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Follow on Google News | Establishing a Hong Kong Company with a Representative Office in China for China Sourcing BusinessThere are various structures available to companies looking to source effectively in China. customers generally have two options: 1. Exporting from China without any local representation or 2. By establishing a sourcing presence in China
By: Tom Lee There are various structures available to companies looking to source effectively in China. The individual options vary in terms of investment, risk, commitment, control and time frames. For the export out of China customers generally have two options: 1. Exporting from China without any local representation or 2. By establishing a sourcing presence in China It is important for companies to understand what strategies are available and how these structures could fit into their existing business models. Establishing a Hong Kong Trading Company with a Representative Office in China Establishing a Hong Kong Company for purchasing activities with China and the rest of the world has many advantages. When buying from the Chinese and/or Asian market, the Company can enjoy significant tax and operational benefits - with or without a China mainland entity. The Foreign Company can use a Hong Kong Company as a re-invoicing center for purchases from China and other Asian countries and accumulate profits at favorable tax rates. The regular tax on profits is 16.5%, but if the profits of a Hong Kong Company are generated through offshore business, they are tax free. Nevertheless, if the Company decides to hire mainland Chinese staff in China, in addition to having a trading company in Hong Kong, a legal entity would need to be established. A Representative Office (RO) is the easiest and most economic way of setting up a legal presence in China. It is an office of a foreign enterprise set up for the purpose of liaising with Chinese businesses and customers on behalf of its parent company. A RO is not considered to be a separate legal entity and it can not carry out direct revenue earning business activities, i.e. it cannot enter into purchase/sales contracts and cannot receive payment for products or services, issue invoices or repatriate monies overseas. A RO is restricted to conduct only "indirect operational activities", such as: - Business liaison - Introduction of products - Market Research - Technology exchanges By law the Chinese staff must be employed by a Chinese entity in China. Together with their gross salary, the company must provide social insurance to each employee. As social insurance is owed to the State and not the individual, it is recommended that this be done in a legal way so as to not incur any difficulties with the Labor Arbitration Committee and other government bureaus in China. There are many foreign companies in China that do not monitor the daily business of their local employees in their RO, allowing many of these employees the opportunity to engage in activities not allowed by the RO. The consequence is often that the parent company becomes blacklisted by the Chinese government. A further advantage of a Hong Kong company would be that it takes this liability away from the parent company. There are no capital contribution requirements for a RO. Establishing a RO is therefore largely a matter of complying with the prescribed application procedures. A RO, although indirectly operational, is liable for filing and paying Business Tax, Foreign Enterprise Income Tax and Individual Income Tax based on your expenses. You will pay approximately 10% of your expenses in the form of Business Tax and Enterprise Income Tax. There is an additional called Stamp Tax which is required for all signed contracts - Therefore your lease contract will require a Stamp Tax (approx. 0.01% of the rent total). In summary, the Hong Kong Trading Company can handle all purchase issues with the supplier and the customer. The RO would act as the sourcing and quality control liaison office, making sure that the negotiations, contracts, production and quality control issues are all being taken care of. Tommy China Business Consulting Provides practical assistance to International SME establishing and expanding business in China.TCBC is a professional China sourcing agent With headquarters in Shenzhen City Guangdong Province China Shenzhen is the most innovative city in Southern China, at the heart of Pearl River Delta. Shenzhen has emerged as the global procurement centers for international giants such as IBM, Accenture and Walmart. From Shenzhen we have immediate access to the manufacturers in Guangzhou, Dong Guan and Foshan. ShenZhen is ideal place for International SME to set up their china presence for china sourcing busniess Tommy China Business Consulting Tel: 86-755-25809219 Cell Phone: 18926401128 Fax: 86-755-83256658 Email:tomlee@ Msn: tomlee_cn@hotmail.com Skype:tomleeli http://www.tommyconsulting.com # # # We provide comprehensive sourcing service to customers all over the world: Please visit http://www.tommyconsulting.com Tel: 86-755-21180637 Email:tomlee@ Skype:tomleeli End
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