Hong Kong: The 5 Main Reasons To Consider Hong Kong When Investing In China

Last Updated: 4 November 2015
Article by Keri Wong

As the top recipient of foreign direct investment (FDI) in 2014 (source: UNCTAD), China is unarguably an important destination for investment. Nevertheless, China's regulatory environment and implementation procedures continue to present a challenge for foreign investors.  

It is important not only to consider the different vehicles available when investing in China, e.g. a wholly foreign-owned enterprise, joint venture or representative office, but also the jurisdiction through which a Chinese investment is held.

Hong Kong has always been and continues to be the preferred jurisdiction for structuring both China inbound and outbound investments. Last year, close to 72% of investments into China were through Hong Kong, which far exceeded direct investments into China by any other country. Singapore, China's second largest investor, accounted for less than 5% of China's inbound FDI (source: Investment Promotion Agency of MOFCOM).

Below are five of the main reasons why Hong Kong is favoured over any alternative.

1. Protection for the foreign parent company

The most common and efficient structure for foreign investment into China is a Hong Kong holding company. This holding company can be used as parent to the Chinese foreign investment enterprise as well as to structure other investments into the region.

The private limited company is the most common type of entity to be registered in Hong Kong. It is governed by the Hong Kong Companies Ordinance, has its own independent legal personality and liability is limited to a shareholder's subscribed capital.

As a holding company of the Chinese investment, this structure may offer foreign investors more protection than a direct shareholding in a Chinese company and significantly more protection than creating a joint venture (JV) in China, where ownership is shared with a local Chinese partner. If a JV is used, structuring it at the Hong Kong level may offer greater flexibility and less risk for investors than setting up the JV in China.

2. Legal benefits

Many investors in the region prefer their contracts and disputes to be governed by Hong Kong law and subject to the jurisdiction of the Hong Kong courts.

This is because Hong Kong has a stable, mature and accessible legal system, based on the familiar concept of English Common law and supported by a fully independent judiciary. All laws are in English and proceedings can be held in English on request.

Hong Kong is also a leading centre for international arbitration. Hong Kong's courts are renowned for upholding arbitral decisions, and awards granted under Hong Kong arbitration are consistently recognised in jurisdictions around the world.

Another attractive feature of Hong Kong's legal system is the protection offered to intellectual property (IP). This is more extensive and enforceable in Hong Kong than in China, and many businesses operating in China may wish to register their IP rights through a Hong Kong holding company to ensure infringements are dealt with appropriately.

While Hong Kong has long been a popular jurisdiction for resolving Chinese-foreign disputes, it has not always been easy to enforce Hong Kong court judgments in China. This changed in 2006: although the Hong Kong and China legal systems remain separate, an arrangement between the two jurisdictions now enables the reciprocal enforcement of court judgments. The arrangement applies to final and conclusive financial judgments and to arbitral awards. Consequently, businesses that choose to use the Hong Kong courts may have more confidence that judgments will be upheld in China.

3. Additional flexibility

Transferring or restructuring shareholdings in a Chinese vehicle is a lengthy process that requires compliance with Chinese regulations and cooperation of government authorities as well as extensive documentary approvals. These are not always forthcoming and transactions may be delayed as a result.

Corporate restructuring at the level of a Hong Kong holding company, however, is a straight forward process of registration and filing. Although some reporting may be required in China for the change of shareholding of a Hong Kong holding company, it is easier and more efficient than restructuring a Chinese vehicle directly.

Hence, for businesses that operate in Mainland China or across the region, a Hong Kong company is an effective regional holding platform, streamlining the investment and disposal process of entities in North and South East Asia.

4. Potential tax benefits

When investing in China through a Hong Kong company, certain advantages may be granted by the double tax agreement (DTA) between Hong Kong and China, which is one of the most well-established and familiar tax agreements to Chinese authorities:

a) Dividends: Dividends paid by a Chinese company to a foreign investor are subject to withholding tax at the rate of 10% unless reduced under a DTA. Under the DTA between Hong Kong and China, dividends paid by a Chinese company to a Hong Kong parent are subject to withholding tax at the reduced rate of 5%, provided the DTA conditions are met.

b) Interest and royalties: Interest and royalties received by a Hong Kong parent company from a Chinese subsidiary also benefit from the DTA – the maximum rate of withholding tax on both is reduced to 7%. This compares favourably with direct payment from China to other jurisdictions where the current withholding tax rate is 10%, unless otherwise reduced under a DTA.

It must be noted that to take advantage of the DTA, the Hong Kong company must be able to demonstrate business substance in Hong Kong.

In addition, Hong Kong adopts a territorial system of taxation where a tax exemption may be granted for profits that are not of a Hong Kong source. Profits derived in Hong Kong are only subject to a corporate tax rate of 16.5%. Hong Kong does not charge tax on dividends received by a Hong Kong company or withholding tax on dividends paid to shareholders (local or overseas).

5. Simple, efficient and cost-effective administration

From an administrative perspective, incorporating a company in Hong Kong is quick, easy and cost-effective. It can be completed within 24 hours and requires only one individual director (additional corporate and individual directors may be appointed). Although the company must have a local secretary and a Hong Kong registered office, directors do not need to be resident in Hong Kong.


With the modernisation of foreign investment policies in China and its neighbouring countries in the region, investing directly has become significantly easier in recent years. Nevertheless, many foreign investors still opt to invest via an investment holding vehicle based in a country that offers better protection, familiarity and flexibility as well as accessibility when entering new markets.

In 2014, Hong Kong was the second largest recipient of FDI in the world, while China held the top spot. Hong Kong also ranked second in terms of FDI outflows behind only the United States and ahead of China (source: UNCTAD). These rankings are strong indicators that Hong Kong plays a vital role as a 'super-connector' and a conduit for investment between Asia and the Western world.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions