairs, Hong Kong Trade and Development Council Copyright © 2012 ICS TRUST (ASIA) LIMITED. All rights reserved 5
    • 6. WHY HONG KONG?Economy• Hong Kong Annual GDP Growth Rate – Average GDP growth rate at 5.65% from 1974 to 2012 Source: The General Statistics Branch, The Census and Statistics Department of Hong Kong, Trading Economics Copyright © 2012 ICS TRUST (ASIA) LIMITED. All rights reserved 6
    • 7. WHY HONG KONG?Economy• The 4 Pillar Industries in Hong Kong FINANCIAL SERVICES REAL ESTATE TOURISM TRADING Copyright © 2012 ICS TRUST (ASIA) LIMITED. All rights reserved 7
    • 8. WHY HONG KONG?Banking & Finance• Hong Kong’s External Orientation: – 3rd most important financial centre (after New York and London) – 10th largest for external transactions, 2nd largest after Japan in Asia – 6th largest Foreign Exchange Market in the world (based on turnover)• Infrastructure: – Multi-Currencies Bank accounts: • 1st and largest offshore RMB platform-handles 86% of China’s global RMB trade – Strong, well-regulated banking system: • Home to 70 of the world’s 100 largest banks • 131 Licensed Banks, 36 Restricted License, 35 Deposit taking companies, 85 Representative Offices, 30 countries Copyright © 2012 ICS TRUST (ASIA) LIMITED. All rights reserved 8
    • 9. WHY HONG KONG?Location Source:InvestHK Copyright © 2012 ICS TRUST (ASIA) LIMITED. All rights reserved 9
    • 10. WHY HONG KONG?Connectivity• World’s busiest international Air Cargo Hub• One of the world’s busiest Container Port (+22mTEUs)• Connections to about 160 destinations worldwide• 900 daily flights by over 95 airlines• Handles about 32% of China’s imports and 28% of exports• Handles 80% of Pearl River Delta’s trade – Eg.) Shenzhen, Guangzhou, Dongguan, Zhuhai• Constant upgrading of infrastructure links including road, rail and recently, barge Copyright © 2012 ICS TRUST (ASIA) LIMITED. All rights reserved 10
    • 11. WHY HONG KONG?Legal System• British Common Law• English as medium of communication in courts• Independent Judiciary - no home team advantage• Vibrant legal profession (solicitors / barristers)• Many international law firms have offices in HK• Accountable local administration• Internationally recognized arbitration and mediation centre Copyright © 2012 ICS TRUST (ASIA) LIMITED. All rights reserved 11
    • 12. WHY HONG KONG?Tax System• Low and stable taxes• According to Forbes Tax Misery Index 2009, Hong Kong has the lowest tax misery in Asia Pacific and 3rd lowest in the world Source: Forbes Magazine Copyright © 2012 ICS TRUST (ASIA) LIMITED. All rights reserved
    • 13. WHY HONG KONG?Tax System• 1. Territorial Tax System• Profits Tax = Onshore profits = 16.5 % Offshore profits = Zero %• No capital gains tax• Inbound dividends not taxed• No withholding tax on outbound dividends• No VAT or sales tax• No estate duty• AND Government consistently runs a surplus• 2. Preferential Tax Agreement with China• Dividends from China to US – 10%• Dividends from China to Hong Kong – 5% Copyright © 2012 ICS TRUST (ASIA) LIMITED. All rights reserved 13
    • 14. WHY HONG KONG? Tax System• Hong Kong has signed, operational tax treaties with: Austria France Japan New Zealand Belgium Hungary Liechtenstein Spain Brunei Indonesia Luxembourg United Kingdom Czech Republic Ireland Netherlands Vietnams China• Treaties with the following countries are awaiting notification: Jersey Malaysia Portugal Kuwait Malta Switzerland• Discussions are ongoing with: Bangladesh Guernsey Korea Saudi Arabia Canada India Macau United Arab Emirates Finland Italy Mexico Source: Hong Kong International Law Division, Department of Justice, Treaties and International Agreements Copyright © 2012 ICS TRUST (ASIA) LIMITED. All rights reserved 14
    • 15. HONG KONG AS A MARKETHong Kong as a market• Key characteristics: – Openness, tourism, trade and investment – Population: 7.11 million (mid-year 2011), Visitor: 41.92 million (2011) – GDP per Capita: US $34,106 (2011), GDP Growth: 5% (2011)• Excellent prospects for suppliers on: – Aviation, Computer/Information Technology Equipment, cosmetics and toiletries, education/training, environmental technologies, film, franchising, medial equipment, safety and security equipment, travel and tourism Source: US Commercial Services Copyright © 2012 ICS TRUST (ASIA) LIMITED. All rights reserved
    • 16. HONG KONG AS A MARKET Hong Kong as a market• Planning and execution of public infrastructure works valued at over US$16 billion – Eg.) Hong Kong International Airport Expansion, West Kowloon Cultural District – Over 11% of all Hong Kong Government procurement contracts were awarded to US firms in 2011• Hong Kong-based Private Procurement – Home to a large number of procurement agents and purchasing offices – Where many purchasing decisions for major projects and conglomerates are made Source: US Commercial Services Copyright © 2012 ICS TRUST (ASIA) LIMITED. All rights reserved
    • 17. HONG KONG’S CHINA ACCESSAccessing China through Hong Kong Opportunity in the Greater Pearl River Delta Region Closer Economic Partnership Agreement (CEPA) The Pacific Bridge Initiative (PBI) Copyright © 2012 ICS TRUST (ASIA) LIMITED. All rights reserved 17
    • 18. HONG KONG’S CHINA ACCESSAccessing China through Hong Kong• Immediate market - the Pearl River Delta: – 48 Million people – 27% of China’s imports/exports – 9.4% real GDP growth in 2009 Copyright © 2012 ICS TRUST (ASIA) LIMITED. All rights reserved 18
    • 19. HONG KONG’S CHINA ACCESSAccessing China through Hong Kong• Closer Economic Partnership Arrangement (CEPA) Source: Invest Hong Kong Copyright © 2012 ICS TRUST (ASIA) LIMITED. All rights reserved 19
    • 20. HONG KONG’S CHINA ACCESSAccessing China through Hong Kong• US-Hong Kong Partnership: The Pacific Bridge Initiative (PBI) – Agreement between the USFCS and HKTDC to collaborate on achieving National Export Initiative (NEI) objectives – Encourages U.S. companies to leverage the Hong Kong platform to tap the China and broader Asian markets Copyright © 2012 ICS TRUST (ASIA) LIMITED. All rights reserved 20
    • 21. TRADING THROUGH HONG KONGTrading Structures Utilizing Hong Kong Setting up a Hong Kong Entity Common issues when doing business in Hong Kong Hong Kong as a trading hub Tax and Profit Repatriation Exit Strategy Copyright © 2012 ICS TRUST (ASIA) LIMITED. All rights reserved 21
    • 22. TRADING THROUGH HONG KONGSetting up a Hong Kong entity• Types of Business Vehicles: – Private Company Limited by Shares – Private Company Limited by Guarantee – Branch Operations – Representative Office – Sole Proprietorship/General Proprietorship/Limited Partnership• Corporate structuring in Hong Kong – Incorporation 7 working days – No residency requirements for directors and shareholders – No requirement for multitude of licenses – Flexibility in terms of changing nature of business, shareholder mix, capital structure etc Copyright © 2012 ICS TRUST (ASIA) LIMITED. All rights reserved 22
    • 23. TRADING THROUGH HONG KONGSetting up a Hong Kong entity:Corporate Law• Hong Kong – The Companies Ordinance (Cap 32) – Limited Company with Memorandum + Articles (M&A)* for residents or non residents – Shares – no minimum capital requirement (1 Shareholder) – Directors (not Vice Presidents, President or Officers) (1 Director) – Registered Office in Hong Kong – Company Secretary – Individuals or Corporations acting as a Director (nominees) Copyright © 2012 ICS TRUST (ASIA) LIMITED. All rights reserved
    • 24. TRADING THROUGH HONG KONG Hong Kong as a trading Hub-Import from China 1 cc Purchase Order Your Company 1 Purchase Order 1 Purchase Order Your Customer Your New Vendor/Factory • Buys direct from Asia 3 Invoice Hong Kong Subsidiary 3 Invoice •Coordinates In Asia shipments through its own Asian buying office to optimize savings re: freight and 2 Letter of Credit 2 Letter of Credit insurance costs Banks •Gets lower pricesBenefits: 5 Payment $ 5 Payment $• Can Sell FOB “Any Asian Port” Freight Forwarders• Goods are shipped directly to your customers: from vendor/factory to customer 4 Direct shipment of goods • Coordinates shipment and -eliminating your need for a warehouse shipping document status -reducing the costs of storage and transit• An Asian presence without the cost of renting a physical office or having your own staff• Profits booked “offshore” can be structured to be taxed at 0% or 16.5% tax in Hong Kong Copyright © 2012 ICS TRUST (ASIA) LIMITED. All rights reserved 24
    • 25. TRADING THROUGH HONG KONGCase Study-Importing from China• CLIENT: • A family trading business - on pet toys and accessories • Sources from China • Sells to specialty pet stores (USA / Canada) • Expanding larger buyers• PROBLEM: • No knowledge of L/C terms and conditions • Concerned about penalties re discrepancies in L/Cs • Difficulties in liaising with factories and coordinating with freight forwarders due to time difference and cultural issues Copyright © 2012 ICS TRUST (ASIA) LIMITED. All rights reserved 25
    • 26. TRADING THROUGH HONG KONG Case Study-Solution• ICS TRUST establishes Hong Kong • Advised on structure a Hong Kong Structuring • Incorporated the Hong Kong Company subsidiary• Our client is now able to •Selected HSBC as our client’s bank in Hong Kong focus on business •Set up bank accounts development and Banking •KYC process marketing in Asia •Acted as a signatory• Our client gained •ICS TRUST is client’s trading back office and acts confidence working on for them day to day large L/C orders with Trade •We receive orders from customers, place orders big-box retailers due Solutions on vendors, book trading revenues in Hong Kong to ICS TRUST’s •We advise on all Letters of Credit (L/C) expertise transactions ICS TRUST acts as our client’s Asian headquarters to coordinate with factories in China to handle trade documentation Copyright © 2012 ICS TRUST (ASIA) LIMITED. All rights reserved 26
    • 27. TRADING THROUGH HONG KONGHong Kong as a trading HubExporting to China as a Trading Company 1 cc Purchase Order Your Company 1 Purchase Order 1 Purchase Order Your Customer Your New 3 Invoice Vendor/Factory In Asia 3 Invoice Hong Kong Subsidiary Canada, USA & Worldwide 2 Letter of Credit 2 Letter of Credit Banks 5 Payment $ 5 Payment $ Freight 4 Direct shipment of goods from vendor/factory to customer Forwarders Copyright © 2012 ICS TRUST (ASIA) LIMITED. All rights reserved 27
    • 28. TRADING THROUGH HONG KONGHong Kong as a trading HubExporting to China as a ManufacturerYour Customer Your Company In Asia 1 Purchase OrderYour Customer 1 Purchase 3 Invoice In Asia Order 3 InvoiceYour Customer In Asia Your New Your Warehouse Freight Hong Kong In Asia ForwardersYour Customer Subsidiary In Asia 4 Shipment 4 Distribute goods to various customers in AsiaYour Customer In Asia 2 Letter of Credit 2 Transfer of L/CYour Customer Banks In Asia 5 Payment $ 5 Payment $Your Customer Benefits: In Asia 1. Invoicing Centre 2. Sales Office to Asian buyersYour Customer In Asia 3. Warehousing 4. Distribution Centre 5. Transportation Centre - Your Hong Kong Company is an “Asset Light” structure2012 ICS TRUST (ASIA) LIMITED.WFOEreserved 28 Copyright © as compared to a All rights
    • 29. TRADING THROUGH HONG KONGCase Study-Exporting to China• CLIENT: – International high-tech product developer focusing in the architecture/construction industry – Entering Asian Market – China, HK, Macau, Singapore, Philippines, India, Malaysia, etc.• PROBLEM: – Need a sales and logistics coordination point in Asia to distribute goods to various customers in Asia – Want to keep overhead costs low – No banking facilitates to handle payments in various Asian currencies – No experience in Asia; No Asian language skills Copyright © 2012 ICS TRUST (ASIA) LIMITED. All rights reserved 29
    • 30. TRADING THROUGH HONG KONG Case Study-SolutionHong Kong Banking Order Taking Invoicing Warehousing DistributionStructuring• Advised on • Set up • Receives orders • Issues invoice • Set up • Arrange logistics structure multicurrency from various to customer warehouse service provide accounts customers in Asia across Asia space to store to pick and pack• Incorporated the inventory then the large Hong Kong • Act as signatory • Review and • Can bill clients en route to shipment into Company prepare shipping in various buyers smaller ones to documents currencies send to multiple buyers in Asia • Tracking of payments ICS TRUST acts as our client’s Asian headquarters representing them in handling: sales, warehousing, distribution, and logistics arrangement Copyright © 2012 ICS TRUST (ASIA) LIMITED. All rights reserved 30
    • 31. TRADING THROUGH HONG KONGConsiderations for using Hong Kong• Intellectual Property (IP) Protection – -territorial• Types of IP that are register able: – Trademark – Domain Names – Patents – Copyrights Copyright © 2012 ICS TRUST (ASIA) LIMITED. All rights reserved 31
    • 32. TRADING THROUGH HONG KONGConsiderations for using Hong Kong• Human Resources Issues – Recruitment – Employment Visas – Mandatory Provident Fund (MPF) • Hong Kong Vs. Singapore – Staff turnover • Hong Kong and Singapore are close to 10% while China at 20% Source: HRM Asia Copyright © 2012 ICS TRUST (ASIA) LIMITED. All rights reserved 32
    • 33. TRADING THROUGH HONG KONG Hong Kong Vs. China Tax System HONG KONG CHINA VAT 0 3% -17% Hong Kong offers an Consumption Tax 0 3% - 45% On Shore / Off Shore Capital Gains Tax 0 10% - 20% territorial tax system Withholding Tax 0 5% - 20% (depending on jurisdiction) Estate Duty (Tax) 0 0 Profit (Enterprise Income) Tax 0 – 16.5% 25%Repatriating dividends from Business Tax 0 5% - 20%China to an actively trading Income (Individual Income) Tax 2 - 17% 5% - 45 %Hong Kong company incurs Stamp Duty Up to 4.25% 0.0005 - 0.01% (of ONLY a 5% dividend contract amount) withholding tax Education Surcharge (of 0 3% Business Tax or VAT) Urban Construction (of Business 0 1% - 7% Tax or VAT) Copyright © 2012 ICS TRUST (ASIA) LIMITED. All rights reserved 33
    • 34. TRADING THROUGH HONG KONG Profit Flow Parent Company / Hong Kong / China Parent Company $ No dividend withholding tax Hong Kong Company No HK tax on dividends received Dividends subject to W/H tax of 5% for HK. 10% + for other jurisdictions $ $ Chinese VAT onProfits Tax at 25% Chinese WFOE domestic sales 10% R/E Goods Customers Copyright © 2012 ICS TRUST (ASIA) LIMITED. All rights reserved
    • 35. TRADING THROUGH HONG KONGExit Strategy• Sales of China/Hong Kong Assets – No capital gain tax – Ease of completing a sale as compared to China – Maybe able to avoid capital gain tax in China• Best jurisdiction to go public with your Asian assets Copyright © 2012 ICS TRUST (ASIA) LIMITED. All rights reserved 35
    • 36. FUTURE TRENDSFuture Trends• Internationalization of Renminbi• China Entity - The death of Representative Office (RO)• Loosen Regulations on setting up a WFOE• More Hong Kong Double Taxation Avoidance (DTAs) Treaties Copyright © 2012 ICS TRUST (ASIA) LIMITED. All rights reserved 36
    • 37. KEY TAKEWAYSKey Takeaways• Hong Kong has a strong and resilient economy with key ‘hub’ characteristics such as openness, high connectivity and rule of law.• Its levels of international trade and investment, tourism and concentrated sophisticated clients make it an appealing market in itself• Hong Kong’s geography and special status make it an ideal platform for trading in Asia, especially for Mainland China• Utilizing a Hong Kong entity is an important part of your trading structure to leverage its benefits on tax, logistics, banking and legal advantages Copyright © 2012 ICS TRUST (ASIA) LIMITED. All rights reserved
    • 38. RESOURCESResourcesHong Kong as a gateway to doing business inChina and internationally Copyright © 2012 ICS TRUST (ASIA) LIMITED. All rights reserved 38
    • 39. Q&ACopyright © 2012 ICS TRUST (ASIA) LIMITED. All rights reserved
    • 40. CONTACTContactBarrett Bingley THANK YOUBusiness Development Managerbbingley@icstrust.com+852 3413 38386th Floor St. John’s Building,33 Garden Rd.Central, Hong Kong Copyright © 2012 ICS TRUST (ASIA) LIMITED. All rights reserved 40