When structuring your investment into China you have a choice of using your existing
company or establishing a specific holding company to apply for the China business
registration on your parent's behalf. Over the years, investors have utilized a wide
variety of offshore jurisdictions to structure investments into China, including
British Virgin Islands (BVI), Seychelles, Mauritius, Bahamas, amongst others.
Why use an offshore company?
Here are a few reasons why it may be preferable to use an offshore company:
1. Keeps your China venture risk one-step removed from your parent company.
2. In some applications, the parent company original documentation may be required
to be presented to the Chinese authorities. If this documentation is valuable, it
makes sense to minimise any loss by using separate, holding company documentation
as an alternative.
3. Ease of application. As Holding company corporate documentation must be translated
into Chinese for application purposes, it makes sense to use a jurisdiction whose
documentation exists in bi-lingual format (i.e. Hong Kong) rather than spend money
on expensive translations.
4. Tax benefits. It may be possible to structure an investment whereby profits are
held by an Offshore holding entity, tax free, prior to further repatriation to the
parent company. This may be useful if wishing to utilise such monies for re-investment
elsewhere at a minimal tax exposure.
5. Management and Administration. It can be easier to service your China venture's
financing and administration from a Holding company closer to China's time zones.
Due to Hong Kong sharing the same time zone as mainland China and it's access to
the international banking, the territory is the favored location for establishing
accounts in respect of inward investment into China. While previously a fairly straightforward
process; banks in Hong Kong now impose a lengthy and detailed application procedure
for ALL offshore companies wishing to establish accounts, this is in response to
new Anti-Money Laundering and Anti-Terrorism regulations. However, as Hong Kong companies
are more reputable and transparent, the requirements to establish an account are
We have also experienced (especially in Shanghai) a reluctance by the Chinese licensing
authorities to allow business registrations for BVI and other offshore jurisdictions
for periods in excess of one year, a situation unlikely to ever apply to a Hong Kong
Non-Hong Kong residents can be directors of Hong Kong companies, and can easily establish
accounts for their company in Hong Kong, although it may normally require a personal
visit by the directors to the bank to do so. The most commonly used local banks are
Hong Kong & Shanghai Banking Corporation (HSBC), Standard Chartered and Bank of East
Asia although most international banks will permit accounts to be opened for local
companies. To service your China entity, funds would normally be channeled into China
from this account, which may in turn have been fed by the parent.
Company establishment in China
Foreign investors can set up four kinds of company types in mainland China. Depending
on the purpose of business, investors can decide which company type is suitable.