As those of you who have read my blog over the past 6 or 7 years (I can’t even remember how long I have been writing it) you know that I have always been a big fan of Hong Kong. Ever since 1989 when I sailed into Hong Kong on U.S. Navy ship as a young U.S. Marine Officer I have been enthralled with the city.
While the dramatic beauty of Central and the sky scrapers overlooking Victoria Harbor against a backdrop of lush green mountains, the iconic Star Ferry and other attractions make it my favorite city in the world, it is the business climate and rule of law that make it the best place in the world to do business.
I have written about this in Hong Kong and the Rule of Law and Hong Kong Phooey and numerous other articles on the topic. I also advise my clients from all over the world on using Hong Kong as the only legal corporate structural platform for their entry into China and South East Asia.
Well, we now have another reason to support Hong Kong as a market entry, financial and administrative center for China operations – regardless of the scope of business.
China’s State Administration of Taxation just announced a change in the rules governing the withholding tax that foreign investors pay on dividends repatriated from their share of investments in Chinese companies.
Companies and shareholders based in countries outside Mainland China (such as the United Kingdom, Hong Kong and Singapore) that have double taxation agreements (DTAs) with China will only have to pay 5% in withholding tax on the dividends they receive from Chinese companies, instead of the usual 10% payable by companies and shareholders resident in countries without DTAs (U.S. and many EU companies).
Although the reduced rate has been available for several years Hong Kong holding companies did not meet the ‘substantial business activity’ requirement which has in effect been removed.
So, now there is even more reason to use Hong Kong as the structural platform for you operations in China and beyond.
Posted by Frank Caruso, Chair China Practice Team at IPG.