What aspect should be cautioned when using holding companies for Chinese or ASEAN subsidiaries?

It must be noted that compliance with anti-avoidance tax rules from Hong Kong and Singapore is a must. The key to such compliance is to show that the holding company is a genuine business, i.e.: there must be economic substance to justify this tax-efficient facet.

 

If the Hong Kong or Singapore holding company fails to justify with such economic substance, then the relevant tax authorities might “pierce the corporate veil” of the holding company and impose tax liabilities on the foreign parent company. The demonstration of such economic substance often means demonstrating income to relevant tax authorities, which may take form of licensing intangible intellectual properties from foreign parent company to Chinese or Asian subsidiaries or staff from foreign headquarter providing management services to subsidiaries.