Whilst every effort has been made to ensure that the information, views and data contained herein are accurate and given in good faith, we accept no responsibility for and exclude all of our liability to the maximum extent permitted by applicable law for any loss and/or damage whatsoever or howsoever caused from use of the information contained in this report. Fiducia shall only be liable in respect of anything done or omitted in a grossly negligent manner. This report has been produced by Fiducia exclusively for clients, for their internal circulation. Fiducia retains all rights, titles and interests, including copyright and other proprietary rights, in this report and all material provided or made available as part of this report. This report does not constitute legal, valuation, tax, or investment advice. Those interested in specific guidance for legal, strategic, and/or financial or accounting matters, should seek competent professional advice from their own advisors. E&OE Advantages of Hong Kong as a holding company New Orleans, October 24, 2012 International Tax Day

► Established in 1982 in Hong Kong ► Professional service provider focused on China and Hong Kong ► 90 Chinese and foreign specialists ► 3 China offices located in Hong Kong, Shanghai and Shenzhen ► High level of local expertise and multicultural experience ► Proven ability to apply international standards with local understanding ► Close co-ordination with the client leading to long-term relationships ► Strong support from a large network of partners, AGN member since ‘03 Page 1 Fiducia Management Consultants We have a 30-year track record of serving international clients in China

Case study for Hong Kong US company (consumer business) is doing business in Hong Kong The ultimate owner of the US company is an US individual The Hong Kong business operations create a net result of US$ 7M and pay royalties (license fee for the use of a brand name) in the amount of US$ 2M to a non-HK resident, non-associated company. 1. Corporate set up option for the US company 2. What are the tax consequences? 3. What opportunities exist to mitigate the tax due? Page 2

Shanghai Hong Kong Singapore Seoul Tokyo Jakarta Kuala Lumpur Manila Hanoi Beijing Taipei Wuhan Guangzhou Mumbai Ho-Chi- Minh-City Qingdao Chongqing Fuzhou Shenyang Hong Kong and its reach within Asia Flights from Hong Kong to Shanghai ca. 100 daily connections first 8:00 am last 9:20 pm Flight time ca. 2 ½ h The circle represents approx. 3 h of flight or 1800 km Any Conclusions? Business with China? Choose HK or SHA Business in SEA? Choose Singapore Return daytrip from HK to SHA is possible but not from Singapore Page 3

1. Options for a corporate set up in Hong Kong (1/2) 1.Private Limited Company (most commonly used form of investment in HK) Advantages: a. A separate legal entity from its overseas parent company with limited liability to its registered capital b. It can engage in trading, sales and all other profit making activities. Disadvantages: a. Must be registered with CR and IRD. b. There are a number of statutory compliance requirements that private limited company must adhere to: - submit to the CR an annual return within 42 days of the anniversary date (date of incorporation in HK) each year. - To file Profits Tax Return and audited accounts with IRD. 2. Representative Office (often used by banks or financial institutions as a first market entry step) Advantage: a. No requirement for filing Annual Return, Profits Tax Return and audited accounts. Disadvantages: a. It can only conduct liaison work and promotion, it is unable to engage in profit making activities. b. It cannot issue invoices. c. Must be registered with IRD. Page 4

3. Non-Hong Kong Company registered in Hong Kong (Similar to what is referred to as Branch) Advantage: a. The branch can engage in the same activities as parent company. Disadvantages: a. It is a branch office of the parent company, it is not a separate legal entity. Parent company is fully liable for all the debts and liabilities of the branch. b. Must be registered with Hong Kong Companies Registry (CR) and Inland Revenue Department (IRD). c. Subject to the similar legal and tax matters as other companies set up in HK: - According to the HK Companies Ordinance, Non-Hong Kong Company (branch) must submit to the CR an Annual Return within 42 days of the anniversary date (date of registration in HK) each year, along with the latest audited accounts of the company. - If the Non-Hong Kong Company (branch) has engaged in trading, sales and profit making activities in HK, it has to file Profits Tax Return with IRD. - It has to prepare audited accounts: the branch may initially submit the audited accounts of the parent company with IRD, in case of the audited accounts are not accepted by IRD, the branch may then prepare the audited accounts for the branch itself and submit to the IRD. d. It has to appoint one authorised representative who is a resident in Hong Kong. (If you hire a salesperson in HK, you need to consider if it is appropriate to appoint the salesperson as the representative) e. Banks and clients may prefer dealing with a company incorporated in Hong Kong rather than a branch 1. Options for a corporate set up in Hong Kong (2/2) Page 5

1. Incorporation of a Hong Kong Limited Company Private Hong Kong Limited Company Establishing a business in Hong Kong is simple and straight forward. There is no need to rent office premises for the establishment of a Private Limited Company. Name of the Company Name of the Company The name has to be unique and must not include certain restricted words. It may be in English or Chinese or both and can be used only once. Memorandum and Articles of Association Memorandum and Articles of Association A private limited Hong Kong company can conduct any business that is legal. A brief description is of business scope is sufficient, i.e. sourcing of products. The purpose of the company is stated under the object clause in the Memorandum of Association of the company. Shareholders Shareholders can be either individual(s) or company(ies) and do not necessarily have to be resident in Hong Kong. The liability of each shareholder is limited to the share capital they have invested in the company. The structure of the Hong Kong Limited Company is very similar to the UK. Page 6

Accounting and Bookkeeping Accounting and Bookkeeping A yearly audit of the accounts of a Hong Kong Limited Companies is required by the Inland Revenue Department (IRD), resulting in the need for annual accounting. Business Registration Certificate Business Registration Certificate This document is issued by the Inland Revenue Department and must be renewed annually. Annual Audit The accounts of the Hong Kong Limited Company have to be audited by a locally registered auditor and to be submitted to the Inland Revenue Department (IRD). Registered Office A company must have a registered office address in Hong Kong. This serves as the company's legal address for all notices to be sent to and for all statutory documents to be kept at. Can be different from the business address. 1. Incorporation of a Hong Kong Limited Company Page 7

1. Example of Shelf Companies Page 8

Low Tax Regime ► Profits tax is 16.5% ► Offshore transaction tax free ► Salaries tax is 15% ► No sales tax or VAT ► No taxes on dividends ► No Capital Gains Tax ► Profits tax is 16.5% ► Offshore transaction tax free ► Salaries tax is 15% ► No sales tax or VAT ► No taxes on dividends ► No Capital Gains Tax Legal Environment Banking and Financial Services Trade Friendly Outsourcing possibilities Export Credit Insurance Hong Kong’s strategic advantages 2. Tax, legal and corporate background of Hong Kong Page 9

2. Tax Consequences in Hong Kong Page 10

2. Summary: General advantages of a Hong Kong holding company Page 11 ► Hong Kong company can be used for billings to other SEA countries ► Hong Kong’s coporate tax rate only 16.5% ► Company set-up in China less complicated with Hong Kong parent company ► Easy and quick realization also of more complicated ownership structures possible in Hong Kong ► In the case of changes in the shareholding structure, shares of Hong Kong entity can be transferred ► Dividends are tax free in Hong Kong ► Withholding tax for dividends paid from China to Hong Kong favorable compared to many other countries (conditions apply) ► Hong Kong´s legal system is based on British law ► Financial data of China company in Chinese are acceptable in Hong Kong

3. Case Study: How to create offshore transactions How Fiducia efficiently processes the trade flow for our clients… Sign back P/I Payment Place order online Issue Sales Invoice Payment Upload shipping docs Shipment directly to customer Hong Kong Company Global Customers Chinese Manufacturer secure web-based connection; authorisation levels; ERP integration Accept order online Generate P/I Receive Sales Conf. Confirm order/production Download shipping docs Order processing Shipping documentation Physical goods shipment Payment Page 12

►Setting up a holding company in Hong Kong is fast, transparent and very cost efficient ►A holding company in Hong Kong has unique advantages when setting up a company in China ►If the company will be operational bear in mind that Hong Kong has extremely high office rent (vertical city) Summary of Hong Kong’s advantages as a location for your holding company Important key learnings Page 13

Thaddaeus Mueller, Associate Director Direct line: china.com For questions and advice on an options and solutions for your China trade please contact: Shirley Wong Corporate Service Manager Direct line: china.com Hong Kong Tel: (+852) Fax: (+852) china.com Shenzhen Tel: (+86) Fax: (+86) Shanghai Tel: (+86) Fax: (+86) Page 14 Our offices What is your next move?