Pedro Pinto October 21, 2021 7:58 am

Expanding from Europe to Asia: Here’s How Neat Can Support You

As you may have heard, Neat has recently set up an office in London to support entrepreneurs in Europe. We saw a huge demand from business owners based in Europe to open a Neat Account. So we decided it was time for us to set up locally, and expand to Europe.

In this post we want to highlight a few reasons why entrepreneurs in Europe choose to set up a company in Hong Kong and decide to open a business bank account in Hong Kong, or go for an alternative such as Neat.

1. Hong Kong as a first step when expanding into Asia

According to the EU’s Eurobarometer, 25% of European startups are interested in expanding to Asia. When you’re new to the region, Hong Kong is an easy place to get started. It’s consistently ranked as one of the easiest places to do business, for instance in the World Bank’s Doing Business report. In addition, Hong Kong has been ranked 3rd in Asia in the Rule of Law Index and ranked 1st in the world for having the most business-friendly tax system by PwC.

If you’ve previously set up companies in countries such as the UK, you may expect the process to be simple and straightforward. However, in some countries in Asia, it’s not easy for foreigners to do business. Especially when compared to what you may be used to in your home country. For instance, in countries like Thailand or Indonesia, it is required that limited companies have a local person as a majority shareholder. Therefore, it may make sense to run your Asian operations from Hong Kong, where no such restrictions exist and you don’t need to travel to Hong Kong. If you choose to open your business account with Neat, your incorporation and business account opening can all be done digitally – meaning you don’t have to make a trip there at all.

Especially if your business is more digital in nature, you can run your regional business from a Hong Kong entity, and you can at the same time benefit from Hong Kong’s low corporate tax rate.

2. Using a Hong Kong company as a holding, when setting up local subsidiaries

You’re doing well, your business is growing and you decide to localise. Once you do decide to incorporate local entities across various Asian markets, there are several advantages of using the Hong Kong company as a holding company, and repatriating profits back into the Hong Kong holding company from various subsidiaries across the region.

To start off with, Hong Kong has a low corporate tax rate of 8.25% on the first HKD 2 million in profits, and 16.5% of profits thereafter. And there are no capital gains taxes. What’s more, Hong Kong has double taxation treaties with most countries around the world.

Hong Kong also has a stable currency. Hong Kong’s local currency (HKD) is pegged to the USD. This means it is less volatile compared to currencies in most of the region’s emerging markets. As a result a lot of business in the city is conducted in USD. And many banks offer USD accounts for you to hold your funds in US dollars. With Neat too you can open an online multi-currency account that supports USD, HKD, GBP and EUR.

3. Save costs on international payments

Unlike Mainland China and most emerging markets across the region, Hong Kong does not have any capital controls, which means you can freely move funds in and out without paying any form of withholding tax. This makes it much easier and cheaper to make international payments from your Hong Kong-based business account, for example for when you have to pay your suppliers or freelancers who may be located around the world.

The next thing you may ask yourself is this: even though it makes a lot of sense to have a Hong Kong account to save on outgoing payments… how do I accept funds from customers in other places like South-East Asia if my account is in Hong Kong? In some cases, you’ll have to transfer it from a local bank account in the country you’re operating in to Hong Kong. You’ll also be subject to the country’s capital control regulations. In other cases, especially in the B2B sector, your customer may be able to directly transfer funds into your Hong Kong account.

However, even in the B2C sector it can be straightforward to receive funds directly into your Hong Kong account. If you’re running an online business and sign up for tools such as PayPal or Stripe using your Hong Kong company, all your payouts will automatically be sent to a Hong Kong business account, even if the end-customer is located in, say, Vietnam.

4. Paying suppliers in Mainland China from Hong Kong

China is the EU’s largest trading partner when it comes to importing and the second largest when it comes to exporting goods, with almost EUR 400 billion going into China each year.

Importing goods from Mainland China, however, means making payments to Chinese suppliers – which can be a real headache for Western entrepreneurs. Not only is it slow and expensive, too often payments do not arrive at the recipient’s end. Ultimately these end up being returned to the sender due to Mainland China’s strict and ever-changing regulations and requirements.

By being headquartered in Hong Kong, however, at Neat we’re in a unique position to directly partner with Chinese banks and payment providers. Having an office in Shenzhen also means we’ve got the required local expertise. We’re on top of what’s happening in the market at all times. Ultimately this means that we offer customers better rates than banks can, and a much smoother experience. Neat Business provides you with a simple and cost-effective way to pay your suppliers in Mainland China. You can read more about payments to Mainland China here

5. Setting up a WFOE (Wholly Foreign Owned Enterprise) in Mainland China 

If you’re selling into Mainland China, the most common business structure for foreign companies is to set up a WFOE, a wholly foreign-owned enterprise. You are able to have your European company as the parent company of this subsidiary. However, there are various reasons why it makes sense to use a Hong Kong holding for your WFOE.

Firstly, there is less bureaucracy and paperwork when setting up a Chinese entity with a Hong Kong parent company. Especially when compared to if you’re setting up the Chinese subsidiary via say a French parent company. You need to officially translate all your company documents into Chinese. Furthermore, you’ll also need to “legalise” all your documents via the Chinese Embassy.

On the flip side, you can create Hong Kong entity documents in both Chinese and English. You don’t need to legalise them in the same way. Instead a notary just needs to sign them. The process will be shorter. Additionally, it will also be cheaper and save you from filling out stacks of paperwork.

Furthermore, when your business grows and you need to remit dividends out of Mainland China, Hong Kong has a treaty with Mainland China that lowers the withholding tax in most cases to 5%, as opposed to the general 10%. .

If you’re thinking of expanding from Europe and setting up a company in Mainland China, here’s a guide we wrote on WFOEs.

Are you ready to kickstart your expansion into Asia? Check out Neat’s incorporation offering and get set up in Hong Kong within a week, no travel required.

Only need a Hong Kong business account? Open your multi-currency wallet online here

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