A couple of weeks ago, I met with Anne Kuschert, who works as supply chain executive at Fiducia Management Consultants. Among others, they help their clients set up companies in China and Hong Kong, and provide trade services for importers.
Anne has a lot of experience in logistics, so I asked her a few questions that will be of interest to most importers:
Q: If an importer buys from a Chinese supplier who ships the goods directly to a retailer’s distribution center (with a forwarder he appointed himself), what can the importer do in HK to conceal the name of the supplier?
Assuming that the importer has a Hong Kong company, the importer can use his Hong Kong set up to do the re-invoicing of the Chinese supplier’s invoice and packing list. Furthermore he can advise his appointed forwarder to issue the B/L so that the Hong Kong company is shown as shipper and not the Chinese supplier.
The Hong Kong company has to make sure that the invoice, packing list and B/L can be sent to the retailer’s distribution center directly, so the retailer can claim the goods. The GSP Form A (Generalised System of Preferences Certificate of Origin Form A) is normally used for tax issues by the importer in the destination country in order to benefit from lower import taxes. The Hong Kong company has to make sure that this is sent to the importer and not along with the other documents to the retailer directly, as this document has the supplier’s name and address on it. The importer then can show the GSP Form A to the destination customs in order to import the goods free of duty.
Q: In this case, can the final buyer (the retailer) discover the identity of the supplier?
No, in this case, the retailer has no documents in hand which identify the supplier.
The importer of course has to make sure through his Quality Control that the Chinese supplier don’t put on any marks on the cartons or “smuggle” in some name cards into the boxes, which could make the identity of the supplier discoverable.
Q: If a trading company buys from a Chinese supplier (who ships the goods from, say, Shenzhen) and sells the goods to an importer in Europe (who appoints his own forwarder), what can the trading company do in HK to conceal the name of the supplier?
Assuming that the trading company is a Hong Kong company, the trading company does the re-invoicing of the Chinese supplier’s invoice and packing list. Furthermore they can advise the European importer’s appointed forwarder to issue the B/L, so that the Hong Kong company is shown as shipper and not the Chinese supplier. The difference in this case is, that the trading company is not the importer of the goods at destination, so cannot make use of the Form A or the C/O (Certificate of Origin). The Form A can be used for benefiting of tax reductions, the C/O cannot be used in this context, but is needed for customs clearance in the destination country. Both documents have to have the Exporter’s business name, address and country, which are the details of the supplier. This documents cannot be re-issued, as it is issued by the Chinese customs authorities themselves.
The only way to conceal the name of the supplier is to check (with the destination country’s customs authorities) if this Form A or C/O is needed for your particular goods. There are some products for which European customs authorities don’t request a Form A or C/O. It is possible to check with forwarders based in the destination countries, in order to find out if this is applicable to your case.
Q: In this case, can the European importer discover the identity of the supplier?
If the Form A or C/O is needed, then technically the European importer can retrieve the identity of the supplier from this document.
It depends on the European customs authorities if they need a Certificate of Origin and this depends on the product category and the so called HS code (Harmonized System Code Commodity Classification), which is used by customs authorities around the world in order to clear goods. According to this classification, a freight forwarder can help you to look if the Certificate of Origin is needed for clearance or not.
Q: What are the key advantages for an importer to operate a company in Hong Kong?
- Hong Kong’s optimal geographic location, world class infrastructure and excellent transportation system
- Nearness to the Chinese Mainland, in order to manage and nurture relationships to Chinese suppliers
- Favorable agreements between Hong Kong and China: CEPA (Closer Economic Partnership Arrangement)
- Strict control and monitoring of Intellectual Property Rights
- Tight management of cashflow, billing and accounts receivable, therefore less possibility for errors
- Low corruption in Hong Kong due to strict anti-corruption legislation and an independent enforcement agency named ICAC (Independent Commission Against Corruption) which was set up in established in 1974 when Hong Kong was under British rule
- Management of multiple product complexity
- Less bureaucratic and therefore easier to do business
- Very low capital requirements (1HK$) for setting up a business in Hong Kong
- Availability of high calibre staff with international business exposure
- Favorable legal environment, as the Basic Law which is based on British Law
- Beneficial taxation system (no VAT=value added tax)