All articles

Mainland China VS Hong Kong: what is the better option for your business?

The most frequent question from our clients who want to enter the Asian market is: “Shall I choose mainland China or Hong Kong to develop my business in Southeast Asia?”

The answer is simple: it all depends on the needs and infrastructure of your business.

Benefits of business registration in Hong Kong

Everyone knows Hong Kong as an international financial centre, banking system in Hong Kong is the heir to the British banking system. Let's delve a little deeper into history: Hong Kong received the status of a special administrative region of the People's Republic of China in 1997 – and for the next 50 years there has been a so-called "transition" period.

This means that there is freedom of enterprise in Hong Kong and it is easy for a foreign investor to set up company in Hong Kong. It takes from 1 to 7 working days to incorporate business in Hong Kong. A founder of any nationality can register a company in Hong Kong. Hong Kong has its own financial and tax system, which really attracts foreign investors: 0% VAT, 0% dividend tax, income tax from 8.25 to 16.5%. Hong Kong continues to use the Hong Kong dollar, a freely convertible currency whose exchange rate is pegged to the US dollar. Registering a company in Hong Kong is done remotely with the help of a local secretary.

From 1995-2019, Hong Kong's economy was recognised as the most open in the world. In addition, 93.4% of Hong Kong economy lies in the service sector including international trade, tourism, finance, logistics and consulting services.

How to open a bank account in Hong Kong?

In addition, Hong Kong has its own stock exchange (the stock market capitalisation is around US$3.5 trillion). Doing business in Hong Kong is favourable for those companies who plan to scale in Southeast Asia. In addition, having a Hong Kong company gives the opportunity to open a Hong Kong account to cooperate with the US, Europe, Southeast Asian countries and other countries around the world. A foreigner can open a multi-currency bank account in Hong Kong in any Hong Kong banks: Standard Chartered Bank, BOC, HSBC, Dah Sing Bank, China CITIC Bank, China Construction Bank, Hang Seng, OCBC, Industrial and Commercial Bank of China and so on. The time of opening bank account in Hong Kong is up to 6-8 weeks. You need to go through a personal interview to open a bank account in Hong Kong.

How to establish the company in China?

China is one of the most attractive markets for foreign investors. It is possible to start a business in China with 100% foreign investment – and this is an important difference from many jurisdictions in the world.

The most common type of company is a WFOE, which is a company with 100% foreign capital. WFOE amounts to 60% of companies with foreign investments in the Chinese market. Setting up such a company in China has an advantage over other types as WFOEs have the right to conduct business activities, not just to do consultancy/representation services.

Corporate tax for WFOEs is 25%, VAT is 13% (it can be reduced to 6-9% if certain conditions are met). Company registration in China takes from 15 working days to 2-3 months depending on the nature of business.

In addition, in order to conduct foreign trade activities it is necessary to obtain an export-import license.

To develop your business, it is also necessary to open a bank account in China. Opening a Chinese bank account takes up to 2-2.5 months, and is done only in person.

How do I choose between mainland China and Hong Kong?

First of all, you shall determine the nature of your business. If it is the service sector, we advise you to look at Hong Kong. If it is mostly trade and purchases from China, it is definitely worth opening a company in China.

Also, you shall take into consideration what your partners are. Hong Kong currently does not carry out transactions to/from Russia, so to work with Russian companies it is worth opening the account at the Chinese bank. Also, if you are planning to do business with mainland China, you’d better not open an account in Hong Kong as you might have problems when doing transactions from Hong Kong to China.

If you want to save your time come to TURK ADVISER for a consultation: we will be happy to offer you the most optimal solution for the development of your business!