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Using Offshore Companies For Investing In China

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.

Which jurisdiction?

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 more relaxed.

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 registered company.

Banking

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. More

Joint Venture (JV)

Representative Office (RO)

Wholly Foreign Owned Enterprises (WFOE)

Foreign Invested Partnership Enterprise (FIPE