Set Up A Business In Hong Kong? Or China? What Is The Catch?

As a foreigner, a company incorporation in Hong Kong offers you the following business advantages:

  • A hub to do business with Mainland China companies or factories
  • An international city
  • Low profit tax rate i.e. Tax rate that is relatively lower than all the neighboring regions and/or countries
  • A mixed living culture that consists of the west and the east

You need a Mainland China company

But if due to some more complicated reasons where you will need to incorporate in Mainland China, which isn’t the same as incorporating in Hong Kong, you will have three options:

  • A representative office
  • A joint venture (JV)
  • A wholly owned foreign enterprise (WFOE)

A wholly owned foreign enterprise is a limited liability company. This type of company is formed in China, and the entire company is owned by foreign investors. It does not require involving any Chinese partner participation. Under the WFOE, it enables the foreigners (who are the owners of the business) to manufacture, process, assemble, trade, distribute, or provide services in Mainland China. During the formation of the company, the nature (and/or industry) of the business must be pre-approved by the mainland China Government. The nature can be updated but only with prior approval.

On the financial side, there is an expensive upfront capital investment for setting up the wholly owned foreign enterprise. The corporate income tax rate is usually charged at 25%.

If you are looking for the advantages from below, the WFOE is a suitable company type for your business.

  • No interference from local Chinese partners to your overall business strategy
  • The company is allowed to remit and receive the Renminbicurrency(RMB) to and from the foreign owner’s overseas parent holding company
  • According to the international laws, there is the increased protection of trademark and intellectual property
  • The liability of the company is limited to original investment of the shareholders.

A Hong Kong company is sufficient

However, if your business and customers are mostly based in Hong Kong, you will not need to spend your precious time going through tedious and longwinded company formation in China. Rather you should focus on developing your one main product for the local HK customers. Other than your product, grow your company based on the following items.

  • Strong leadership – As a founder, you should be the one who are to lead by example.Maintain a positive attitude while working fast and effectively. As a Leader, you need to boost your own morale and all the team members around you.This way, you are setting the positive tone for the whole company.
  • Equity driven – Provide stock options to your initial stage team members to boost the growth of your businesses for the long term.
  • Integrity – A great company must be able to do things the right way. Plant integrity into your company value and culture in the early stage.
  • Obsessed with customers – Your customersare always the most important asset of your business from day one. This could possibly be the most important characteristic of a great company that are one its way to succeed.