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Knowledge is the key to unlocking China

Tommy Chan is a tax practitioner at East Asia Sentinel Group in Hong Kong, and like Cassons, is a BKR International member. Tommy’s firm shares best practice with partners around the world to meet the business and financial needs of their clients. We spoke to Tommy about what it's like to do business in Hong Kong. 

Please describe your role

A Hong Kong Tax practioner

What makes China an attractive place to do business?

Some key facts that highlight why its attractive to do business in China:

- China has more than 1.41 billion people – or about 21 times the population of UK

- China is the world’s number one trading nation and manufacturer by output

- Chinese GDP topped $11 trillion

- China’s GDP growth rate over the past three decades has often bypassed 10 per cent, and consistently increasing

- Household incomes in China are soaring, with more than 300 million people now considered middle class who is keen on foreign goods

What consideration should be given when a UK business begins to think about doing business in China?

The relevant complicated tax system and the potential legal risk in China, and the restricted rules in sending money out of China.

Does the China economy look favourably upon British goods/investment?

Yes I think so.  Chinese people are interested in foreign brand and they tend to be willing to pay more for that.

What is the most important piece of advice you would give to UK businesses?

It is essential to have a well-developed business strategy when entering into China that is based on up-to-date and local knowledge. The insights of professional advisers can be critically important. Foreign investors are advised to carry out detailed feasibility and due diligence studies prior to committing investment into China to ensure commercial objectives can be realised.

In which sectors do the biggest opportunities lie? What about geographic regions?

I would say selling foreign goods/brand products to Chinese consumers via online platform would be a very big opportunity.  There will be more and more Chinese cross-border shoppers within the next few years.  Chinese consumers want access to genuine, quality, foreign products and are prepared to pay a premium for it.

What is the biggest challenge a UK business looking to export to China need to overcome?

There are several. Large parts of the economy are closed to full foreign participation; there is strong competition from well-resourced state-owned enterprises; the business culture and tax system is complex; the language barrier, plus there’s a need for patience to build up trust and networks. On top of these there are foreign exchange controls and a significant time difference to keep in mind.
 
Do you have any specific examples of where you or your firm helped a UK business overcome any challenges?
 
We had a client who is a UK resident who set up his own company in China, and is now thinking about exiting and returning back to the UK. We conducted an income and capital gain tax planning exercise, considering the date from which he becomes UK residence; the split year treatment and the liquidation and UK tax implications of this. We also considered the pre-arrival tax planning re-distribution of dividends and realising capital gains during his non-UK residence period and advised on tax efficient ways of extracting profits from the company without falling foul of antiavoidance rules, while at the same time using family members’ tax allowances in the UK.

Which support agencies should UK businesses be speaking to?

I would say a tax advisor and a legal advisor in China is needed.  In particular, need certain advice on how/what the investor should do in protecting their investment; properties; trademark and right, etc. in China.

Is there anything else you’d like to mention that will be of interest to UK businesses reading this?

Doing business with China can seem rather daunting for those new to the market, but taking a strategic approach is the key to making the process manageable I would say.

First published by Lancashire Business View

9 Jan 18
Tommy Chan, Tax Practitioner at East Asia Sentinel Group, Hong Kong