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Making the Best Tax Decisions for Your China Business Ventures

Making the Best Tax Decisions for Your China Business Ventures. March 2004. Presented by Ayesha Macpherson Tax Partner, KPMG Hong Kong. Comparison of Corporate Tax rates between Hong Kong & other ASPAC countries. 17.5%.

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Making the Best Tax Decisions for Your China Business Ventures

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  1. Making the Best Tax Decisions for Your China Business Ventures March 2004 Presented by Ayesha Macpherson Tax Partner, KPMG Hong Kong

  2. Comparison of Corporate Tax rates between Hong Kong & other ASPAC countries 17.5%

  3. Comparison of Individual Tax rates between Hong Kong & other ASPAC countries 16%

  4. Other Tax Advantages of Hong Kong • No capital gains tax • Dividend income not taxable • Territorial concept of taxation (i.e. exempt offshore profits) • Tax exemption for interest income from deposits placed with Hong Kong financial institutions • Generous capital allowances (100% deduction on computers & manufacturing equipment) • No withholding tax on dividends / management fees / interest (low effective withholding tax rate of 5.25%on royalties) • No import/export duties (only excise duty onhydrocarbon oils, liquor, tobacco, cigarettes& methyl alcohol) • Low capital duty of 0.1% (max: HK$30,000) • Low stamp duty of 0.2% on share transfers • No GST/VAT

  5. Hong Kong as Investment Holding Vehicle Foreign Parent Foreign Parent No Withholding Tax on dividends No PRC Withholding Tax on disposal No Withholding Tax on dividends 10% PRC Withholding Tax on disposal No tax on dividends HK Co No Withholding Tax on dividends PRC Co PRC Co

  6. Contract Processing Arrangementbetween Hong Kong & PRC entities PRC Hong Kong Processing fees, Technical know-how & management skills, Plant & machinery Raw materials HK Manufacturer Shenzhen Co Finished goods No PRC Tax on Profits(no permanent establishment in PRC) HK Tax on 50% of Profits(effective tax rate: 8.75%) Land, Factory premises,Labor

  7. Tax Advantages of Shenzhen (Special Economic Zone) Foreign investment enterprises (“FIE”): • Corporate tax rate reduced from 33% to 15% • Service provider~ Yr 1: Tax exempt~ Yr 2 to 3: 50% reduction of tax rate (7.5%) • Production-oriented~ Yr 1 to 2: Tax exempt~ Yr 3 to 5: 50% reduction of tax rate (7.5%) • Export-oriented / Technologically advanced~ Yr 6 & beyond: Tax at 10% • Reinvestment of profits~ 40% tax refund~ 100% tax refund for export-oriented or technologically advanced enterprises

  8. Trading Co in Hong Kong,Manufacturing Co in Shenzhen Foreign Parent Profits Corporate Tax Rates HK Co(Trading) HK$20 17.5% 15% but Yr 1 & 2 full exemption,Yr 3 to 5 @ 7.5%, & Yr 6 onwards @ 10% HK$80_______HK$100_______ Shenzhen Co(Manufacturing)

  9. Trading Co in Hong Kong,Manufacturing Co in Shenzhen

  10. kpmg

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