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Benefits of Hong Kong Holding Companies for making International Investments Speaker: William Kong William Kong & Company

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Presentation on theme: "Benefits of Hong Kong Holding Companies for making International Investments Speaker: William Kong William Kong & Company"— Presentation transcript:

1 Benefits of Hong Kong Holding Companies for making International Investments Speaker: William Kong William Kong & Company 1 William Kong & Company

2 Context Investments in form of capital Return in form of Dividend Plan to exit by selling shares in company 2 Parent Company Subsidiary Dividend Withholding Tax Tax on Foreign Dividend William Kong & Company

3 Glossary With Holding Tax – “WHT” Tax on Foreign dividend Double Taxation Agreement “DTA” Dividend Royalties 3 William Kong & Company

4 Case Study: China and Japan Japanese Company Directly invest into China Chinese – Japanese DTA in place. China company pay dividend to Japanese parent, 10% needs to be with held by China Japan will not tax this under their Foreign Dividend Exclusion System “FDES” Requirement: parent to hold >25% subsidiary for 6 months. Overall: 10% tax in China 4 Japanese Parent Chinese Subsidiary 10% WHT Foreign Dividend Tax 0% Dividend William Kong & Company

5 Hong Kong intermediate holding comapny Japan Parent Hong Kong Intermediate Chinese Subsidiary 5 William Kong & Company

6 China Hong Kong DTA China subsidiary can pay dividend to Hong Kong parent at 5% With holding tax. Hong Kong charges no with holding tax when paid to a Japanese parent. Overall: 5% tax Saves 5% compared with a Japanese Parent going direct to China 6 Japan Parent Hong Kong Intermediate Chinese Subsidiary 5% WHT 0% Dividend Tax 0% WHT 0% Foreign Dividend Tax William Kong & Company

7 Any catch? Hong Kong intermediate needs to carry out some trade to get the lower 5% with holding tax in China Hong Kong Audited accounts and tax return needs to be presented to China. BUT: Trading activities in Hong Kong can all be managed abroad. 7 William Kong & Company

8 China invest into Japan Direct Method: Japanese profits tax at 30%, Japan WHT 10% under Japan - China DTA China normally tax foreign dividend at 25%, but will give tax credit to 37% tax already paid. No Chinese tax. [(1-30%) x (1-10%)] / 100 Overall: 37% 8 Chinese Parent Japanese Subsidiary Profits Tax 30% 10% WHT 25% Tax on dividend – Tax Credit given William Kong & Company

9 In-direct Method In-direct Method (via Hong Kong): Lose tax credit of 37% paid to Japan. China charges 25% tax on net after 37% already paid. Overall: 52.75%!!! 1-(75% x 63%) Not always comparable when country pairs are reverted. 9 Chinese Parent Hong Kong Intermediate Japanese Subsidiary WHT 10% Profits tax 30% 0% Dividend Tax 0% WHT 25% Tax. No tax credit. William Kong & Company

10 Case Study: Europe invest into China The largest economies in Europe largely have DTA with China now Dividend WHT at 10%. Most EU countries charges tax on foreign dividend income But give tax credit to Chinese tax/WHT paid. Direct may be the better way. Except for the United Kingdom 10 William Kong & Company

11 Europe invest into China – continue United Kingdom does not tax foreign dividend So, China pays Hong Kong at 5% WHT and Hong Kong pays UK at 0% WHT In direct method Overall 5% deduction Direct method: China pays UK 10% WHT. 11 William Kong & Company UK Parent Hong Kong Intermediate Chinese Subsidiary

12 Exit route – selling your shares Capital Gain Tax UK 18% - 28% Japan 10% - set to increase to 20% China – around 25% William Kong & Company 12 Japanese Parent Chinese Subsidiary Chinese Capital Gain Tax at 25%

13 Exit route – selling your shares – cont’d How about selling your Hong Kong company shares instead? Hong Kong charges 0% Capital Gain tax William Kong & Company 13 Hong Kong 0% Capital Gain Tax Japan Parent Hong Kong Intermediate Chinese Subsidiary

14 Intellectual Properties - Royalties Model Our Intellectual Property Company “IPC” owns the IP and receive royalties The royalties are taxed at the jurisdiction of the IPC and paid out as dividend Consideration given to both IPC receipt of royalties and the tax rate of the IPC on that royalty 14 William Kong & Company

15 Receipt of Royalties Usually from multiple countries over the world DTAs between countries dictates the rate of WHT Recipient country tax the royalties as profits tax. 15 IPC Profits Tax Payer of Royalties WHT China Payer of Royalties WHT Japan Payer of Royalties WHT UK Payer of Royalties WHT Ireland William Kong & Company Royalties

16 With holding tax of paying Royalties to Hong Kong William Kong & Company 16

17 Profits tax on Hong Kong Royalty income Profits tax 16.5% rate Closest contender is Luxembourg Even lower tax rate on IP at 5.75% However, certain conditions to be meet: 1. IP not transferred from owner to the Company 2. Expenses for the IP must be recorded as asset on the company balance sheet No particular requirements in HK May be taxed when Luxembourg company pays a dividend William Kong & Company 17

18 Selling your Intellectual Property Capital Gain lower at 0% in HK Capital Gain on Luxembourg is 5.75% William Kong & Company 18


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