The Facts Base for International Trade The Importer The Manufacturer
Despite being only 1104 square kilometers in size, Hong Kong is one of the world's major financial centers, is consistently ranked as one of the busiest ports on the globe, and, in the Index of Economic Freedom Survey issued by the Heritage Foundation, it was cited as the world's freest economy – for the fourteenth successive year!
Hong Kong has long been considered the "Gateway To China" and it has worn this badge proudly. Not surprisingly, it is one of the largest investors into China, and the most commonly used location for foreign companies to base their international trading operations – whether it be sourcing products from China to sell into overseas markets, creating joint ventures with local Hong Kong or Chinese companies, or setting up Wholly Foreign Owned Enterprises in China to sell products and services locally – in one of the world's largest and fastest growing economies.
Now a special administrative region of China, Hong Kong has a very deep rooted competitive business doctrine demanding low taxation. The current rate of corporate income tax is just 16.5% and this is only applied on a territorial basis thus earnings outside Hong Kong are not taxed and there is no imposition of capital gains taxation.
Hong Kong is now firmly a service-based economy, which accounts for over 90% of it's GDP. Its economy is open, has a strong and sophisticated banking system, mature and stable legal system, is market driven and designed as a base for foreign business to launch their international operations.
The Hong Kong Limited Company has become a popular vehicle within the field of international trade, with currently over 950,500 Hong Kong companies registered in the city.
The basic concept central to most trading structures set up by foreign companies using a Hong Kong trading entity is that of outsourcing their back office functions, while retaining full control of their international trading business. This can best be explained by example, as shown below.
Many importers from North American, European, and Pacific Rim countries have been buying products from China, India, and many other Asian countries over several years, to sell to their home markets – typically to large retail chains, or through their own stores.
As their businesses grow and develop, most of these importers look for an effective way to manage this process while giving them an international presence, often enable their larger customers to buy FOB from an Asian port, and expand their sales into new markets around the globe. These importers typically set up a structure like the one illustrated below.
The importer now has a truly international business with a local presence in Hong Kong, they retain control of their expanding business and its costs (with the trade services outsourced to OCRA), and the profits are retained in their Hong Kong company – usually tax free under Hong Kong's territorial tax system.
With this structure set up and maintained by OCRA, importers get a Hong Kong virtual office (prestigious office address in Central with mail forwarding, telephone, fax and email), full trade services (including PO's, LC processing, banking, shipping documentation, liaison with freight forwarders), preparation of management accounts and audited profits tax returns, preparation of contracts, employment related matters and trade financing. OCRA can also assist by setting up Representative Offices in China so that the importer can have their own staff on the ground to work with their suppliers typically on quality control and shipments.
In recent years, foreign trading companies have been increasingly establishing their own manufacturing facilities in China and other Asian countries, to ensure that they have full control of their supply chain and enable them to sell into local Asian markets (particularly China).
In China, many manufacturing plants set up by foreign companies have been established through Joint Venture arrangements, or direct investment (through the establishment of a Wholly Foreign Owned Enterprise or WFOE) usually in conjunction with a local advisor. While the opportunity for such trading companies can be substantial, the associated benefits are also significant.
The process outlined for the importer in the first example above, becomes the building block for the manufacturer. In addition, OCRA's consolidated approach through its Hong Kong and China offices, enables the manufacturer to set up the right structure the right way - effectively identifying and controlling many of the risks from the outset.
The manufacturer may have a structure similar to this:
As was the case with the importer, OCRA can set up and maintain this structure for the manufacturer. The manufacturer gets a Hong Kong company, a WFOE in China, Hong Kong virtual office (prestigious office address in Central with mail forwarding, telephone, fax and email), full trade services (including PO's, LC processing, banking, shipping documentation, liaison with freight forwarders), preparation of management accounts and audited profits tax returns, preparation of contracts, employment related matters and trade financing. OCRA can also assist other back office functions relating to quality control and shipments.
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A bespoke 'offshore' solution can be complex and requires careful planning and execution. We therefore encourage our clients to contact us directly, without obligation.
While all of our consultants in our offices provide a Free Initial Consultation, the office and consultant listed below has particular expertise in this area and will gladly assist with advice on how to approach your unique challenge.
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