Question

Question 5

Quality Ltd, a US soap manufacturing corporation, plans to export its products (manufactured in the US) to Hong Kong. It plans to establish a subsidiary company (Fresh Ltd) in Hong Kong, which will operate retail shops in Hong Kong. Fresh Ltd will purchase the products from Quality Ltd and sell them to Hong Kong customers. The purchase contracts will be determined and concluded in US.

Required:

Advise Quality Ltd on the Hong Kong profits tax implications of its plan. Consider the tax positions of Quality Ltd and Fresh Ltd independently. For each company, consider:

• Is it carrying on business in Hong Kong?

• Does it earn Hong Kong sourced profits? Disregard re-invoicing and any overseas tax implications.

Answer 1

Answers

An individual or enterprise that desires to build up a business nearness in Hong Kong can do as such in various manners. The three most normal types of business nearness in Hong Kong are:

• a Hong Kong organization

• a Hong Kong part of a non-Hong Kong organization

• a Hong Kong agent office of a non-Hong Kong organization

In situations where an outside organization means to continue considerable business exercises in Hong Kong, the organization should think about different factors before choosing whether to direct the business through a branch or an auxiliary organization. For instance, the expense outcomes (both in Hong Kong and abroad) of utilizing each structure may be altogether unique. There are down to earth contrasts too. The choice for each situation relies upon the specific realities of that case. The Hong Kong Office of Baker and McKenzie will be satisfied to prompt on this issue in every particular case. An agent office, then again, is proper just if the outside organization doesn't plan to go into or perform contracts with clients in Hong Kong, but instead will constrain its Hong Kong tasks to just dispersal and social occasion of data and liaising with clients and potential clients - as it were, the advancement of the enterprise's a business continued somewhere else.

This update sums up the necessities for the foundation and support of a Hong Kong organization, a branch, and a delegate office of a non-Hong Kong organization. For the shirking of uncertainty and except if something else indicated, all references to an organization in this notice alludes to a privately owned business restricted by shares joined in Hong Kong under the Companies Ordinance (Cap 622 of the Laws of Hong Kong)(the "Organizations Ordinance").

The Hong Kong Office of Baker and McKenzie will be satisfied to help with setting up your essence in Hong Kong and give continuous corporate administrations to keep up its great remaining in Hong Kong.

An organization shaped under Hong Kong law might be either restricted by shares or by ensuring or boundless. An organization constrained by offers can be either open or private. The typical type of an auxiliary organization is an organization restricted by shares. This reminder concentrates just on an organization constrained by shares.

On the off chance that an organization is restricted by shares, the obligation of those individuals (the term for "investors") is restricted to the sum, assuming any, unpaid on their offers. Such an organization can be framed rapidly and requires little custom (see "Time required" underneath).
Quickly, an organization requires, in any event, one author part who buys in his name to the articles of the relationship of the organization. The articles of affiliation must be documented with the Recorder of Companies ("Registrar"), who gives a declaration of consolidation confirming the organization's date of the fuse. All organizations consolidated in Hong Kong must acquire a business enlistment testament before it can begin a business (see "Business enrollment" underneath).

Certain limitations are forced on a privately owned business. Its articles of affiliation must contain a limitation on the privilege of individuals to move their offers, limit the number of individuals to fifty (selective of any part who is present or a past representative) and preclude solicitations to people, in general, to buy-in for the offers or debentures of the organization. In any case, a private organization might be changed over to an open organization whenever by expelling these limitations from its articles of affiliation.

An organization's offer capital is spoken to by the aggregate sum of its gave shares. There is no base offer capital required by the Companies Ordinance of an organization. Since the difference in organization law on 3 March 2014, an organization's given offer is no longer required to have a standard worth. Viably an organization has a great deal of adaptability to decide the cost of the offers without fail they are given without restricting itself to the standard worth. The gave share capital of an organization might be named in any cash and the money wherein it is proposed to keep the books of record are not really required to be in the same cash as the gave share capital of the organization. An organization may likewise change the cash of its offer capital whenever by following the legal methodology.

There is no necessity that the gave shares must be completely settled up upon issue; however the member(s) will be at risk to settle up the unpaid equalization in case of a call by the director(s) or in case of indebtedness. The settled up capital speaks to the measure of cash really got by an organization with deference to the member(s). The monies got along with any monies unpaid in regard to the gave share(s) thus speak to the most extreme sum that the member(s) is/are at risk to pay.

Stamp obligation at the pace of 0.1% is commonly payable on any move of offers by every one of the transferor and the transferee, with the sum being determined by reference to the expressed thought or the hidden net estimation of the offers being moved, whichever is higher.

From - representatives' outlook, the charge is constantly viewed as one of the expenses of business exercises. Each business needs to pay a charge for its benefits. Clearly, business elements would like to limit their assessment risk so as to boost their after-charge benefits. Therefore, charge arranging exercises rise with the end goal of decreasing the taxation rate on business exercises.
The idea of duty arranging isn't completely clear for some individuals in Hong Kong. As clarified in Pinion on Revenue Law, "Duty arranging" signifies masterminding a customer's issues in order to diminish his obligation to burden. "Assessment Planning" depicts the strategy of choosing the technique which is a minimal expense in charge. There are two certain suppositions in the abovementioned definition. Right off the bat, it is accepted that the techniques under thought have the equivalent money related ramifications however the just contrast is the one which can diminish this risk. Also, the technique ought not to include tax avoidance, which is illicit. It is essential to express these suppositions expressly in the definition.

In a high assessment locale like Australia, Canada, and The U.S.A., charge arranging is a significant thought in leading business exchanges. The circumstance isn't altogether the same in Hong Kong since it is a low assessment locale and may some of the time be viewed as a semi-duty shelter. During the 1970s, charge arranging exercises are not normal in Hong Kong and as it were a couple of huge enterprises would hold charge counsels to take care of their assessment issues. Be that as it may, charge arranging exercises develop quickly in Hong Kong beginning mid-1980's. This can be reflected by the fast development of the assessment delegate ting division in the Big 6 CPA firms and legal counselor firms just as expanding ubiquity to set up in-house charge division by numerous enormous enterprises in Hong Kong.

Organizations and people in Hong Kong appreciate one of the most duty agreeable frameworks on the planet. Just three direct expenses are forced and there are liberal stipends and findings which can decrease your available sum.

• Benefits charge for the first HK$2 million of the benefits of organizations is 8.25 percent. Benefits over that sum will be dependent upon the assessment pace of 16.5 percent. For unincorporated business (for example associations and sole ownerships), the two-layered duty rates will correspondingly be set at 7.5 percent and 15 percent.
• Pay rates charge topped at 15 percent
• Property assessment of 15 percent

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