Cross-border investment into and out of China, has historically been done through offshore jurisdictions. In recent years, offshore jurisdictions have come under increasing scrutiny by the OECD and other international political bodies. The requirement for transparency in international tax planning has taken a strong foothold. As a result, offshore jurisdictions are scrambling to comply with the requirement of signing at least 12 TIEAs (Tax Information Exchange Agreements) as dictated by the OECD as necessary to be “white listed”; this requirement can only be expected to increase.

The offshore jurisdiction (tax haven) most used by the Chinese market, the BVI, signed a TIEA with China on December 7, 2009, and thereby has impaired greatly one of the main reasons for its use, namely confidentiality. Although it is possible to seek other jurisdictions that today still offer confidentiality, we expect that these too will soon succumb to the trend towards transparency.

As offshore jurisdictions lose their confidentiality, they are also under greater scrutiny and taxed at higher rates when they own investments into active economies. In many cases, they do not enjoy treaty protection under a DTA (Double Tax Treaty), and cannot enjoy the preferential tax treatment offered by treaties. Many countries use blacklists of offshore jurisdictions and even higher withholding rates to attack the use of offshore jurisdictions.

By releasing the new EIT (Enterprise Income Tax law) in 2007, and recent Circulars 124, 601 and 698, the Chinese SAT (State Administration of Tax) has followed suit of tax authorities in other developed nations by imposing the requirement of substance on international investments. Creating substance in a jurisdiction by adding to the activities of an entity group functions that fit the commercial goals of the investment can ensure that these requirements are met, and that the group’s tax burden is further decreased.

Therefore, new investments should look to using treaty jurisdictions and networks, and existing investment structures can consider re-domiciliation of their offshore structures. Each investment has different objectives, and a suitable jurisdiction can be selected based on those objectives. Amicorp has offices in OECD white listed jurisdictions around the globe, which offer the possibility for tax effective structuring for cross border investments.

Below is a brief introduction to Hong Kong and Singapore, as well as several other jurisdictions that can be considered by investors for inbound or outbound investments into or from China.

An IFC (International Financial Centre) with strong links to China, Hong Kong is the most popular jurisdiction for Chinese inbound and outbound investment, because of these main features:

Singapore is the preferred location for South-East Asian headquarters and probably the second overseas jurisdiction where Chinese languages are widely spoken.

Singapore offers similar advantages with Hong Kong:

As a reputable global corporate and trust service provider, Amicorp stresses the importance of structuring international transactions through OECD white-listed and reputable jurisdictions.