Acting as finance centre for international trading group

Background

  1. European company (E Ltd) is buying from China and selling to Europe;
  2. A China company (C Ltd) is setup for the sourcing function;
  3. Frequent payment to China suppliers are required;
  4. Money transfer from E Ltd to supplier takes time and complicate in procedure;
  5. Money transferred into China (to C Ltd) is difficult to remit out of China again, and is subject to usage restriction.

New arrangement

  1. A HK company (H Ltd) is setup with HK bank account;
  2. Role of H Ltd is to handle money matters for group companies – receive money and transfer money;
  3. HK bank account can be operated by internet banking;
  4. H Ltd has no income.

Benefit

  1. Money control is centralized and earns higher opportunity gain (such as interest rate, exchange rate etc.);
  2. Money flow into and out of HK enjoys high level of freedom (no supporting document required to convince reason of money movement);
  3. Money to China can be done when required and can be done swiftly;
  4. No profits tax effect to H Ltd as there is no income.

RMB bank account for China trade and business

Background - using RMB for China trade and business

  •  RMB is not international currency;
  •  China is major production base in the world (export);
  •  China is becoming a stronger consumer of western product and services (importer);
  •  As RMB raise in value, and fluctuate in value, it is worthwhile for both buyer and seller to use RMB for business;
  •  However, a non-China company cannot keep RMB in bank account - especially outside of China;

RMB bank account is possible for hong kong company in hong kong

  •  Hong Kong is granted special status by China government to allow Hong Kong company to keep RMB bank account in Hong Kong;
  •  Purpose is to facilitate China business;

How it works

  •  A Hong Kong company can open multi-currency bank account;
  •  When the Hong Kong company needs to pay RMB to China
    •  It ensures the China company is a "qualified company" in China to receive RMB from Hong Kong;
    •  Then, gives instruction to bank to transfer RMB to China company;
    •  And instruct the bank from which bank account balance (HKD , USD , Euro .. etc.) to deduct the money;
    •  The company can enter into contract with bank to hedge the exchange rate;
  •  When the Hong Kong company needs to receive RMB from China
    •  The China side money payer will clear the procedure in China;
    •  And the money will reach Hong Kong company RMB account in Hong Kong;
    •  The Hong Kong company can keep the money in RMB or convert to other currency;

Important

  •  When the Hong Kong company needs to withdraw or transfer RMB balance in its RMB account, it needs to convert into other international currency first;
  •  RMB keeping in RMB account can be used for investment purpose of RMB product (such as RMB bonds in Hong Kong);
  •  The mechanism does not allow converting RMB for value speculation purpose;
USD 1 to RMB in since 2004

 

 

Annoucement by People's Bank of China

Hedging for RMB appreciation

Original scenario

US Company (US Ltd) is sourcing products from China Company (C Ltd)
  •  In July 2007, exchange rate of USD to RMB was 1 : 7.55
    •  US Ltd made a purchase for the amount RMB 1,000,000;
    •  Amount equivalent to approximately USD 132,450;
  •  In July 2010, exchange rate of USD to RMB was 1 : 6.77
    •  US Ltd made a purchase for the same amount RMB 1,000,000;
    •  Amount equivalent to approximately USD 147,710.

Based on the above scenario, US Ltd suffered a decrease in value of USD 15,260 due to appreciation of RMB over the years.

New scenario

Setting up a Hong Kong Limited Company (HK Ltd) with RMB bank account in Hong Kong to conduct sourcing activities in China.
  •  In July 2010, exchange rate of USD to RMB was 1 : 6.77
    •  HK Ltd exchanged RMB 1,000,000 and kept in HK Ltd bank account;
    •  Amount equivalent to approximately USD 147,710
  •  In July 2011, exchange rate of USD to RMB was 1 : 6.46
    •  HK Ltd made a purchase of RMB 1,000,000 and settled the transaction with its RMB maintained in its bank account;

Based on the new scenario, HK Ltd saved around USD 7,089 since it purchased RMB at a lower exchange rate.

Please be aware that there may be tax implications for profit gained from currency exchange. Therefore, consultation should be addressed to both HK and Oversea specialist in this regards.

The above information is for general guidance on matters of interest only. AsiaBS is not responsible for any mistakes or omissions, or for the results obtained from the use of this information.

Before any decision or action, please for professional advices.