Our valued sponsor

Question Looking for structure ideas please

AtMo

New member
Mar 14, 2022
43
6
8
26
europe
Visit site
I'm planning to form a company for my software business under a e-commerce website, The website is EU-based, and customers will be from all over the world. My colleagues will be working in China, and I am currently in China as well. In two years, I plan to move to the USA or Canada. My primary goal is to establish a company structure and transfer pricing arrangements that minimize the tax burden, both for corporate taxes and individual tax.

Key points I would like to seek help on:

  1. In which country should the company be formed to achieve the lowest possible tax burden?
  2. How should the company be structured, including holding company and subsidiaries, to minimize taxes while maintaining compliance with relevant tax laws and regulations?
  3. How can transfer pricing arrangements be implemented to allocate income and expenses effectively, minimizing the overall tax burden while adhering to the arm's length principle and complying with tax regulations in each jurisdiction?
Any advise would be appreciated.
 
Given that you're based in China but have international clientele and plan to leave China: Hong Kong might be a good place to start.

In which country should the company be formed to achieve the lowest possible tax burden?
How should the company be structured, including holding company and subsidiaries, to minimize taxes while maintaining compliance with relevant tax laws and regulations?
Doesn't really matter. Your business is tax resident or has a PE in China for the next two years and has to pay Chinese tax.

Unless you think committing tax evasion as a foreigner in China seems like a good idea.

An 'establishment or place' is defined in the CIT regulations as an establishment or place in China engaging in production and business operations, including the following:
  • Management organisations, business organisations, and representative offices.
  • Factories, farms, and places where natural resources are exploited.
  • Places where labour services are provided.
  • Places where contractor projects, such as construction, installation, assembly, repair, and exploration are undertaken.
  • Other establishments or places where production and business activities are undertaken.
  • Business agents who regularly sign contracts, store and deliver goods, etc. on behalf of the non-TRE.
Under those conditions (China, People's Republic of - Corporate - Corporate residence), you are very clearly going to be taxed in China on all your work.

If you relocate yourself to Hong Kong, set up an office there, and hire the workers in China as subcontractors, you have more room to optimize where what gets taxed. Hong Kong is moving away from being a zero-tax jurisdiction, becoming more and more likely to determine that your income is HK sourced. The tax burden is a lot lighter than in China, though.

But you could replace Hong Kong with other locations, so long as you actually set up a bona fide presence and economic substance there.

How can transfer pricing arrangements be implemented to allocate income and expenses effectively, minimizing the overall tax burden while adhering to the arm's length principle and complying with tax regulations in each jurisdiction?
This ultimately depends on the applicable transfer pricing regulations and would need to be checked with a tax adviser who knows the relevant regulations. If we take the example above where you are in HK and the workers are in China, you can probably book the RND costs on the HK company to reduce its tax burden.
 
Thank you, should I be resident in the low-tax jurisdiction for at least 183 days per year to do it?
You said you will have Chinese people working for you in China, so you establishment and operations will be in China, which is where you should register a wfoe or branch.

China is not an easy country to get capital moving out so you might limit the inflow.

You can use a Hong Kong company for billing and receive income but if there will be no staff, office etc in Hong Kong and if you will be the UBO / director in Hong Kong, China will consider the Hong Kong income as taxable in China.


To mitigate that risk and avoid transfer pricing it's best to use nominees in Hong Kong or just have in China a local start a business and bill the Hong Kong company for services.
 

Latest Threads