Reality of Business Handling Between HK and Mainland Companies How Much Do You Know?

The Truth Behind the Operations of Hong Kong Companies and Mainland Companies How Much Do You Know?

In recent years, with the development of the Guangdong-Hong Kong-Macao Greater Bay Area and the advancement of the Belt and Road Initiative, Hong Kong's status as an international financial center has become increasingly important. Meanwhile, mainland enterprises continue to seek broader international markets. Against this backdrop, more and more companies have chosen to establish themselves in Hong Kong, leveraging its unique geographical location, developed financial market, and legal system that aligns with international standards to conduct cross-border business. However, in practice, the cooperation between Hong Kong companies and mainland companies is not as simple as it may seem on the surface. This article will reveal some real situations regarding the operations of Hong Kong companies and mainland companies from aspects such as legal environment, tax policies, and business processes.

Legal Environment Differences Affect Business Decisions

Firstly, there are significant differences between Hong Kong and mainland China in terms of their legal systems. Hong Kong operates under the common law system, which is heavily influenced by British law, emphasizing the spirit of contracts and judicial independence; whereas mainland China adopts the civil law system, where legal provisions are more detailed and carry a stronger administrative intervention characteristic. These differences in legal environments directly impact the choices made by businesses when setting up branches or conducting commercial transactions in both regions.

For instance, in contract execution, Hong Kong courts typically prioritize the true intentions of both parties involved and resolve disputes based on the principle of fairness. In contrast, mainland laws tend to favor the protection of consumer rights and public interests. When mainland enterprises enter into contracts with Hong Kong companies, they must pay special attention to whether the terms comply with the legal requirements of both regions, otherwise, they may face unnecessary risks.

Due to Hong Kong being a separate customs territory, its legal framework allows companies to enjoy higher autonomy. This has led many multinational corporations to prefer registering subsidiaries in Hong Kong to avoid certain complex regulatory procedures. However, at the same time, this means that companies must adhere to strict anti-money laundering and foreign exchange control regulations when transferring assets or profits between the two regions.

Tax Policy Differences Present Challenges

Besides the legal distinctions, the differences in tax policies between Hong Kong and mainland China are another critical issue that businesses need to address. Hong Kong implements a low-tax policy, with a corporate income tax rate of 16.5% and no value-added tax VAT or other indirect taxes. Conversely, mainland Chinese companies have a standard corporate income tax rate of 25%, with additional taxes and local fees levied in some areas.

For companies looking to reduce their overall tax burden, Hong Kong is undoubtedly an attractive option. However, this does not mean that all business activities can completely detach from the mainland's tax system. In fact, according to the arrangement between the Mainland and the Hong Kong Special Administrative Region regarding the avoidance of double taxation and the prevention of tax evasion, if a company operates in both regions, it must determine its taxable amount based on the principle of permanent establishment. This implies that even if a company is registered in Hong Kong, as long as it has fixed premises or continuous activities in mainland China, it still needs to pay corresponding taxes to mainland China.

Another point worth noting is that starting from 2025, mainland China will implement stricter measures for cross-border capital flows aimed at combating illegal capital flight. This poses new obstacles for enterprises hoping to transfer funds through the Hong Kong channel. When planning their tax strategies, enterprises must comprehensively consider various factors to ensure that their plans are both lawful and efficient.

Complexities in Actual Business Processes

Finally, in terms of specific implementation, the collaboration between Hong Kong companies and mainland companies often proves more complicated than anticipated. On one hand, although the logistics transportation network between the two regions has already reached a high level of development, communication costs remain high due to language and cultural differences as well as varying regional business practices; on the other hand, with the digital transformation wave sweeping across the globe, effectively integrating online and offline resources has become a major challenge for numerous enterprises.

For example, many mainland enterprises hope to use Hong Kong platforms to expand overseas markets but find that actual operations involve many inconveniences. For instance, due to the lack of unified information sharing mechanisms, both sides struggle to keep real-time track of each other’s progress. Furthermore, some traditional industry practitioners have lower acceptance levels of new technologies, leading to slow project advancement.

In response to these issues, in recent years, some innovative enterprises have attempted to introduce blockchain technology to improve efficiency. By building supply chain management systems based on blockchain, not only can data transparency be achieved, but settlement cycles can also be significantly shortened, thereby saving enterprises large amounts of time and financial costs.

Conclusion

In summary, despite Hong Kong's unique advantages as a bridge connecting mainland China with the world, it also hides numerous difficulties and challenges in practical operations. Whether it is legal compliance, tax planning, or daily operational management, companies require sufficient professional knowledge and experience accumulation. In the future, as cooperation between the two regions becomes increasingly close, more facilitation measures are expected to be introduced, creating better conditions for cross-regional enterprise development. For ordinary investors, they should maintain a rational attitude, fully evaluate their own needs, and then make wise decisions.