Viewpoints

General Information Language The official language is Chinese, with English being used normally in the major cities, including Beijing, Shanghai, Shenzhen, Guangzhou and some other second tier cities. Currency The official currency is Renminbi (RMB) which is officially pegged to a basket of major currencies. Renminbi to US Dollar is trading at around USD1=RMB6.5. Exchange Control Yes. Type of Laws Continental Law. Major Features of Wholly Foreign Owned Enterprises (WFOEs) Type of Company Commonly used by foreign investors Limited Liability Company (LLC), a Company type generally referred to as a Wholly Foreign Owned Enterprise (WFOE); The Wholly Foreign Owned Enterprise (WFOE, also known as Wholly Owned Foreign Enterprises, WOFEs) is a Limited liability company wholly owned by the foreign investor(s). In China, WFOEs were originally conceived for encouraged manufacturing activities that were either export orientated or introduced advanced technology. However, with China’s entry into the WTO, these conditions were gradually […]

The procedures for closing a wholly foreign-owned enterprise its dissolution and liquidation are no easier or shorter than the process of setting up such a company, and normally take between six to nine months to complete. According to Chinese law, a WFOE must be dissolved if any of the following circumstances apply: (1) Its term of operation expires (2) The board of shareholders has adopted a resolution for dissolution to dissolve the company (3) It is merged or divided (4) Its business license is revoked by law, or the company is ordered to terminate or cancel it (5) Where there are serious operational difficulties and its continuance will cause significant losses to shareholders interests, and if these are not able to be resolved, shareholders representing 10 percent or more of the voting rights of all shareholders may request dissolution by the People’s Court (6) Other reasons for dissolution stipulated in […]

1. Before-Tax Distribution Overseas parent company can repatriate before-tax profits by means of inter-company charges such as royalty fees, loan interests, rentals, overhead charges, management fees, training fees, technical support fees and other service charges etc. But the overseas parent company may be exposed to Foreign Enterprise Income Tax (“FEIT”) of 10% and/or Business Tax (“BT”) of 5% on the gross income earned in China. The Foreign Investment Enterprise (FIE) will be deemed by law as the withholding agent of its overseas parent company to pay the taxes in China accordingly. Please also note that the Chinese tax bureaus may not allow the FIE to claim tax deduction of the inter-company charges unless the expenses are directly related to the FIE’s business operations and are charged at market rates. Inter-company Expenses Expenses can be deduct from the profits of the FIE? Any China tax exposure to overseas parent company? Royalty […]

1. Introduction On 12th December 1982, the State Administration for Industry and Commerce (SAIC) of the People’s Republic of China published the “Corporation Management Regulation” which states that from 1983 onwards, SAIC would implement company annual inspection procedures over the whole country. Annual inspection is particularly useful in improving the national control over company’s registration. SAIC makes the carry-out of annual inspection compulsory for all companies in order to ensure their existence and normal operations. 2. Companies subject to Annual Inspection The companies which receive the business license, including limited liability companies, non-company business legal persons, partnership enterprises, individual sole-source investment enterprises and branch offices, foreign enterprises, as well as other management units. Accordingly, the Wholly Foreign Owned Enterprises invested and set up by foreign corporations and individuals are also subject to the requirements of Annual Inspection Procedures. Newly set-up companies are also required to participate in annual inspection. Certain […]

Statutory Audit in China Under current legislation, all Foreign Invested Enterprises (FIE) such as Wholly Foreign Owned Enterprises (WFOE), Joint Ventures (JV), and Representative Offices (RO), are required to be audited on an annual basis. This statutory requirement has to be met prior to business license renewal every year. The deadline for the filing of annual audits is by the end of April of the following year (ie: your 2007 audited accounts must be filed latest by April 2008). FIEs can only distribute and repatriate their profits back to their home country after the annual audit and settlement of their relevant income tax liabilities. Annual audit of FIE statutory accounts must be conducted by a firm of Certified Public Accountants registered in the PRC under PRC regulations. Previously, only local Chinese CPA firms were permitted to perform the audit function, and international accounting firms were not allowed to enter Chinese […]

For any change of business scope, a resolution of the shareholders or board of directors is required. Then an approval and approving certificate for the change of business scope shall be obtained from the original examination and approving authority. After that an application form for registration of changes shall be filled and submitted to the administration bureau for industry and commerce together with the original resolution, approval and approving certificate, original true copy and duplicate of the business license of the company.

For the change of company name, a name availability search certificate shall be obtained from the competent administration bureau for industry and commerce first. And the shareholders or board of directors shall make a resolution on the issue of change of company name. After that an application form for registration of changes shall be filled and submitted to the administration bureau for industry and commerce together with the original resolution, original name availability search certificate, original true copy and duplicate of the business license of the company.

Introduction According to the Verification of Capital Contributions, after the shareholder (investor) of the a Wholly Foreign Owned Enterprise contributes and pays the registered capital into the WFOE’s Foreign Currency Capital Account, it should arrange to engage a local certified public accounting firm to perform an audit so as to verify that the capital is contributed and paid in accordance with requirements of the China Company Law and Articles of Association. The capital verification report issued thereafter is deemed as the legal proof of capital contribution. Immediately after the capital verification is done, the WFOE could then convert the capital to RMB and use it for daily operation. Capital Verification Procedures and Expected Time Overall, the whole process takes about 3 to 4 weeks. (1) Bank confirmation: Normally 3-5 working days, depending on different banks (2) Local State Administration of Foreign Exchange (SAFE) confirmation: Normally 5 working days, depending on […]

Items VAT Small-scale Taxpayers VAT General Taxpayer 1 Application Criteria ·         Company shall be ratified as VAT small-scale taxpayer when registration with no need for separate application; ·         The company’s annual taxable sales shall not exceed RMB5 million. ·         The company shall apply for the qualification of VAT general taxpayer when its annual taxable sales reach or exceed RMB 5 million, if not apply, it shall be compulsorily ratified as VAT general taxpayer; ·         Newly registered company or company with annual taxable sales not exceeding RMB5 million can apply for the qualification of VAT general taxpayer if it has fixed operation place and can provide legal and valid vouchers and accurate tax filing data. 2 Tax and Levy Rate The applicable levy rate is 3%. The applicable tax rate is divided into four levels, 16%, 10%, 6% and 0% respectively. 3 Tax Filing Method VAT and its surcharges shall be […]

(1) Duty payers The payers of Customs Duties include consignees who import goods permitted by China and consignors who export goods permitted by China, the former shall pay import duties and the latter shall pay export duties.   (2) Tariff rates The tariff rates include import duty rates and export duty rates. The tariff rates for imports fall into two categories; general tariff rates and preferential tariff rates. The general tariff rates apply to the imports originating in the countries with which the People’s Republic of China has not concluded most-favoured-nation trade agreements; the preferential tariff rates apply to imports originating in the countries with which the People’s Republic of China has concluded most-favoured-nation trade agreements. In 1999, there are 6, 940 tariff numbers for imported goods in the Classifications. The general tariff rates for importation range from 0%, 8% to 270% with over 20 different rates. The preferential tariff […]