For most of our clients, we usually do not only assist them with a one-off assignment, but continuously act as their enduring partner to render them with all sorts of tax and legal supports. See below the following tax case study:
One of our MNC clients is in the business of lighting products, electronic equipment and related materials and components. The client’s headquarter is in the Netherlands with business operations spanning across the US, Mainland China and Hong Kong. We at the HKWJ Group have been supporting this client for a wide range of services including accounting and audit, tax and legal supports, economic substance compliance and all other business-related matters.
We were initially engaged in assisting the client with their investment into a joint venture (“JV”) company in Mainland China. This investment would enable them to establish a presence in Mainland China for product procurement purpose. During the entire process, we guided the client each and every step and also helped them to incorporate a Hong Kong company as the holding entity.
In addition, we supported the client on all related legal and tax implications in Hong Kong and Mainland China and assisted them with preparing the required documentation. Eventually, the JV company was successfully set up and has been up to present for procuring products in Mainland China .
Further Taxation Advisory
For most of our clients, we usually do not only assist them with a one-off assignment, but continuously act as their enduring partner to render them with all sorts of tax and legal supports.
For example, after a few years of operations, the said JV company had accumulated quite substantial amounts of profits that were available for distribution to the investor. In order to apply for the reduced withholding tax rates from 10% to 5% under the double tax treaty between Hong Kong and Mainland China, the client had to obtain a Certificate of Tax Resident Status (“CoR”) from the Hong Kong Inland Revenue Department (“IRD”).
When issuing a CoR application, the IRD requires a company to have sufficient business substance in Hong Kong. Given the fact that an investment holding entity does not require the same level of business substance as that of other types of entities e.g. service or trading company, the task sometimes is seen as rather difficult if not entirely impossible.
That being said, we successfully managed to obtain the CoR for our client’s Hong Kong holding company after going through an uphill battle with the IRD and submitting extensive correspondence and voluminous supporting documents with the IRD in substantiating our claim.
Corporate Structure and Taxation Advise
During another occasion, the client had an investment opportunity in a Chinese entity with initial public offering potential. Due to the complex holding structure and a number of potential investors involved (both foreigners and domestic), the client had concerns and questions on how to best structure their investments (e.g. by way of a limited partnership in Mainland China or not) and the possible implications at each investment stage from acquisition, lock-up period, subsequent holding to future exit.
In that case, we assisted the client to evaluate each of the possible investment options, gave supports on the different legal and tax implications and provided recommendations on how to achieve the most efficient outcome.
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