Over the past few months I have written many posts that have analyzed economic indicators around the world. In each case, Asia continues to look like the bright spot in a very shaky global economy. This will be the first part in a series for giving an overview of the financing needed and options for starting a new business in the main Asian hub cities starting today with the first part of Shanghai. Other cities to be covered over the coming weeks will be Hong Kong, Taipei, Bangkok, Singapore, and Tokyo.

Shanghai is the financial heart of Mainland China and currently ranks 5th as a Global Financial Center. Choosing how you setup your business in Shanghai is an important strategy that needs to be considered for the long term, including the possibility of your business failing. There are 5 types of business entities to choose from. Today, I will cover the first 2 (Representative Office & Hong Kong LLC) :

1. Representative Office:

This option is used only for non-profit making businesses, organizations, or offices. It is illegal to issue invoices or collect money for your services [under this business entity]. A Representative Office can only be involved in non-operational activities, which are activities that do not produce profits or income. These include public relations activities that relate to the company’s products or services, market research, and domestic procurement and investing.

China requires that a company has been established at least 2 years prior to opening a Representative Office in China. Setup costs are relatively low, but you must purchase top end office space and costs to close your business are high.

2. Hong Kong LLC:

For profit making businesses, forming a Hong Kong LLC is one avenue of choice that features lower taxes and easier regulations. Hong Kong operates under the “one country, two systems” rule, and will continue to do so until at least 2047. As a result, establishing headquarters in Hong Kong will mean that your company will be under the rules and regulations of British law. Taxes there are very straight forward, just 16.5% of profit. Shanghai has a multi-tiered tax system that varies for types of business and location that ranges from 15-33% with exemptions and sweeteners.

You can also transfer as much capital as you want in and out of Hong Kong since there are no foreign currency controls. In the long-term, a Hong Kong-registered company can make restructuring pretty painless compared to one registered on the mainland. Time involved for restructuring could be only a week in Hong Kong versus up to two months on the mainland. Startup costs are relatively cheap. The costs involved for new business incorporation is no more than 5500 RMB or about $850 USD.

These two options are very straight forward. The other three are more detailed and complicated. I will cover each of the three in separate postings. Check back in 2 weeks for an overview of setting up a Foreign Investing Partnership Enterprise in Shanghai!!


By: Matt Flax - Senior Business Advisor at DragonGate.Asia