Doing Business: Setting Up A Foreign Owned Representative Office in HK

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Interview with Mr. Benny Poon of Poon & Partners, Hong Kong

We got the chance to catch up with Benny, an esteemed accountant and business owner in Hong Kong. Over the years Benny has successfully established himself as a key business player in Hong Kong, now he, with the help of the rest of his team help other foreign enterprises set up shop in Hong Kong and Mainland China.

Here he tells the ins and outs of setting up representative offices in Hong Kong, working in China and the benefits and drawbacks of it all. He even offers numerous tips to make the process easier.

Hi, Benny. Thank you for taking the time to chat with us today. We’d like to start off by asking you about your career in accounting. How long have you been working in the field, and at which point did you decide to open up your own accountancy consultant company?

I first began my career in accounting way back in 1982 with a ‘Big-4’ audit firm, Coopers & Lybrand, which is presently known as Price Waterhouse Coopers. This seemed like a natural thing to do at that time as I had just graduated from university with a major in Professional Accounting.

Ten years later, in 1992, I decided to establish my own private professional audit firm. It has certainly grown a lot over the years from just myself working at the beginning to my present team, which consists of 18 full-time employees. At the rate at which Hong Kong and the business are growing, the number of employees is likely to increase in the next few years as well.

Foreign companies have long been attracted to operating out of Hong Kong. How easy is it really and is it still a good idea to use it as the Chinese market’s regional headquarters?

Hong Kong has long been a popular place to do business from for foreign enterprises because there are not any restrictions when setting up a company for foreigners; this is so different to other countries. What’s more, there are no foreign exchange restrictions for any company or individual in Hong Kong.

It continues to be a popular hub to serve China, mainly because of its geographical advantage. But it’s not just China that benefits from it, the whole of the South-East Asian market does.

After 1997 there was talk about it being better to start up a company in China instead of Hong Kong, what’s the current situation?

Hong Kong is still in a good position when it comes to headquartering businesses. After 1997, Hong Kong was in a unique position. It fell under the category of one country, but two legal systems. Today, Hong Kong still has a separate legal system to that of Mainland China; this protects all investments within Hong Kong, which also includes investments from overseas.

How would a company, which wishes to set itself up in Hong Kong, go about doing this and are there any special ‘rules’ that you need to follow?

This is one of the great things about setting up an office in Hong Kong; there are no ‘special’ rules, as you’d say; it doesn’t even matter if the main purpose of establishing your Hong Kong office is to look after the offices in Mainland China.

There’s a mutual benefit for Mainland China and Hong Kong. By setting up representative offices in Hong Kong it’s easier to follow suit and do it in Mainland China as well. Using Hong Kong-based companies as vehicles rather than any direct investment and establishment from overseas is what makes the whole system work.

It’s also much easier and more flexible for a group of companies to have a regional office based in Hong Kong instead of Mainland China when it comes to tackling any kind of restructuring, mergers, acquisitions, and changes of the dispositions of shareholders and investors thereafter.

What are some of the advantages of setting up a regional office in Hong Kong?

Of course there’s the geographical advantage of Hong Kong. It’s easily accessible and it’s also already a well known financial hub, making it the best platform in South-East Asia for fund management, and like I previously mentioned, there aren’t any foreign exchange restrictions in Hong Kong at present. Funds can be also made instantly accessible in Hong Kong thanks to it being easy to freely wire money in and out of Hong Kong immediately.

It also makes sense to set up a regional office in Hong Kong since the Hong Kong Dollar is packed with USD, which helps to minimise the exchange exposure of foreign investments into Hong Kong. Then of course there’s the Profits Tax Rate in Hong Kong, which is considerably lower than Mainland China at only 16.5%.

How long does the whole process of establishing a company in Hong Kong take and is it necessary to have a local Hong Kong person as a business partner?

This is another huge benefit of setting up a business in Hong Kong. It doesn’t take long at all to establish a company. In fact it takes just a few days to do so. If there’s more urgency, there are even a number of ready-established companies available to meet the immediate needs of foreign companies and entrepreneurs.

Unlike other places in the world, having a local Hong Kong person for a local Hong Kong business who acts as a partner or shareholder is not a necessity. This is great news for people who want to remain totally in control of their business – a Hong Kong company can be wholly owned by foreign investors!

Also, Hong Kong business laws state that each company, regardless of whether it’s a local or foreign one, needs only one shareholder and one director, and these two roles can be carried out by the same individual if you wish.

Are there any specific regulations when remitting funds to and from China with a base in Hong Kong?

Hong Kong is a major world money market, and it’s the largest one for RMB, so it’s also possible to keep an RMB currency account in Hong Kong.

To transfer money to and from Mainland China, the Hong Kong company needs to just apply for a wire transfer pre-approval, which will allow for easier movement of RMB between Mainland China and Hong Kong companies, customers and suppliers.

Not only having a Hong Kong based headquarters makes it easy to wire money to and from Mainland China, it’s also easier for the entire South-East Asia.

Do you also assist would-be companies interested in the Chinese market to set up their representative office in China?

Yes, we do. Either our firm or one of our alliances that is already based in Mainland Chinese can help.

We go to great lengths to help and advise any prospective company that wants to establish itself in either Hong Kong or Mainland China. We provide ideas, advice, suggestions, recommended procedures, and possible alternatives for setting up a Mainland China representative office or subsidiary company.

Accounting and anything financial for that matter in China has traditionally been a bit of a grey area with documents, such as invoices being faked and so on; what’s the situation?

Yes, it’s true that there were such cases in the past, however, Mainland China has a number of strict statutory requirements that must be fulfilled before you can even set up your business. There are also a number of things that need to be followed once the business has been established, so foreign investors in China should be aware of such regulations before setting up a representative office in Mainland China. However, such regulations often change fast, so it’s imperative that all investors in representative offices in China keep abreast with the updates.

All the financial books, accounting records and financial statements need to comply with the strict regulations and deadlines in Mainland China.

To reduce and prevent any possible irregularities that could possibly occur, the majority of foreign representative companies in Mainland China have their financial records and books reviewed on a regular basis.

When setting up a business and operating in Mainland China are there any rules of thumb you’d recommend following?

All financial books, records and statements of any representative office of a foreign owned representative office or enterprise in Mainland China should hire an experienced and well-qualified accountant to help them with the documents and the day-to-day financial running of the company.

Where do most of your clients come from?

It’s half and half. Half are from Mainland China and the other half is from abroad from a number of countries near and afar. These countries include the USA, Canada, France, Germany, the UK, Denmark, Russia, the Netherlands, Singapore, Taiwan, Korea, and Japan.

How do you see the future of Hong Kong?

Hong Kong has enjoyed working under two systems for around 50 years now; this works for both Hong Kong and Mainland China. This way of doing business has been successful, and as long as it will continue to be the way of doing things, the outlook for Hong Kong is very positive, especially with the rate of which the domestic market in Mainland China is growing.

Benny K. W. Poon