Many overseas investors set up their Mainland China operation as a wholly foreign-owned enterprise (WFOE) held by a Hong Kong company. Since the Foreign Investment Law took effect on 1 January 2020, these are formally called foreign-invested enterprises and are governed by the Mainland's Company Law, but "WFOE" is still widely used. The Hong Kong company sits at the top; the WFOE operates, hires and invoices on the Mainland.
Check first that your activity is permitted for foreign investment under the current Negative List. Under the revised Company Law in force from 1 July 2024, shareholders of a limited liability company generally must pay subscribed registered capital in full within five years of incorporation, so set capital at a realistic level.
Why hold through Hong Kong
- The Mainland–Hong Kong double taxation arrangement can reduce withholding tax on dividends from the standard 10% to 5% for a qualifying Hong Kong company holding at least 25%, subject to beneficial ownership and substance tests.
- Ownership changes, investment and exit can take place at the Hong Kong level under Hong Kong law.
- International banking and free movement of funds at the holding level.
- One regional management company can hold several Mainland and Asian subsidiaries.
The set-up process
| Stage | What happens |
|---|---|
| 1. Feasibility | Confirm the activity is permitted, choose the city or zone, and plan capital and staffing |
| 2. Hong Kong holding company | Incorporate or use an existing Hong Kong company; have its corporate documents attested by a China-Appointed Attesting Officer for use on the Mainland |
| 3. Name and address | Register the company name and secure a registered address (lease) in the chosen city |
| 4. Business licence | Apply to the local market regulation administration for the business licence |
| 5. Seals and bank | Make company seals; open the basic RMB account and capital account |
| 6. Registrations | Tax registration and invoicing set-up, foreign exchange registration, social insurance and housing fund |
| 7. Capital injection | Inject registered capital within the permitted period through the capital account |
Timing varies by city, sector and the completeness of documents, typically several weeks to a few months. These are indications, not guarantees.
Ongoing obligations on the Mainland
| Area | What to expect |
|---|---|
| Tax | Corporate income tax (standard rate 25%, with reduced rates for qualifying small low-profit enterprises and some encouraged industries), VAT and surcharges; monthly or quarterly filings |
| Annual reporting | Annual report to the market regulator and annual foreign investment information reporting |
| Audit | Annual statutory audit of financial statements |
| Employment | Written labour contracts, social insurance and housing fund contributions |
| Profit repatriation | Dividends after audit and tax clearance, through the bank, with statutory reserve requirements |
Mainland rules and local practice change frequently and differ by city; Mainland legal and tax advice is required before any decision.
- Setting up and administering the Hong Kong holding company, and preparing its documents for Mainland use.
- Coordinating WFOE registration and ongoing Mainland accounting and tax through trusted Mainland partners, with one point of contact.
- Applying for a Hong Kong certificate of resident status and documenting substance.
- MAP Asia Pacific advises on market entry, location choice and partner selection; RENT-CFO can provide group financial oversight across Hong Kong and the Mainland.
Official references
- Foreign Investment Law of the PRC (effective 1 January 2020) and the Company Law of the PRC (revised, effective 1 July 2024)
- Inland Revenue Department: Arrangement with the Mainland of China for the avoidance of double taxation, www.ird.gov.hk
- Invest Hong Kong, www.investhk.gov.hk