My company needs to open a branch in China, but I'm not sure if we should open the company in mainland China or Hong Kong.
This is the most common question that companies have when looking for us. However, there is no standard answer to tell you where to start a business. For this, we must take into account some characteristics of the operation, why your company needs a branch in China, what is the availability of investment in terms of capital and time, among other particularities.
We list below some of the most common reasons that companies have to establish a company in China and what would be the recommended option, from our point of view.
Operation model
• Wharehouse Our suppliers are in China. My company needs to have a warehouse in China so we can buy in bulk, stock products, change packaging and then sell to multiple customers.
In this case, your company would probably choose to establish the branch and warehouse in mainland China, not Hong Kong, since in Hong Kong the cost of maintaining a warehouse would be much higher than in China, due to the limited space in the city..
• Consolidation of shipments My company buys from several suppliers in China, in small quantities from each supplier, and we would like to consolidate everything into a single shipment to ship to the customer. In this case, your company will likely choose to establish the company in mainland China, so that they can consolidate all the goods into a single shipment, without relying on assistance from other companies for consolidation, acting independently.
• Shipment from supplier directly to my client My company places an order with the supplier in China and imports the products to Brazil. Once the product is nationalized, we resell the same order to our customer. Our customers are located in Brazil and in several countries. In this scenario, it makes a lot of sense for your company to open a company in Hong Kong, to make the purchase from the supplier in China and send the product directly to your customer. However, your product cannot undergo any change or consolidation after purchasing from the supplier, as your company would ship the goods directly from the supplier to the customer, only purchasing and selling through Hong Kong.
• Purchase from several suppliers in Asia My company buys from multiple suppliers in Asia, in small quantities from each supplier, and we would like to consolidate everything into a single shipment to ship to the customer. Our products have a high added value. In this case, it will be different from the scenario where your company buys only from suppliers in China. Your company will likely choose to establish the company and warehouse in Hong Kong, so that they can consolidate all the goods into a single shipment and ship to the customer. This is because in Hong Kong it would be much less bureaucratic and easier for your company to import products from Asia and export to customers, free of import tax (in most cases). Of course, the cost will be higher for the maintenance of the warehouse in Hong Kong, but if your product does not require a very large area for storage and the value of your goods gives you a margin that allows for the cost of the warehouse in Hong Kong, this might be the best option.
• Sales office in Asia My company wants to establish a sales office in China, to develop the Asian market.
If your focus is Asia in general, not just mainland China, your company will likely choose to establish the office in Hong Kong. That's because Hong Kong is one of Asia's main business centers, a dynamic and convenient city in many ways. In Hong Kong, it's easier for your foreign employees to adapt to the city, getting around is infinitely easier compared to mainland China, and your staff will be within a 4-hour flight distance of key Asian markets. That is, it becomes easier to maintain your team and cover other neighboring markets.
Other factors In addition to the scope of the business, you should also consider some important facts when comparing a company in mainland China and a company in Hong Kong. For example:
• Setup time A company in mainland China will take longer for its setup process, until it is ready to operate. In some cases, it can take up to 8 months to start operations. In Hong Kong, considering the time of opening the company and bank account, on average the term is 2 to 3 months.
• Maintenance cost The cost of maintaining a company in China is higher than the cost of maintaining a company in Hong Kong, not in terms of salaries, rent and other personnel expenses, but in terms of supporting accounting, auditing and other administrative expenses..
• Corporate income tax Taxation applicable in Hong Kong is different from taxation applicable in mainland China. Generally speaking, companies in Hong Kong are normally subject to an income tax of up to 16.5% on net income, and exemption may be requested in some cases. In China, depending on the company model, income tax is up to 25% on net income.
In addition to taxes, social charges on employees and local taxes should also be considered. Depending on the activity and location, tax benefits may be granted.
Support from Brasia If the expansion of your company's operations in Asia is part of your company's growth plan, it is extremely important that you analyze the differentials of each location, before starting the process of installing the company. Our team can help your company in this analysis, providing a specific study according to the operating model your company is looking for. After defining where to incorporate the company and clarifying the prerequisites to operate, Brasia can assist in the process of incorporating the company, obtaining licenses and, later, all necessary support for local maintenance.
Get in touch with us at info@brasia.hk to discuss the first steps of your company's project.
Thank you for reading and good business to all.
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