Aesthetics Of Private Enterprises Outside The Market -- Taxation

Just like the small and medium-sized enterprises all over the world, China's small and medium-sized enterprises are also facing the problem of financing difficulties. Listing the company is an effective way to raise funds. In addition to developing the way to the capital market for the company, and raising the low cost funds to develop future plans, the company can also improve its popularity by listing, win the reputation in the commercial circle, and the shareholders of the company can also benefit from the transfer of shares in the stock market. (wind and bone series are introduced in the 10 issue of the 2014 issue of Finance and Economics): Aesthetics of private enterprises listing overseas.

As an important window for the strategic development of mainland enterprises, Hongkong has always been one of the first choice for mainland enterprises to go out of the market from state-owned enterprises to private enterprises, from financial sectors to other industries. According to the IPO research report released by DDT, a professional institution, Hongkong had a total of 115 IPO in 2014, raising funds to HK $227 billion 900 million, and the number of new shares reached a record high. The number of H-share new listings also hit a new high of nearly 8 years, reaching 19.

With closer economic ties between Hongkong and China, Hongkong is bound to play a more important role in the international development strategy of mainland enterprises. A lot of preparatory work should be done before the listing of enterprises, and the arrangement of taxation is a very important work content, because all the capital markets attach great importance to the tax cost of enterprises. So, what are the tax issues that enterprises have to pay special attention to before they go on the market?

If the mainland enterprises plan to list in Hong Kong, they must make clear all the tax responsibilities of the enterprises before going public, especially deal with the tax problems which have not been corrected in time, otherwise the enterprises will not be able to achieve the "clean" listing. For example, all tax omissions and omissions, local non-standard waivers, unpaid personal income taxes, and the omission and payment of social insurance premiums are all matters that need to be cleaned up before going public. The listed companies should actively communicate with the relevant tax authorities, solve the tax problems left over from history as early as possible, and apply for approval to the tax authorities when appropriate, so as to clarify the handling methods of tax related issues. Some enterprises have delayed the listing process and even abandoned the listing because of some historical tax problems. If there is any tax litigation or dispute with the Inland Revenue Department, it should be publicly disclosed at the time of listing and make reasonable provision in the accounts.

Mainland enterprises are required to restructure their holdings in order to build a multi-storey cross border group to make them more efficient and more attractive to investors.

Companies that apply for listing in Hong Kong must be registered companies in Hongkong. If a company is registered overseas, its legal standards for protecting shareholders are at least equivalent to those stipulated in the company law of the Hongkong. The Listing Rules of the Hongkong stock exchange explicitly allow overseas companies to register, including Bermuda, Cayman Islands, the British Virgin Islands (BVI), Cyprus, Jersey, Luxemburg and China. Many of the listed companies are registered in these overseas areas, mainly because they are consistent with the requirements of the registration places and are not so careful and strict as the Hongkong company act. They can avoid additional administrative costs in order to comply with the regulations.

In the process of restructuring, it will inevitably involve the transfer of equity or assets, thus deriving some tax issues, such as whether the arrangement of listed holding structures is more efficient in tax matters, and whether the restructuring structure is more attractive to investors in taxation.

If the taxable profit is generated when the assets are transferred at market value, it is the problem of paying taxes in disguise in advance. For enterprises, because of the restructuring of the market to make the tax time point move forward, it may cause great capital flow pressure to enterprises, so enterprises should be cautious in handling this problem.

In addition to the two tier shareholding structure shown in Figure 1, mainland enterprises wishing to apply for listing in Hong Kong also like to insert a Hongkong company as an investment tool, holding the equity of domestic branches to form a three tier shareholding structure (see Figure two). What are the advantages of such a structural model? According to the mainland and Hongkong Special Administrative Region arrangements for the avoidance of double taxation and prevention of tax evasion in Hongkong and the mainland of China in August 21, 2006, Hongkong companies can enjoy the following tax benefits by collecting dividends, interest and concessions from mainland enterprises, so as to make use of fees and investment income.

1. the withholding tax is payable by the Hongkong company to collect dividends from domestic companies. If Hongkong companies directly own the capital of at least 25% of the mainland enterprises, the withholding tax rate can be as low as 5% of the total dividends.

Ii. Hongkong company will pay withholding tax to collect interest from domestic companies, and the tax rate can be reduced to 7% of the total interest.

III. Hongkong company has to pay a withholding tax for the royalties of domestic companies. The tax rate can be reduced to 7% of the total royalties.

IV. if the Hongkong company transfers its share of the shares held by the domestic company, and the value of the real property held by the mainland enterprise is not less than 50% of the total assets value of the enterprise within 3 years before the transfer, the relevant proceeds are in Hongkong. Exemption from taxation It is only necessary to pay taxes according to inland laws and regulations.

In addition, the government of the Hongkong Special Administrative Region has signed a comprehensive avoidance of double taxation agreement with more than 50 regions or countries to reduce the chance of double taxation for residents of Hongkong and another contracting party. It helps overseas investors to more accurately assess the tax burden arising from their economic activities and provide additional incentives to attract them to invest in Hong Kong.

In addition, some companies choose to add a layer of British Virgin Islands (BVI) Company in the middle level of Hongkong company, which means that if a company chooses to reorganize a few years after listing, it can save a large amount of stamp duty transferred by the company. At the shareholder level, the stamp duty on share transfer can also be saved through the shareholding of BVI company, and at the same time, the privacy of shareholder status can be maintained.

Enterprises may also need to conduct business restructuring before listing, by splitting or merging businesses. When profits are arranged in different branches, the tax issues that may be covered include whether the restructured business model brings new ones. Tax cost Whether the transfer pricing of related party transactions is more prominent, and whether the personal tax problems of senior management and employees are handled accurately or not?

It should be noted that when carrying out these arrangements, enterprises must comply with the principle of fair trade and withstand the examination of tax authorities. For example, enterprises engaged in the production and sale of certain high-tech electronic products may, in order to reduce the cost of Taxation, separate the design, wholesale and retail businesses into separate independent businesses, so as to turn profits into subsidiaries with lower tax rates.

Besides, these mainland enterprises should not only pay attention to domestic tax laws, but also care about international tax laws and regulations. The management of cross border non operating enterprises is becoming more and more stringent in China. The method of indirect cross border multi-layer structure to avoid the company's income tax is actually restricted by the tax authorities. In the past one or two years, many cases have been accumulated.

As an international financial centre, Hongkong plays a very important role in helping domestic enterprises to solve the financing problem. On the one hand, mainland enterprises can raise the need for development through the capital market of Hongkong. capital At the same time, it can introduce international investors and strategic partners by listing the company so as to internationalize its business.

Before listing, a mainland company should choose a senior tax agency to carry out the overall tax health check on the enterprise and clean up the previous tax risks. Then, enterprises and lawyers, certified public accountants, registered tax agents and other intermediary agencies to conduct in-depth exchange of tax issues related to listing, planning the most effective enterprise structure and business processes, so that enterprises can legally reduce their tax costs, thereby achieving the highest profit. Only after these relatively scientific arrangements have been made, can enterprises not cause difficulties and difficulties due to tax problems.

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