Which is the best strategy to enter the rich Chinese market? This is the first question that most entrepreneurs going to Hong Kong ask. The answer can be broken down into two key steps. One, you have to start by incorporating a company in Hong Kong. Two, you must demonstrate tax substance.
Hong Kong is considered the top gateway to entering the mainland China. Once the enterprise is properly registered in Hong Kong, it can anticipate getting preferential treatment in China. But it is the ability to demonstrate tax substance that is more crucial. Hong Kong administration works very hard to ensure that enterprises that pay taxes and spur growth can grow faster both locally and in the neighboring markets.
In order to advance the Hong Kong business agenda, the administration works extra hard to assist investors to reach more markets. Tax substance means that the business is meeting all tax obligations and even assisting others to grow. The following are the main methods that a business can apply to demonstrate tax substance in Hong-Kong and get a tax resident certificate.
Hold most meetings in Hong Kong
While you are allowed to hold meetings and even transactions anywhere in order to qualify for 0% tax, enterprises are encouraged to hold most of their operations in Hong Kong.
The main reason for this is that you are likely to spur the growth of other supportive enterprises after entering Hong Kong. For example, if the shareholders are to hold meetings in Hong Kong, some will have to fly, occupy the Hong Kong hotels, and use conference facilities. This is a full chain of economic activities. Note that all the enterprises in the chain of transactions will pay taxes to the IRD.
Run an operational office in Hong Kong
If you maintain an operational office, it implies that a lot of economic activities will take place. You will pay rent, buy office accessories, and pay salaries to staff.
Because all the employees and involved secondary enterprises will also pay taxes, the operations are likely to spur huge economic growth. This means that your tax substance is very high. You can even move a step further by entering into agreements with neighboring enterprises to help them grow.
Meet all your tax obligations
One of the main methods used by Hong Kong administration to gauge your tax substance is assessing tax compliance. Hong Kong wants to know your enterprises pays taxes on time, files the financial report well and assists others to grow. It is important to work with corporate services Hong Kong to ensure that the tax returns are filed appropriately because Hong Kong follows a different accounting model compared to its neighbors.
Demonstrating tax substance in Hong Kong is very important. It could be the stepping stone to going global and becoming a multinational you always anticipated. Whether your enterprise is new or has been in operation, spare no effort in demonstrating tax substance and getting a resident certificate.