Exclusive Interview with Huizhi | Under the Strong Supervision of Cross - border Compliance, How Can Overseas - going Enterprises Build the Optimal F

Not long after the National Day holiday ended, many people engaged in cross - border finance with overseas businesses and incomes may have successively received calls or notices from tax authorities. This is because the fifth batch exchange under the OECD Common Reporting Standard (CRS) was recently completed.

Under the fixed cross - border tax information exchange mechanism of the OECD Common Reporting Standard (CRS), 157 countries participated in this fifth batch exchange. Relying on this mechanism, the Chinese tax authorities have obtained a large amount of overseas financial account information, forming a data closed - loop with the "one - person" file of the Golden Tax Project Phase IV. This enables more comprehensive and in - depth supervision of enterprises' cross - border businesses and even individuals' cross - border financial flows.

The more transparent and effective global fiscal and tax supervision not only invalidates many previous tax avoidance and evasion methods, but also many long - existing but actually non - compliant fiscal and tax architecture designs may face accountability and penalties. This forces enterprises and individuals to change their thinking, shifting from passive "geographical cash - out" to active "compliance first".

However, when communicating with many enterprises intending to go global, we found that there are still many misunderstandings and myths about cross - border tax compliance among enterprises. Therefore, we specially invited Wang Xueyin, a partner of Hangzhou of Huizhi Group, a professional fiscal and tax service institution, to conduct a professional interpretation around the three common misunderstandings among enterprises.

01 The fundamental purpose of tax compliance design is to reasonably reduce the tax burden cost

Misunderstanding:

Tax compliance will increase costs, and doing architecture design is just to prevent accountability

Wang Xueyin: In the past, without CRS, it was actually very difficult for tax authorities to detect enterprises' overseas financial activities, and non - compliant behaviors were difficult to be supervised. For example, ten years ago, if an enterprise registered a company in Hong Kong and then invested in the Chinese mainland, it could be regarded as FDI (Foreign Direct Investment), but in fact, it was the enterprise's own money.

However, such operations must be abandoned now because CRS can penetrate the architecture design of Hong Kong companies to find the actual controller behind. If the actual controller is a Chinese resident or enterprise, they must pay taxes normally according to the tax regulations of the Chinese mainland. It should be noted that tax deductions can be made between Hong Kong and the Chinese mainland. For example, according to the Chinese tax system, an enterprise needs to pay a 20% corporate income tax. If it has already paid 16.5% in Hong Kong, it only needs to make up the remaining 3.5% on the Chinese mainland.

So now when we design the architecture for our clients, we also include the part of identity planning. For example, if you have an enterprise set up overseas and want to invest back in the Chinese mainland in the form of FDI in the future, you must ensure that you have a foreign nationality or permanent residency in Hong Kong.

Many enterprises mistakenly think that this will increase tax costs. In fact, architecture design is not only to prevent post - event accountability or fines. Instead, it comprehensively considers the tax system differences in different regions around the world from the very beginning to design the most cost - effective architecture, thereby legally reducing the tax burden. Don't wait until being detected by the tax authorities and then pay a greater price to make up for the loopholes. Especially large - scale enterprises will definitely be noticed by regulatory agencies and cannot pretend not to see these risks.

02 The tax architecture needs to be continuously and specifically adjusted according to the business stage and the market

Misunderstanding:

Building a tax system can be a one - time effort

Wang Xueyin: Tax compliance is not something that can be designed at the beginning and then followed all the time. Instead, it is a matter of "rowing while approaching the shore".

How to understand this? Firstly, the development status of an enterprise is constantly changing. For example, one of our clients is a glove supplier for Walmart. Initially, it was just a small - scale enterprise with an annual revenue scale of less than 5 million yuan. However, during the COVID - 19 pandemic, the order volume suddenly soared, and the production scale could not keep up. So it had to temporarily purchase goods from other production enterprises. In this special situation, in order to quickly seize short - term business opportunities, the enterprise didn't have time to make public - to - public payments. Sometimes it directly used WeChat transfers when trading with suppliers, which actually belongs to the behavior of private account collection.

The fundamental goal of an enterprise's development is ultimately to achieve the wealth accumulation of individuals and families. If the money earned is non - compliant, it will be like a time bomb, and enterprise operators will not be able to feel at ease. So compliance cannot be considered only when the enterprise has grown in scale. This is also why we are willing to serve some small - scale enterprises and accompany them from the very beginning of their business, promptly reminding enterprises of the existing compliance risks and improving the compliance procedures in a timely manner.

For example, in the process of going global, the first step for an enterprise is to build a compliant architecture design. As the business scale increases, continuously optimize the architecture to further reduce the tax burden cost. Finally, with the help of various global financial tools, improve the compliant family wealth accumulation structure.

On the other hand, the tax systems in each country and region are different. This is a completely unfamiliar cognitive gap for most enterprises. Many of the questions that enterprises come to us for consultation mainly focus on understanding various data of the local market to evaluate potential benefits and costs. So we will suggest enterprises that the first thing is to fully understand the various policies of the local market, the tax risk points, and the approximate costs, and roughly understand the real "water temperature".

For example, we will customize investment reports for enterprises in different markets. For regions like the United States with relatively special tax systems and large - scale enterprise businesses, we also have experts who study the tax systems of specific regions. They precipitate their knowledge accumulation and project experience into basic knowledge manuals and regularly update and share them with clients, so as to timely grasp the dynamic changes in the target market.

03 Don't ignore the role of Hong Kong as a flexible "bridgehead"

Misunderstanding:

To do a good job in tax planning, you only need to focus on the compliance policies of the destination for going global

Wang Xueyin: When enterprises go global, they often focus their attention on the destination, after all, their customers are there. However, enterprises may find that service institutions often propose to set up institutions in Hong Kong when providing solutions. Sometimes enterprises don't understand this approach and think that the market itself is not in Hong Kong, and it doesn't seem to be a real "going global".

But in fact, Hong Kong is a flexible transfer station for enterprises to expand overseas business, which can be used for both attack and defense. Firstly, there is no foreign exchange control in Hong Kong. When an enterprise hasn't decided where to go, it can first stay in Hong Kong and go out at any time after deciding to go global. If it is in the Chinese mainland, it still needs to go through the ODI approval. By the time the enterprise makes a decision and goes through the process, it may have missed the investment opportunity.

Secondly, the overall tax cost in Hong Kong is lower. One is that the tax system is simpler than that in the Chinese mainland and there are fewer types of taxes. The other is that the overall tax rate is lower. If the salaries of some senior management personnel are paid through a Hong Kong company, a part of the tax burden cost can be reduced. Thirdly, tax declarations are made on an annual basis, while in the Chinese mainland, declarations are generally made monthly or quarterly, so the financial workload will also be less.

Thirdly, Hong Kong export enterprises enjoy offshore exemption. When an enterprise exports goods, if the container doesn't actually enter Hong Kong, it is not regarded as a real business that occurs within Hong Kong and is not taxable. Moreover, there are bilateral tax treaties between Hong Kong and some countries such as Indonesia, and the tax cost is lower than exporting from the Chinese mainland.

In the actual process of serving clients, some enterprise owners may think that Hong Kong and Singapore have similar functions and have a higher acceptance of Singapore. However, on the premise of similar tax burdens, from the perspective of actual operating costs, the enterprise operation and maintenance costs in Singapore are much higher than those in Hong Kong. In terms of policy relevance, Singapore also does not have the close linkage advantage between Hong Kong and the Chinese mainland. Therefore, considering compliance, cost control, and business adaptability comprehensively, we recommend that enterprises give priority to Hong Kong.

Introduction to Huizhi Group

U&I GROUP (Huizhi Group), as a cooperative partner for cross - border legal, business, and tax services on the platform, is headquartered in Hong Kong. It has licenses and professional teams such as CPAs, lawyers, secretaries, and registered agents in cross - border relevant jurisdictions. As one of the earliest professional teams for offshore comprehensive services in China, it has been deeply involved in the overseas development needs of enterprises and entrepreneurs for twenty years. Relying on more than twenty domestic and overseas branches and a service network covering more than 160 countries and regions around the world, it provides enterprises with an overall solution of "compliance inspection - architecture optimization - risk isolation" together with the platform. The collaboration between the platform and service providers is forming a compliance ecosystem of "government guidance - platform coordination - professional implementation", helping Chinese enterprises to achieve stable and long - term development in the global market.

This article is from the WeChat official account "Hangzhou Qiantang Enterprise Going Global Service Base". Author: Zhejiang Enterprises Going Global. Published with the authorization of Qiantang.