In actual operation, many foreign trade enterprises are unable to obtain compliant invoices, facing the risk of tax audit, and even leading to the predicament of paying back taxes and penalties. In this article, we will share a practical case to analyze how the structure design of “Hong Kong Company Holding Mainland Company” can be used for the purpose of tax audit.Achieve the dual goals of tax compliance and profit enhancement.

Case background

When the person in charge of a foreign trade supply chain enterprise was in its third year of operation, due to the inability to obtain invoices for some of the purchases, coupled with irregularities in the operation of public-to-private transfers, it was required by the tax authorities to pay back taxes and imposed a fine of 220,000 yuan in total. Subsequently, the enterprise built“Hong Kong companies holding Mainland companies”Architecture.It not only effectively avoids risks, but also improves the profit margin from 18% to 35%, and saves more than 1.5 million yuan of tax burden in three years.

The core of architectural design: segregation of duties and responsibilities and segregation of risks

The core of this structure is to split the “decision-making function” and “execution function” of the enterprise into two main bodies, forming a clear boundary of authority and responsibility:

-The Hong Kong holding company, as the decision-making center, is responsible for holding the mainland subsidiaries, docking with overseas customers, handling orders and capital flow, and needs to be configured with a real office address (e.g., a shared office with a monthly rent of about HK$900) to avoid being recognized as a shell company.

-The mainland operating company, as the execution body, focuses on specific businesses such as warehousing, logistics and after-sales, and no longer directly undertakes the invoice-less procurement process, thus fundamentally avoiding the risk of missing invoices.

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Four-step on-the-ground implementation program

1. Unification of Hong Kong company contracting bodies

The Hong Kong company signs procurement contracts with overseas customers and suppliers, unifies the payment and receipt of goods and documents management, and builds a complete compliance chain.

2. Mainland companies transforming service providers

The mainland company has changed from a trading entity to a service provider, undertaking quality inspection, delivery and after-sale services, charging service fees based on the value of the goods of about 20%, and issuing invoices of “modern services”, thus realizing a reasonable division of profits and optimization of tax burden.

3. Hong Kong company-led export customs clearance

Adopting the cross-border e-commerce 9710 customs declaration mode, with Hong Kong company as the main body of export, no need to rely on the mainland procurement invoice, effectively solving the problem of exporting without invoice procurement.

4. Compliance-based operation of financial flows

The Hong Kong company pays the suppliers for the goods through the third party payment tool and pays the service fee to the mainland company on a public-to-public basis, ensuring that the entire flow of funds is traceable and compliant.

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Architecture Advantage Analysis

Significant optimization of tax burden

-Hong Kong company's first HK$2 million profit is subject to 8.25% tax rate, and the mainland company only pays tax on the service fee portion of the tax, the overall tax burdenReduction of 50%Above.

-Rationalizing the distribution of profits to low-tax jurisdictions.Annual tax savings can be in the millions of dollars rangeThe

Flexible and efficient foreign exchange payments and receipts

-Hong Kong company supports multi-currency accounts to receive and pay, foreign exchange collection and settlement of foreign exchange is convenient, the fastest flow of funds to the mainland account within 4 working days.

Risk Segregation and Compliance Enhancement

Through structural segregation, the operational risks of mainland companies and cross-border capital risks are effectively reduced, and tax compliance is significantly enhanced.

Key Considerations

1. Hong Kong office address should be real and effective, virtual address may cause tax audit risk;

2. The Holding Agreement shall be in a professional bilingual version, specifying the rights and responsibilities of both parties and the profit distribution mechanism;

3. Hong Kong bank accounts need to be kept active with at least 3 real transactions per month to avoid account freezing.

concluding remarks

“The structure mode of ”Hong Kong company holding mainland company" provides an effective path for foreign trade enterprises to optimize tax burden and solve the problem of procurement without invoices. However, enterprises need to customize the design according to their own business characteristics and ensure compliance in the operation process in order to achieve long-term sound development.

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If you want to know more about tax issues and tax solutions, please feel free to consult us! Bosses who don't want to spend time and effort can alsoFind us at Enterprise Caiying Group((Phone number WeChat same number: 18620388671)help, arranging for professional managers to answer queries, provide professional advice andFull one-on-one service ↓↓↓

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