Do you know which country is the most investors from in mainland China? America? UK? Germany? Or Japan? The above answers are all wrong. The right one is Hong Kong. Why? Because most foreign investors are not familiar with the mainland China but Hong Kong they are, so they decide to use Hong Kong as an investing tunnel. In meanwhile, an investor from Hong Kong does have some benefits from this identification in a specific situation (more details see the article in May 2014). However, under this structure, the transfer pricing issues arise easily, because it triggers the attention by the tax bureau for related parties’ transactions. They will double check if the company is manipulating the financial results. i.e. shifting the profits from Chinese company to Hong Kong company due to lower corporate income tax in Hong Kong (16.5% or exempt ).

Recently, some exporters are consulting us that their customers (outside China) are requesting the decrease of the price for the exported product due to the VAT rate going down in China. The exporters are confused how to answer their customers’ question that the new policy does not affect the quote. Here are some points probably you could explain.