It was always the case that using a Hong Kong company as the investment vehicle was the easiest way to open Shenzhen QianHai companies, but there are some rule changes about this route. So is it still the most convenient way?
Why Choose Shenzhen QianHai?
There are so many reasons today to open a QianHai WFOE, such as the zone's generous tax breaks, that everyone should consider it unless it's imperative that your company be based outside of Guangdong province.
Here are some key benefits:
- Corporate income tax rate of just 15%, compared to 25% in China
- Individual income tax lowered to 15%
- Ability to apply for RMB loans from Hong Kong banks who offer lower interest rates
- Preferential rental rates for entrepreneurs (often free for a period)
- VAT reduced by between 7 to 30% compared to China
- Tax exemption for companies in preferred industries (such as high-tech, and green tech)
Take a look at the QianHai zone's features in more detail in this QianHai infographic.
Why Is It Easier To Open A QianHai WFOE With A Hong Kong Company?
In general when opening a Chinese company, such as a WFOE, we advise that it's helpful to use a pre-existing Hong Kong company as its investment vehicle.
This is because:
- Hong Kong company registry is faster and more straightforward than that of China
- The CEPA agreement offers preferential benefits to Hong Kong and Macau companies incorporating in Mainland China, such as tariff free imports into China for their companies there
It's also easier to move money into and out of Hong Kong from the Mainland instead of repatriating profits from a China WFOE which is a tortuous process (although be aware that opening Hong Kong business bank accounts is more difficult today than it used to be).
Our advice to those looking to set up a Shenzhen QianHai company would therefore be to open a Hong Kong company first, and then use it as the investing parent company for the QianHai business.
What Has Changed?
Opening a Hong Kong company takes a matter of weeks, and so as part of the 'process' to open up in QianHai it makes a lot of sense.
However, it's no longer permitted to open a Hong Kong company and then immediately use it as an investment vehicle for your QianHai WFOE.
Now any Hong Kong company used in this way must have been incorporated for at least 3 months prior to being used to open a QianHai company.
Is this change huge? No, however it does show that the authorities are less keen on new Hong Kong companies being used to open QianHai companies straight away. They want to see that the HK entity has been running for a while first.
What you should do...
If your plan is to open an HK company in order to take full advantage of the QianHai benefits that are available, plan in advance to get your HK company opened (if you don't already have one) and then be ready to take action after 3 months has passed.
Have you opened a QianHai company by using your HongKong company to do so? How did that go?
Are you planning on using this route soon? Does this new rule change give you any issues?
Please ask us any questions you have about this by leaving a comment and we'll gladly help!