presentation for affilica international seminar shanghai oct 2015 - why hong kong is the ideal place...

International Tax & Business Advisory Services Firm

Why Hong Kong is the ideal place for investment?

Affilica International Seminar

Shanghai, China

23rd Oct, 2015

AGENDA

Basic facts about Hong Kong

The advantages of Hong Kong

Our case examples

Our services and strength

Q&A

2015 Masson de Morfontaine Limited. All rights reserved.

Hong Kong: The Pearl of East

For the purpose of Affilica International Shanghai Seminar 2015

Basic facts about Hong Kong

Geographic and demographic facts Southern part of China

Special Administrative Region of China

1,092 square kilometres

Subtropical weather

7.8 million population

Speaks English, Cantonese and Mandarin


Hong Kong: The International Business Hub with Strategic Location

Economic and financial facts International financial centre

International shipping centre

GDP growth rate 2.1%

GDP per capita USD34,000

Inflation rate 3%

Free market economy for Mainland China’s economic interactions with the world

- International business hub

- Banking

- Trade

- Tourism


Legal and infrastructural advantages

Well-established legal systems

World class infrastructure and facilities to do business

Excellent transport and top class harbour port

Free market advantages

Free market economy

No foreign exchange control

No labour restrictions

100% foreign ownership possible

Fully repatriable profits

Taxation advantages

Simple tax system

No customs duty

Low tax rate 16.5% / offshore profit exemption

Favourable tax treaties


Hong Kong: The International Financial Centre


The Unique Economic Relationship with Mainland China

Testing ground for Mainland China’s financial reforms

Closer Economic Partnership Agreement (CEPA)

Largest offshore RMB liquidity pool

Largest RMB funding and trade settlement centre

Largest offshore RMB bond market and capital market

The RMB qualified foreign institutional investors scheme (QFII)

Premier asset management hub for Chinese HNWIs

International capital formation centre (HKEX IPOs)

Shanghai - Hong Kong Stock Connect

Shenzhen - Hong Kong Stock Connect

Exchange Traded Funds (ETFs)


Hong Kong: The Offshore Renminbi Centre

Our case examples


Enjoying largest benefit – using a Hong Kong company as stepping stone

Background

1. Mr. A is from Italy with Italy company “ITA Ltd”;

2. Business nature is about consumer products retail;

3. His business activity with China include:

o invest in China to setup Wholly Foreign Owned Enterprise (WFOE);

o also lend money to the WFOE for business operation in China.

New arrangement

1. Mr. A forms a Hong Kong company “H Ltd”;

2. Using H Ltd as investor in China to setup the WFOE;

3. Also using H Ltd to advance shareholder loan for the WFOE’s business in China.

Benefits

1. Setting up WFOE

o disclosing less information to China government

- originally, need to provide information of ITA Ltd to China government;

- now, just need to provide information of H Ltd.

o time to arrange document is shorter

- ITA Ltd documents need to be translated into Chinese and be certified by China Embassy;

- documents from H Ltd is more ready for China use, and the certification process is more standardized in Hong Kong – time and cost more under control.

2. Dividend from WFOE

o when China company earns profit and need to pay back to investor, withholding tax in China applies;

o if paying to ITA Ltd, the rate is 10%;

o if paying to H Ltd, the rate is 5%.

3. Interests from WFOE

o when WFOE needs to pay interests to ITA Ltd, withholding tax of 10% applies;

o when WFOE needs to pay interests to H Ltd, withholding tax of 7% applies.

Example: Break-even

1. Cost of setting up HK company = around HKD10,000;

2. Cost of annual maintenance of HK company = around HKD20,000 (including accounting and audit fee);

3. If dividend is HKD30,000 and interest is HKD167,000

o saving 5% of withholding tax on dividend = HKD15,000

o saving 3% of withholding tax on interest = HKD5,010

o the total tax savings break-even the maintenance of the Hong Kong company.

Case 1: European making inbound investments in China via Hong Kong

Investments Investments

Our case examples


Case 2: No tax in Hong Kong – Offshore operation tax exemption – Trading business

Background

1. Mr. B is a Cameroonian who originally buying from China and selling to

Cameroon using his own Cameroon company as the middle trading firm (C

Ltd);

2. Trading profit of USD100,000 (XAF60M) is subject to Cameroon tax rate –

can be as high as 38.5%;

3. Mr. B controls the business remotely – no need to maintain operation based

in China or Cameroon.

New arrangement

1. Mr. B setup a Hong Kong company, H Ltd;

2. H Ltd becomes the middle trading company – buying from China and selling

to Cameroon;

3. Goods still shipping directly from China to Cameroon;

4. Selling and purchase at same price as before;

5. Location of operation – Mr. B still operating the business – without

maintaining operating office in Hong Kong, China and Cameroon.

Benefits

1. Profit of USD100,000 will be profit of H Ltd;

2. As H Ltd maintains only registered address in Hong Kong, but not

operating office. And also fulfilling offshore operation test, Hong Kong

Inland Revenue Department approves the “non-HK source” application;

3. There is saving of 38.5% in profits tax.

Overall tax position

Mr. B still needs to fulfill personal income tax filing to Cameroon government

– in order to assess overall tax saving scenario.

H Ltd should fulfill operation test, which includes the following:

1. No operation office maintaining in HK (this is different from registered address);

2. No staff hired and working in HK;

3. No customers / clients from HK;

4. No suppliers from HK;

5. Income contract not negotiated or concluded in HK;

6. Goods not entering HK

Trans-shipment;

× Maintaining continuous cargo stock in HK.

Goods Goods

Our case examples


Case 3: No tax in Hong Kong – Offshore operation tax exemption – Service providing business

Background

1. Mr. C is an Indian who knows many businessmen doing jewellery

business all over the world;

2. These businessmen will pay Mr. C service fee every time when Mr. C

refers them the customers;

3. Mr. C originally using his own Indian company to act as the middle man to

link up these businessmen with the customers he found;

4. Mr. C controls the business remotely – no need to maintain operation

based in India;

5. Profit of USD50,000 is subject to Indian tax rate – can be as high as 43%.

New arrangement

1. Mr. C setup a Hong Kong company, H Ltd;

2. H Ltd becomes the middle company – to link up customers he found with

the jewellery businessmen all over the world;

3. Referral service is delivered to the jewellery businessmen like before;

4. Location of operation – Mr. C still operating the business – without

maintaining operating office in Hong Kong and India.

Benefits

1. Profit of USD50,000 will be profit of H Ltd;

2. As H Ltd maintains only registered address in Hong Kong, but not

operating office. And also fulfilling offshore operation test, Hong Kong

Inland Revenue Department approves the “non-HK source” application;

3. There is saving of 43% in profits tax.

Overall tax position

Mr. C still needs to fulfill personal income tax filing to Indian government – in

order to assess overall tax saving scenario.

H Ltd should fulfill operation test, which includes the following:

1. No operation office maintaining in HK (this is different from registered

address);

2. No staff hired and working in HK;

3. No customers / clients from HK;

4. The service which gives rise to the service income is not performed in HK.

Services Services

Our case examples


Case 4: No tax in Hong Kong – Royalty income

Background

1. Mr. D owns intellectual property or technology that can be licensed to other

company for commercial use.

New arrangement

1. Mr. D setup a Hong Kong company, H Ltd, and register H Ltd as the owner

of the intellectual property (IP);

2. H Ltd licensed use of the IP to a USA company for production use;

3. H Ltd received royalty income based on the use of the IP in USA.

Benefits

1. The royalty income received by H Ltd is not subject to Hong Kong

profits tax;

2. Such income will be taxable if the use of IP is located in Hong Kong.

Intellectual property

Our case examples


Case 5: Investing in European market – enjoying Double Tax Agreement (DTA)

Background

1. Mr. E is a Mainland Chinese who invests in German market by forming a

German company (G Ltd);

2. G Ltd performs well and remits different types of payment to Mr. E every

year, including dividend, interest and royalty, etc.

New arrangement

1. Mr. E forms a Hong Kong company (H Ltd) as 100% shareholder;

2. H Ltd is 100% shareholder of a Luxembourg company (L Ltd);

3. L Ltd is 100% shareholder of a German company (G Ltd);

4. Payment from G Ltd reaches Mr. E via L Ltd and H Ltd.

Benefits

1. H Ltd and L Ltd are regarded as “Twin-Company” – there are DTAs between

Germany and Luxembourg; Luxembourg and Hong Kong as well as Hong

Kong and China;

2. Luxembourg company also enjoys local tax benefit in Europe;

3.

4. The income received by L Ltd and H Ltd is tax free – by virtue of their

respective local tax law.

Withholding tax payable

by German company

If no Twin-

Company structure

If used Twin-

Company structure

Dividend 10% 0%

Interest 25% 0%

Royalty 10% 0%


Our services

International Tax Services

- Corporate tax planning and transactional work

- High net worth investors tax planning

- Resolution of tax disputes

- Transfer pricing

International Business Advisory Services

- Business advisory / Strategic support / M&A

- Company formation / Company secretarial service

- Trademark registration

- HNWI services / Trust / Immigration / Real estates

- Global mobility / Labour law


Our official website: www.masson-de-morfontaine.com Our brochure

Our recent publications


Our strength

Knowledge- Our advisers have detailed and intimate knowledge of

domestic rules in Africa, Asia, Europe and Middle East, international rules as well as Islamic finance

Determination- Our determination and drive to ensure complexities are

simplified and tax & commercial issues are clarified

Track record- We have a track record of pragmatic and integrated tax &

business advice to individual, corporates and governments within the regions

Solution- We deliver creative and innovative solutions to what is

otherwise perceived as insurmountable tax & commercial and regulatory issues

Network- Our uniquely strong local touch with professional firms,

enterprises and industrial bodies in various jurisdictions across the regions


Our people: We are a team of experienced tax experts and

business advisers from multinational background

Our office: Lippo Centre in Admiralty, Hong Kong

Our Main Partner: Ms. Catherine LE BOURGEOIS,

Qualified Lawyer, M&A, legal and tax expert

10


Let’s talk, your questions are most welcome

For the purpose of Affilica International Shanghai Seminar 2015

CONTACT LANGUAGES

Phone: +852.3953.4804 (Direct line) - English

Email: [email protected] - Mandarin

Skype/WeChat: wyeu002 - Cantonese

PROFESSIONAL & ACADEMIC QUALIFICATIONS PROFESSIONAL MEMBERSHIPS

CTA(HK), CMA(Aust.), MIPA(Aust.), MCom(NZ), BCom(NZ) TIHK, ICMA(Aust.), IPA(Aust.), AITC, ISFIN

SPEAKER PROFILE: Wilson YEUNG - International Tax Director

A qualified accountant and certified tax adviser with over 18 years of practical experience gained from Big Four CPA firm and multinational listed corporations.

Possesses comprehensive knowledge and experience in telecom, manufacturing, real estates, financial institution and tourism industries, with broad exposure

to China, APAC, EU, CIS, MENA, Americas and Australasia markets, advising MNC, SME and HNWI clients in the area of M&A, corporate restructuring,

transfer pricing, offshore structure, global mobility, SOX compliance and FATCA. Expertise in group tax efficient structure, cross border transaction, indirect

taxes, customs, particularly DTA, TP and PE issues.

Wealth of successful cases in respect of tax incentive application, tax audit mitigation, contractual review and negotiation of infrastructure projects for China

enterprises going global. Keen on offshore tax structuring and implementation for HNWIs especially from China, Russia and Europe making investments in

both developed and developing countries. Leveraging on a strong international network, striving to offer technically robust, industry specific, pragmatic and

seamless solutions to clients on their international tax issues.

122015 Masson de Morfontaine Limited. All rights reserved. For the purpose of Affilica International Shanghai Seminar 2015

Unit 3401, Level 34, Tower One, Lippo Centre,

No. 89 Queensway, Admiralty, Hong Kong

Tel: +852.3953.4880 Fax: +852.3953.4818

Website: http://www.masson-de-morfontaine.com

Thank you

presentation for affilica international seminar shanghai oct 2015 - why hong kong is the ideal place...

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