I recently received a post on Wechat in Chinese promoting the benefits for Chinese people and companies to register in Hong Kong for their global business.
Today I thought I would also share some light on why a Chinese company would bother registering in Hong Kong.
I’m assuming you’re not Chinese if you’re reading this – so why should you care enough to read it? Well having your suppliers and business partners registered in Hong Kong, while you are also in Hong Kong makes life and business much easier.
Just like anywhere, if you’re doing business with someone in the same jurisdiction as you, things are easier and the cost of doing business is much lower.
So let’s dig in on why a Chinese person or company would setup in Hong Kong.
Hong Kong is Much Less of a Hassle
Many Europeans I talk to express the difficulties of using companies in their home countries for international business. The restrictions on currency, banking, and other regulations have made it a big headache.
Same goes in Mainland China.
Such a massive country and economy, and for the most part it is setup for domestic (China to China) business, or export (Westerners sending money into China). When it comes to buying things outside of China or other types of business with non-Chinese companies the paperwork stacks grow higher and higher.
Here comes the benefit of Hong Kong.
Much easier, less paperwork for doing business with any country in the world. Multiple currency. A lot of the similar reasons you have or are considering opening a company in Hong Kong 9999.
Multi Currency Bank Accounts
Mainland China is strict about its local currency, the Chinese Yuan. Any foreign currency that comes in must be converted into local currency and the person or company doing so is recorded at the bank.
I’ve talked to Australians who have headaches dealing with USD to AUD. Same goes for USD to CNY.
By having a Hong Kong company, the Chinese business owner(s) can hold multiple currencies. If they are paid in USD from an American buyer, they can choose to keep these USD in their Hong Kong bank and use reserves they have in China for the production.
A few years ago Hong Kong also started allowing business bank accounts to hold Chinese Yuan (RMB). I even have some in there in my HSBC account. You can then predict and protect your cashflow.
Favorable Tax Rates
No secret that Hong Kong has a favorable corporate tax rate at 16.5%. China is in the range of about 30%. This is always a tricky thing to talk about on a public blog as the world goes global and businesses “go into the cloud” – where do they pay taxes?
But for sure a ton of Mainland Chinese companies are setting up in Hong Kong to take advantage of the tax spread.
Mainland China has noticed this and is making more favorable tax rates for e-commerce and online based businesses. But still Hong Kong is much more favorable. Depending on the scale and complexity of the business, the Chinese business owner may or may not need to have both a HK and a Chinese company.
Do International Business More Easily
Just like you and me, we want to do business with countries from around the world without headaches and red tape. This is the beauty of Hong Kong – its a global hub to do business.
Let’s put this into context. If I have 2 potential business deals to make, and if all is the same, except that one has a Hong Kong HSBC bank account, and the other I need to wire to a Chinese bank account. Which one would I choose? I would choose the company with the HK account.
I just know things will be simpler. I can pay him or her right away, they will receive the funds instantaneously and can go about business. Whereas when I need to wire into Mainland China, sure it’s just a few more steps but I do worry there might be a problem.
What kinds of problems?
I have had issues with the beneficiary name not being correct. Even just the smallest difference in the spelling or order of the name and most Chinese banks will reject the incoming transaction.
I’ve almost burst a blood vessel in my neck from anger when I had to transfer money from my Hong Kong company account to my Chinese company bank account. The name was too long to fit into the HSBC online banking text box, so I shortened Shenzhen to SZ. I had to file a name change with the company directory office to make it work. The money was stuck in limbo for a week or so. I had to wait to pay staff looking like an irresponsible business owner.
I have calmed down lately, but I am still fully aware of the smallest issue in the naming or the banking details can cause massive delays, returned to sender payments, or worse.
Chinese have learned to live with this as a part of life – but once the business owner gets a taste of how it can work in Hong Kong – they are hooked!
Ask Your Factory If They Have a Hong Kong Company
When I first started doing import and export (back in the day!) I would wire money to their Chinese bank accounts from my Chinese company account. Took such a long time as I would get it from USA, to Hong Kong, to my China bank, and then to the factory.
As I got to know the factory owners more, I learned that they also had Hong Kong companies with HSBC.
My life got so much easier, overnight.
And a lot of my friends and blog readers ask me about this, and if it is OK to send money to their HSBC Hong Kong bank.
Well, I would say that it should be in the contract or invoice. And you should make sure that the business owner of the factory is aware of which bank you are paying. I haven’t seen this happen personally, but there is always a risk that a sales representative could put their own bank account details on the order and you pay them. It’s best if the invoice is chopped or signed off from the factory owner.
This is really why it is best you come to China, meet the factory owner, and talk about ways to do business together easier.
Everyone Can Benefit From a Hong Kong Company
Hope today’s post helped you out. Just remember that international business is still fairly new for small to medium sized businesses. It wasn’t even 20 years ago when entrepreneurs had no chance to be able to interact directly with a factory, and setup companies overseas and wire money same day.
In business, I always think about the counterparty. The person I am doing business with matters, and I try to make it as easy and painless as possible for them.
Hong Kong many times helps both sides.