China OR Hong Kong: Where You Should Start Your Business?

Are you considering opening a branch of your company in China but uncertain whether to establish your business in China or Hong Kong? This is a common question posed by businesses seeking our guidance. However, there is no one-size-fits-all answer regarding the ideal location for a new venture.

To make an informed decision, it is essential to consider several factors, including the specific operational requirements of your business, the rationale behind expanding into China, and the availability of investment in terms of both capital and time, among other considerations.

Below, we outline some of the most prevalent reasons companies choose to establish a presence in China, along with our recommendations based on these factors.

Operation model

• Establishing a Sales Office in Asia

If your company intends to establish a sales office in China to expand into the Asian market, it is essential to consider the broader regional context. If your focus encompasses Asia as a whole rather than solely mainland China, establishing the office in Hong Kong may be the more advantageous option.

Hong Kong is recognized as one of Asia's primary business centers, offering a dynamic and convenient environment for operations. The city provides a more accessible transition for foreign employees, with a transportation system that is significantly easier to navigate compared to mainland China. Additionally, Hong Kong's strategic location places your staff within a four-hour flight of key Asian markets, facilitating effective team management and the ability to engage with neighboring regions.

• Direct Shipment from Supplier to Client

  Consider a scenario in which your company places an order with a supplier in China and imports the products — for example, into Brazil. Once the products are nationalized, you then resell them to your customers, who are located in Brazil and various other countries. In this context, it would be highly advantageous for your company to establish a presence in Hong Kong. This would facilitate purchasing from the supplier in China and enable direct shipment of the products to your customers.

  However, it is important to note that the products cannot undergo any modifications or consolidation after being purchased from the supplier. Your company would be responsible solely for the purchasing and selling processes through Hong Kong, ensuring that the goods are shipped directly from the supplier to the customer.

• Purchasing from Multiple Suppliers in Asia

  Imagine your company sources products from multiple suppliers across Asia, acquiring small quantities from each. You wish to consolidate these items into a single shipment for delivery to your customers, particularly when the products possess high added value. In this scenario, the approach differs from that of sourcing solely from suppliers in China.

  Your company would likely benefit from establishing a presence and a warehouse in Hong Kong. This strategic choice enables you to consolidate all goods into a single shipment for customer delivery. The advantages of operating in Hong Kong include a more streamlined bureaucratic process, making it easier to import products from Asia and export them to customers, often without incurring import taxes.

  While maintaining a warehouse in Hong Kong may entail higher costs, if your products do not require extensive storage space and the value of your goods provides sufficient margin to accommodate these expenses, this option may prove to be the most advantageous for your business.

  
  

• Consolidation of Shipments

  Suppose your company sources products from multiple suppliers in China, purchasing small quantities from each. If your objective is to consolidate these items into a single shipment for delivery to your customers, establishing your company in mainland China may be the most effective approach. This strategic decision allows you to independently consolidate all goods into one shipment, without relying on third-party assistance for the consolidation process.

• Warehouse Considerations

  If your suppliers are located in China and your company requires a warehouse to purchase in bulk, store products, modify packaging, and subsequently sell to multiple customers, it would be prudent to establish both a branch and a warehouse in mainland China rather than in Hong Kong. This is primarily due to the significantly higher costs associated with maintaining a warehouse in Hong Kong, where space is limited.

Other factors

• Maintenance Costs

  The cost of maintaining a company in mainland China is generally higher than that of a company in Hong Kong. This difference is not primarily due to salaries, rent, or other personnel-related expenses, but rather stems from the increased costs associated with supporting accounting, auditing, and other administrative functions.

• Setup Time

  Establishing a company in mainland China typically requires a longer setup process before it is ready to commence operations. In some instances, this process can take up to eight months. In contrast, the setup time in Hong Kong, which includes the establishment of the company and the opening of a bank account, averages between two to three months.

• Corporate Income Tax

  The taxation framework in Hong Kong differs significantly from that in mainland China. Generally, companies operating in Hong Kong are subject to a corporate income tax rate of up to 16.5% on net income, with the possibility of requesting exemptions in certain cases. In mainland China, the income tax rate can reach up to 25% on net income, depending on the specific company model.

In addition to taxes, it is important to consider social charges on employees and local taxes. Depending on the nature of the business activity and its location, various tax incentives may be available.

Support from Brasia

If the expansion of your company's operations in Asia is integral to your growth strategy, it is crucial to analyse the unique characteristics of each location before initiating the establishment process. Our team is equipped to assist your company in this analysis by providing a tailored study based on your desired operating model. Once the optimal location for incorporation is determined and the prerequisites for operation are clarified, Brasia can support you throughout the incorporation process, including obtaining necessary licenses and offering ongoing assistance for local maintenance.

For further discussion regarding the initial steps of your company's project, please contact us at info@brasia.hk.

Thank you for reading, and we wish you all successful business endeavours.