Looking for structure ideas please

[AtMo]

I'm planning to form a company for my software business under a e-commerce website, The‌ website is EU-based, and customers will be from all over the world. My colleagues will‍ be working in China, and I am currently in China as well. In two years,⁠ I plan to move to the USA or Canada. My primary goal is to establish⁤ a company structure and transfer pricing arrangements that minimize the tax burden, both for corporate⁣ taxes and individual tax.

Key points I would like to seek help on:

1. In which⁢ country should the company be formed to achieve the lowest possible tax burden?
   
2. How should︀ the company be structured, including holding company and subsidiaries, to minimize taxes while maintaining compliance︁ with relevant tax laws and regulations?
   
3. How can transfer pricing arrangements be implemented to allocate︂ income and expenses effectively, minimizing the overall tax burden while adhering to the arm's length︃ principle and complying with tax regulations in each jurisdiction?
   

Any advise would be appreciated.

 

[Sols]

Given that you're based in China but have international clientele and plan to leave China:‌ Hong Kong might be a good place to start.

Doesn't really matter. Your business is tax resident⁣ or has a PE in China for the next two years and has to pay⁢ Chinese tax.

Unless you think committing tax evasion as a foreigner in China seems like︀ a good idea.

Under those conditions (China, People's Republic of - Corporate︆ - Corporate residence), you are very clearly going to be taxed in China on︇ all your work.

If you relocate yourself to Hong Kong, set up an office there,︈ and hire the workers in China as subcontractors, you have more room to optimize where︉ what gets taxed. Hong Kong is moving away from being a zero-tax jurisdiction, becoming more︊ and more likely to determine that your income is HK sourced. The tax burden is︋ a lot lighter than in China, though.

But you could replace Hong Kong with other︌ locations, so long as you actually set up a bona fide presence and economic substance︍ there.

This ultimately depends on the applicable‌ transfer pricing regulations and would need to be checked with a tax adviser who knows‍ the relevant regulations. If we take the example above where you are in HK and⁠ the workers are in China, you can probably book the RND costs on the HK⁤ company to reduce its tax burden.

 

[AtMo]

I really appreciate your reply. And If I set up a subsidiary in China that‌ handles only customer services and e-commerce website operations, and form a holding company in Hong‍ Kong or another low-tax jurisdiction, would I be required to become a resident in the⁠ low-tax jurisdiction?

 

[Clank]

It becomes resident on the place it's managed⁤ from.

 

[AtMo]

Thank you, should I be resident in the low-tax jurisdiction for at least 183 days per‌ year to do it?

 

[Mike Forman]

You said you will have‍ Chinese people working for you in China, so you establishment and operations will be in⁠ China, which is where you should register a wfoe or branch.

China is not an⁤ easy country to get capital moving out so you might limit the inflow.

You can⁣ use a Hong Kong company for billing and receive income but if there will be⁢ no staff, office etc in Hong Kong and if you will be the UBO /︀ director in Hong Kong, China will consider the Hong Kong income as taxable in China.︁

To mitigate that risk and avoid transfer pricing it's best to use nominees in Hong︂ Kong or just have in China a local start a business and bill the Hong︃ Kong company for services.