Why Choose a Hong Kong Offshore Structure to Invest In China? Setting Up Hong Kong Company as a Special Purpose Vehicle to Invest In China

Chinese official statistics on foreign investment in China have indicated that Hong Kong has been the biggest source of inbound foreign investment in the mainland China. In addition to the common advantages of having an offshore structure, namely, easier transfer of equity interests in the Chinese entity, better financing access and higher appraisal of Chinese assets, the decisive factor for considering Hong Kong over other offshore hotspot like Cayman and BVI is the income tax favorable treatment made available to HK by the mainland China, a unique advantage enjoyed only by Hong Kong.


Tax benefit
Hong Kong also has the lowest corporate income tax rate in China at 16.5 per cent. In comparison, the PRC has a standard corporate income tax rate of 25 percent. By using transfer-pricing techniques, a PRC foreign-owned factory can sell its products to its Hong Kong holding company at a low price, which in turn can sell the products to third-party foreign customers at a higher price. By this means, a larger portion of the pro?ts can be realized in Hong Kong and will therefore be taxed at the lower Hong Kong rate. In terms of the repatriation of pro?ts from the foreign company’s perspective, the repatriation of pro?ts from China to the foreign jurisdiction is generally the same whether the pro?ts ?ow directly from the PRC entity or through a Hong Kong intermediary. The foreign parent company with a Hong Kong holding company, therefore, has the option of keeping the pro?ts in Hong Kong; such funds can be reinvested for other offshore purposes by the Hong Kong Company. Another benefit is that HK company is not required to declare taxation to HK government for its dividends made from China company.


Legal system benefit
A JV or WOFE established in China, will, of course, be subject to PRC law. If a Hong Kong holding company is used, agreements with third parties can be signed by the Hong Kong holding company which will be governed by Hong Kong law. Companies may ?nd that new customers may also take comfort in the fact that agreements are signed in Hong Kong as opposed to China, as Hong Kong is seen as a lower risk jurisdiction. Hong Kong’s legal system remains based on the rule of law. Its courts are independent of the government and are open to the public. Another unique opportunity may soon arise as Hong Kong; the mainland authorities are currently negotiating a reciprocal enforcement of judgments agreement that, when adopted, will be an additional advantage to executing contracts in Hong Kong. The result will be that Hong Kong judgments, unlike those of any other jurisdiction, will be recognized and immediately enforceable in the PRC.


Restructuring benefit
Using a Hong Kong holding company also affords greater ?exibility in the case of restructuring the mainland entity. Transfers of ownership of Hong Kong companies do not require much approval and can be done immediately. While Transfers of ownership of other foreign company will be time consuming and vetting of transfer agreement would be required.

Another benetfit is that transfer tax must be paid for the transfer of an interest in a PRC entity, whereas Hong Kong only levies a 0.02per cent (on net asset value) ‘stamp duty’ on the transfer of shares. The result is that a foreign company that wishes to sell or restructure its holdings in a PRC entity can do so much more easily and quickly if it has the option of carrying out such sale or restructuring at the Hong Kong holding company rather than at the PRC company level.

Liability issues
Inserting a holding company between the parent and the WFOE also affords the parent company some protection from liability. On the mainland, the corporate veil is lifted much more easily than in western jurisdictions. By using a holding company between the foreign parent company and its PRC WFOE or JV, the foreign company can insulate itself to some degree if problems arise at the WFOE or JV level. In this situation, the Hong Kong holding company will be held responsible rather than the foreign parent company.

Ease of registration
One other simple advantage of using a Hong Kong company is that Chinese authorities are very familiar with Hong Kong companies and Hong Kong corporate documents (not to mention the fact that Hong Kong companies can be established with both Chinese and English articles of association). Both upon the set up and at certain other times, the WFOE or JV will be required to submit the corporate documents of its parent company to the PRC authorities. If the parent company is a Hong Kong company, the local PRC authorities will recognize the documents and will have an easier time processing them than would be the case for jurisdictions they have less exposure to. This makes the incorporation process (and to a more limited extent the ongoing operation) of the PRC entity more efficient.

Benefts granted by PRC government
In the last number of years there has been a concerted effort by the PRC government to integrate the economy of Hong Kong into China (particularly with the so-called ‘Pearl River Delta’13). The Chinese government has actively looked at ways to make it easier for Hong Kong companies to do business in China. The most obvious example of this is the so-called ‘Closer Economic Partnership Agreement’ (CEPA) that was signed between Hong Kong and the mainland on29 June 2003.
Free Foreign Currency Circulation

Some foreign countries will have strict foreign currency restriction when they use the foreign company to do the investment in China, while in HK, it is very easy and convenient to solve this problem if you keep a company there and open a corporate bank account, since HK does not have much limitation to foreign currency transfer, the invest capital can be transferred from HK to China very quickly without any approval steps.

Hong Kong has historically been a gateway to China. Despite the rise of major financial and trading centers in the mainland (Shanghai, Shenzhen, Beijing, Guangzhou etc.), the city has remained attractive for foreign companies expanding into the region because of its free market system, clean government, low taxes, world-class infrastructure, skilled workforce and international lifestyle, among other advantages.

For China residents, especially foreign nationals, incorporating in Hong Kong has always been a very strong alternative to setting up a business in a mainland Chinese city, where start-up. Consulting and trading are two areas where using Hong Kong has become a trend.

Consultants in China can use their Hong Kong company to bill their customers, both in China and overseas. For their China customers, providing services as company would definitely be better perceived than doing it as an individual. For international clients, one can provide China-related consulting services by using a Hong Kong company, which technically is part of China, without the price tag that comes with incorporating in mainland China.

Sole traders living in China can use a Hong Kong company to receive payments from international clients and pay their Chinese suppliers. Considering that China doesn’t tax offshore profits, and mainland China is considered offshore, this is a very attractive solution to conduct international trade without the need to rent and operate an actual office.

There are disadvantages for using Hong Kong companies to operate in China however. The first one would be the inability to receive RMB payments and bill your Chinese customers in RMB. Indeed, Chinese firms and individuals will require in most cases to pay in Chinese Yuans (or RMB, the official currency), and will need an official tax receipt (“fapiao”) to justify their expenses in their accounting records. A Hong Kong company is legally a foreign company in mainland China and as so is not able to issue such invoices. Furthermore, Chinese Yuans/RMB cannot be sent from mainland China to your Hong Kong company bank account, meaning the need for your customers to change their money into USD/HKD first which can be a burden.

Another disadvantage would be the visa and other tax/legal issues if you live in China. As we said earlier, a Hong Kong company is considered a foreign company in China and as does not entitle the owner for a residence permit in mainland China. In face of the increasing tightening of the visa regulations in mainland China, this may mean frequent trips to Hong Kong or even to your home country. This can be solved however when you set up a representative office for your Hong Kong company in a Chinese city

We are experts in Hong Kong company registration, and will get your Hong Kong company up and running with the minimum of hassle for you. You do not even need to be in Asia for us to do this for you!

Contact Tom Lee now for setting up your Hong Kong company

Email: tomlee@tommyconsulting.com, tomlee_cn@163.com,
WhatSapp/Wechat/Cell Phone: +86 18926401128, Skype: tomleeli
Tel: 86-755-25809219,Fax: 86-755-83256658

Set Up Hong Kong Company as a Special Purpose Vehicle to Invest Mainland China, Hong Kong Company Formation Procedures, Hong Kong Company Incorporation Services

Hong Kong Company usually been used as a Special Purpose vehicle (SPV) to invest Mainland China. Hong Kong is one of the quickest locations to Incorporate a business. Although a HK company is not a legal entity in Mainland China (MainlandChina and Hong Kong, See Wiki 1 country, 2 systems), lots foreign investors, especially investors from Europe and North America still chose to setting up a Hong Kong company as SPV to invest China.

 

Hong Kong, Asia’s most popular city for international business has a simple, predictable and low tax system. The city only imposes three direct taxes, and filing taxes is straightforward. For the past 19 years Hong Kong has been ranked as the ‘World’s Freest Economy’ by the Heritage Foundation/Wall Street Journal. Hong Kong’s enduring appeal is built on political stability, the rule of law, free market principles, free flow of information, and English as the language of business. Hong Kong is ideally located for growing companies that want to do business with Mainland China and Asia.

 

Advantages of Hong Kong Company

Free to choose company name
Less restriction on business scope
Low tax environment encourage business development
Low register capital and no requirement on the minimum amount of a company’s paid-up capital
Gateway to China
Easily to set up international credit and get financial credit
No restrictions on investments inward or outward, No foreign exchange controls and No barriers to trade
Good reputation

 

Requirements of Hong Kong Company Formation
If the shareholder is a corporation, need to provide Business Registration certificate copy.
Company Secretary must be ordinarily reside in Hong Kong or Hong Kong Limited Company, like UWS, to handle on-going statutory compliance matters.
Registered address of the Company must be located in Hong Kong
There shall be at least one shareholder and natural director over 18 years old, Shareholder and director can be the same person and can be of any nationality
Processing Times of Hong Kong Company Formation• Online applications for Hong Kong Company Incorporation can normally be processed within a day
Paper applications will take 5 working days to get the Certificate of Incorporation and Business Registration Certificate. 

Required Information for Hong Kong Company Formation
Proposed company name (please provide at least 2-3 choices). Company Name must be unique and can be in English or Chinese or both.
Passport copy and residential address (in English) of shareholders and assigned Director.
Amount of share capital, and percentage of shareholdings; if there is more than one shareholder. HK$10,000 divided into 10,000 shares of HK$1 each is the most common and Minimum subscribed share capital is HK$1

 

Hong Kong Company Formation Procedures:
Step 1
Client engages the services of Uni-World Services.
Full information required is sent to us by fax or email.
Step 2
Payment receipt of company formation service fees to be submitted.
Step 3
Necessary documents and forms will be sent to client for shareholder’s and director’s signature.
Step 4
Upon the receipt of the signed documents, the application for the Certificate of Incorporation (CI) and Business Registration Certificate (BR) will be submitted to the Company Registry of Hong Kong. (The Certificate of Incorporation will be issued within 5 working days.)
Step 5
The order for making company seal & chop will be placed.
Step 6
Open bank account
The official establishment of the company is finally completed.

 

 

Hong Kong Company Secretarial Service
Under the Companies Ordinance (Cap. 32) of the Laws of Hong Kong, a limited company incorporated in Hong Kong should appoint a company secretary, to perform the legal liability of the company, which includes declaration of relevant organisation structure, changes of shareholders and directors to the Companies Registry, as well as contemplation of the agenda of company meetings for Board of Directors, preparation of annual general meetings of shareholders and provision of professional advisory service and advice on relevant statutory ordinances.

 

 

Our Services Include:
Preparing and keeping statutory records, such as register of shareholders and register of directors, etc.
Arranging and attending meetings of directors and shareholders, and preparing minutes of meetings
Preparing and submitting statutory documents, including annual return form
Preparing and submitting application for business registration certificate
Assisting in opening bank account
Assisting in applying for Hong Kong work visa
Deregistering the company and suspending applications for activities
Providing relevant advice on company liquidation and bankruptcy

Hong Kong Company Bank Accounts
After incorporating company, you may consider to open bank account or not depending on your company’s actual circumstances.
Local Accounts Documents Required:
Director(s)’s Passport, address proof
Business Registration Certificate
Certificate of Incorporation
Statutory record
Common Seal and stamp
Shareholder(s)’s passport and address proof
Relevant business proof are *Essential*
• Business Plan and/or Product Brochure
• Buyer and Supplier’s contract
• Shipping documents e.g. Packing List, Commercial Invoice and Bills of Lading etc.
• Company Business Card

 

Director(s) should go to the bank in person to sign the bank documents:
Hong Kong banks generally require the directors (at least 2 if more than 2) to visit the bank in person to open an account. Account signatories or a company director (if from Mainland China you must hold a Chinese passport or travel permit) should bring company documents and related materials as mentioned above to open an account in Hong Kong or Macau. 

UWS Banking Services:
Communicate with you in preparing documents required
Review all supportive documents
Understand your business mode
Submit required documents to banker and arranging bank meeting.
Advice on answering bank interview questions shortly before your meeting with bank.
Accompany you to bank for opening bank account.
Follow up with bank closely.

 

We are experts in Hong Kong company registration, and will get your Hong Kong company up and running with the minimum of hassle for you. You do not even need to be in HongKong for us to do this for you

 

 

Contact Tom Lee now for Hong Kong company registration

Email: tomlee@tommyconsulting.com, tomlee_cn@163.com,
WhatSapp/Wechat/Cell Phone: +86 18926401128, Skype: tomleeli
Tel: 86-755-25809219,Fax: 86-755-83256658

Foreign Invested Partnership Enterprises Registration in ShenZhen, Set Up Foreign Invested Partnership Enterprises (FIPE) Documents Required

Foreign Invested Partnership Enterprises Registration in ShenZhen

Since March 1, 2010: Measures of Establishment of Foreign Invested Partnership Enterprises (FIPE) in China is taking effect. The regulation, which take effect since March 1, 2010, are known as the Administrative Measures for the Establishment of Partnership Enterprise in China by Foreign Enterprises or Individuals. There's no required minimum registered capital for a Foreign Invested Partnership Enterprise (FIPE) in Shanghai, Beijing, Shenzhen, Hangzhou and rest cities of China

 

Shenzhen is the best choice for business-doing in China. Shenzhen is situated in the Pearl River Delta. It is the first Special Economic Zone since China carried out reform and open-door policy 30 years ago. Shenzhen has an area of 1953 square km2 and a population of more than 12 million. Shenzhen is the best city both for living and working in China the fastest growing city in the world. In Shenzhen you can enjoy sound infrastructure and nice industrial chain for trading, manufacturing and value investment. Since Shenzhen is bordering Hong Kong, you can take lots of advantages and opportunities from “one country, two systems” policy

 

In Mainland China, there are 4 modes of business presences for foreign investors: WFOE(65%), Representative Office(20%-), FIPE(10%+), Joint Venture(5%). FIPE becomes more and more popular among young entrepreneurs with their new start ups in China as it requires no registered capital but the FIPE still could hire people, collect payments, issue invoices, apply for work & residence in China freely. It's not a surprise that most people you meet in China may not know anything about FIPE as it's relative new and government is not promoting on this.

 

Condition(s) of establish FIPE in China
A partnership enterprise must meet the following requirements:
1. At lease 2 or more partners
2. A written partnership agreement;
3. Capital contribution subscribed to or actually paid by the partners;
4. A business name and an office in an office building for the partnership enterprise;

 

Documents required
1. Corporate investor as partner: Certificate of Incorporation, or Articles of formation or equivalent document certified by Chinese embassy or Chinese consulate overseas For individual investor as partner: Passport copy be certified by Chinese embassy or consulate
2. Residential Address Proof (e.g. utility bill issued within 3 months, valid driving licenses with address, National Identity card with address, etc.) be certified by Chinese embassy or consulate
3. Bank Reference letter be certified by Chinese embassy or consulate (Managing partner only)
4. Passport copy of: (i) Parent company's director (ii) China Partner Enterprise's general partner and (iii) China Partner Enterprise's partners China general partner and partners provides: 6 photos (2 inches size), brief resume. Registered capital; Business Scope; 8 proposed Chinese names of China business Office address in China, leasing contracts, certificate of real estate ownership, and landlord identification

 

GENERAL TAX INFORMATION
No corporate income tax required. The partners shall pay their respective share of the partnership income.

 

PROFIT REPATRIATION
China Government allows Foreign Invested Parnter Enterprises remit their profits out of the country and such remittances do not require the prior approval of the State Administration of Foreign Exchange (SAFE). Dividends cannot be distributed and repatriated to oversea if the losses of previous years have not been covered while dividends not distributed in previous years may be distributed together with those of the current year. Repatriating the Registered Capital to home countries is forbidden during the term of business operation.

 

 

Foreign Invested Partnership Enterprises (FIPE) Setting Up in ShenZhen is a big project by itself, which requires financial and time commitments, business management knowledge and China expertise. Identifying a competent agent to manage the complex process will be a cost and time effective way to avoid potential pitfalls

 

 

Contact Tom Lee now for Set Up Foreign Invested Partnership Enterprises (FIPE)  in shenzhen

Email: tomlee@tommyconsulting.com, tomlee_cn@163.com,
WhatSapp/Wechat/Cell Phone: +86 18926401128, Skype: tomleeli
Tel: 86-755-25809219,Fax: 86-755-83256658

Introduction to Joint Venture company Registration in Shenzhen China, set up Joint Venture company in Shenzhen as china market entry strategies

Shenzhen is the second largest city in Guangdong province, a regional manufacturing and financial hub and one of the richest cities in China. The city, originally a village north of Hong Kong, was first developed as a special economic zone when economic reforms were introduced in the late 1970s. After over 30 years of sprawling, it has become one of China's top four first-tier cities along with Shanghai, Beijing and Guangzhou. With a population of over 20 million, the city's GDP grew 10% to RMB1.3 trillion in 2012. The Shenzhen Stock Exchanges, one of the only two on the mainland, focuses on small and midsized companies as compared to Shanghai's where larger state-owned companies are traded. With sound infrastructure and easily recruited many talented personnel in Shenzhen, Foreign company can take this advantage to set up Joint Venture company in Shenzhen as china market entry strategies

For a long time, setting up a Joint Venture was the only option for foreign investors wishing to enter the Chinese market. A Joint Venture consists of a Chinese and a foreign investor.

In China two different kinds of Joint Ventures exist: Equity Joint Ventures (EJVs) and Cooperative Joint Ventures (CJVs).

EQUITY JOINT VENTURES
Equity joint ventures are the second most common manner in which foreign companies enter the China market and the preferred manner for cooperation where the Chinese government and Chinese businesses are concerned. The Chinese authorities encourage foreign investors to use this form of company in order to obtain exposure to advanced technology and new management skills. In return, foreign investors can enjoy low labor costs, low production costs and a potentially large Chinese market share.

Normally operation of a joint venture is limited to a fixed period of time from thirty to fifty years. In some cases an unlimited period of operation can be approved, especially when the transfer of advanced technology is involved. Profit and risk sharing in a joint venture are proportionate to the equity of each partner in the joint venture, except in cases of a breach of the joint venture contract. 

Share holdings in a joint venture are usually non-negotiable and cannot be transferred without approval from the Chinese government. Investors are restricted from withdrawing registered capital during the live of the joint venture contract. Regulations surrounding the transfer of shares with only the approval of the board of directors and without approval from government authorities will probably evolve over time as the size and number of international joint ventures grow.

There are specific requirements for the management structure of a joint venture but either party can hold the position as chairman of the board of directors. A minimum of 25% of the capital must be contributed by the foreign partner(s). There is no minimum investment for the Chinese partner(s).

COOPERATIVE JOINT VENTURES
In a Sino-Foreign Cooperative Venture (also known as Contractual Joint Venture), the parties involved may operate as separate legal entities and bear liabilities independently rather than as a single entity. 

A cooperative venture may also be registered as a limited liability entity resembling an equity joint venture in operation, structure, and status as a Chinese legal entity. There is no minimum foreign contribution required to initiate a cooperative venture, allowing a foreign company to take part in an enterprise where they preferred to remain a minor shareholder. The contributions made by the investors are not required to be expressed in a monetary value and can include excluded in the equity joint venture process can be contributed such as labor, resources, and services.

Profits in a cooperative venture are divided according to the terms of the cooperative venture contract rather than by investment share, allowing a more flexible schedule for return on investment in cases where one investor provides cash while the other party's investment is primarily in kind.

Greater flexibility in the structuring of a cooperative venture is also permissible including the structure of the organization, management, and assets. There is no term for unlimited terms in cooperative ventures, but also no provisions for the term of the duration. The term of the cooperative venture contract may be renewed subject to the consent of the parties involved and approval from the examination and approval authorities. The foreign investor is permitted to withdraw their registered capital or a portion thereof from the cooperative venture during the duration of the cooperative venture contract.

Because of the unique privileges and added features offered to the foreign party in a cooperative venture, trade unions must be allowed to represent the employees in employment matters to protect the interests of the employees. 

Joint ventures with Chinese companies offer one of the most effective ways for western companies to tap the massive China market. In a sino-foreign joint venture, the Chinese company usually brings the labour, land use rights and factory buildings, while the foreign company delivers the necessary technology and key equipment, as well as the capital. If the joint venture is based on a cooperative contract in which issues like the terms of cooperation, the allocation of earnings, the ownership of property upon the termination of the contract, the sharing of risks and losses, etc are laid down, it is called a cooperative joint venture (CJV). Whereas a sino-foreign Equity Joint Venture (EJV) is a limited liability company, the share holdings in which are usually non-negotiable and cannot be transferred without approval from the Chinese government. Investors are restricted from withdrawing registered capital during the life of the equity joint venture contract. 

As the investment regulation and business environment changes in China, less and less foreign investor use joint venture as the investment vehicle. RO and WFOE are now most commonly used JV is fading out because of the practical difficulties in :
- picking the proper China partner
- management
- technology transfer
- profit sharing, etc

There are three primary differences between an EJV and a CJV:
While an EJV is always a legal person, and thus a limited liability company, a CJV can be a legal as well as a non-legal person. The latter option means the partners of the joint venture would be personally liable for any losses the company might make in the future. 

In an EJV the division of profits has to take place equivalent to the ratio of the capital contributions made by the parties, while the profit division in a CJV can take place according to the parties' wishes. A CJV is thus a lot more flexible than an EJV. 

In a CJV a party may, besides contributing registered capital, provide for so-called cooperative conditions, e.g. market access rights. Before applying for the establishment of a joint venture, the following documents have to be at hand:
The necessary work and resident permits for the legal representatives: 

The approval and corresponding certificate from various relevant authorities like the Planning Bureau, the Public Security Department, the Foreign Economic and Trade Bureau, etc.The approval from the Industrial and Commercial Registration Office to use a certain company name. A report of corporate capital verification issued by a Chinese public accountant. 

Setting up a Joint Venture requires the help of an expert. This is a brief overview of the most important steps:

1. Fill out the application form (sign the agreement);
2. Company name search & confirmation;
3. Pay for the services;
4. Submit the needed documents;
5. Check the documents;
6. Prepare for the statutory documents; Let the investors sign the documents personally, and then submit all the documents to the government
7. Keep clients informed of the processing.
8. Finish processing in 40-80 working days; (it depends on the registered address and business scope)
9. Hand over all the company kit to clients;
10. Sign the receipt.

Setting up a Joint Venture in ShenZhen is a big project by itself, which requires financial and time commitments, business management knowledge and China expertise. Identifying a competent agent to manage the complex process will be a cost and time effective way to avoid potential pitfalls

Contact Tom Lee for Setting up a Joint Venture company in shenzhen now

Email: tomlee@tommyconsulting.com, tomlee_cn@163.com,
WhatSapp/Wechat/Cell Phone: +86 18926401128, Skype: tomleeli
Tel: 86-755-25809219,Fax: 86-755-83256658

How to Set Up a Representative Office in ShenZhen China, Recent Updates to setting up a Rep Office in ShenZhen

How to Set Up a Representative Office in ShenZhen China,

Shenzhen is the second largest city in Guangdong province, a regional manufacturing and financial hub and one of the richest cities in China. The city, originally a village north of Hong Kong, was first developed as a special economic zone when economic reforms were introduced in the late 1970s. After over 30 years of sprawling, it has become one of China's top four first-tier cities along with Shanghai, Beijing and Guangzhou. With a population of over 20 million, the city's GDP grew 10% to RMB1.3 trillion in 2012. With sound infrastructure and easily recruited many talented personnel in Shenzhen, Foreign company can take this advantage to set up Rep Office in Shenzhen as china market entry strategies

When investors have plans on establishing representative office in Shenzhen, it is better for them to acquire more information in order to run a successful business in Shenzhen.

Shenzhen Representative Office Setup-Procedures 

 

Preparing all the needed documents→ fill out the application form→ sign the agreement with TCBC→ pay for the services→ submit all the needed documents→ name reservation→ apply for the business license and work card→ go to the public security bureau for stamp-make→ apply for Organization Code License & card→ apply for Setup license of the Local & National Taxation Bureau.

An RO has no legal personality, meaning it does not possess the capacity for civil rights and conduct, cannot independently assume civil liability, and is limited in its hiring ability. Chinese staff working for an RO, although not limited in number, must be employed through a human resources agency that will sign a contract with the RO on the one hand and with the Chinese staff on the other in order to ensure social security and housing fund contributions are paid on a regular basis. No more than four foreign employees can be hired per RO. Foreign staff working for ROs should have an employment relationship with the parent company abroad, and any disputes should be settled under the laws of that country

Recent Updates to setting up a Rep Office in ShenZhen

 

The new restrictions

The January 2010 notice states that some rep offices have been operating outside of the restrictions—specifically, changing registration items without authorization, submitting false supporting registration documents, and conducting business operations illegally. The notice thus sets out several provisions to strengthen the administration of rep offices.

Registrations, renewals, and changes

A new provision in the notice states that foreign companies applying to establish a rep office in China must have been in existence for at least two years, as evidenced by an apostilled certificate of incorporation. This means that foreign companies must use established vehicles, rather than incorporate new SPVs, to handle their rep office operations. The notice also requires foreign companies to obtain and provide new apostilled certificates of incorporation each time they apply to renew their rep offices’ registration certificates—a potentially onerous process—and requires rep offices to renew their registration certificates every year.

Number of representatives

In addition to stricter registration and renewal requirements, the notice creates new bureaucratic hurdles for rep offices’ operations. Specifically, it limits the number of representatives that a company may appoint to four individuals, including the office’s chief representative. (Previously, there were no explicit limits on the number of representatives that a foreign company could appoint.) Existing rep offices that have more than four representatives may not appoint additional representatives, though the notice does not specify whether such offices must reduce this number to comply with the new rules. One local SAIC official in Beijing indicated that reduction would likely be unnecessary unless a rep office applies to SAIC to make changes to its registered representatives. (In addition to SAIC’s registration requirements, the PRC government has found practical ways to enforce the rule, such as refusing to issue visas or work permits to foreign employees of rep offices that have more than four registered representatives.) The notice also does not specify whether the restrictions would apply to rep offices of companies in industries that require regulatory approval. Local SAIC officials have provided different answers to this question, likely because of the limited number of registration applications that have been received since the notice was issued.

Spot checks

The notice states that local SAIC branches will perform spot checks on rep offices within three months after the registration certificates are issued. Rep offices found engaging in direct operations may be subject to administrative fines, and those discovered to have moved without updating their registered addresses or operating without valid registration certificates may be subject to increased scrutiny by the authorities.

Is a rep office still worth it?

Though rep offices have no capitalization requirements, some foreign investors have long debated whether opening a rep office was worth the time and effort due to the limited scope of its permitted business activities. Given the recent tighter restrictions on rep offices, more companies may begin their China operations with a WFOE, which can conduct revenue-generating activities directly. Furthermore, increased localization of approval procedures and decreased capital requirements have made establishing a WFOE less onerous.

Setting up a rep office may thus be the best choice for a foreign company that is mainly interested in promoting its overseas products and services and establishing networking relationships between Chinese businesses and their overseas operations. In addition, for some entities—such as foreign law firms and certain nonprofit organizations—a rep office may be the only option for conducting their China operations.

Many foreign companies are finding that the question is not simply whether they should set up a WFOE or a rep office, but rather how they can best take advantage of the vehicles available for foreign investment through a multifaceted approach. Because various investment vehicles and industries are subject to different regulations and authorities, a foreign company may find it advantageous to set up multiple rep offices, WFOEs, and Sino-foreign JVs. The different permitted business scopes of these various investment structures may allow companies to conduct more business in China. The correct approach for investing in China largely depends on the particular industry and the specific goals of the company.

Recent Updates to Representative Office Tax Law

The PRC government earlier this year issued new measures that promise significant changes to how foreign representative (rep) offices calculate and file taxes in China. The changes bring China’s law on rep office taxes in line with the 2007 PRC Enterprise Income Tax (EIT) Law and may subject rep offices to new tax requirements and potentially higher tax burdens.

According to the Provisional Measures for Foreign-Enterprise Representative Office Tax Administration, which were released by the PRC State Administration of Taxation in February 2010 and took effect retroactively from January 1, 2010, foreign rep offices must now declare and pay income, business, and value-added taxes on income attributable to the rep office. Previously, rep offices could negotiate EIT exemptions with local tax bureaus on the basis that their rep office activities did not generate revenue. Under the new measures, local tax bureaus can no longer accept new rep office applications for EIT exemptions and must re-evaluate the applications of rep offices that enjoy existing exemptions. Only rep offices that have protection under a relevant double tax agreement may be considered for EIT exemptions.

The measures also clarified tax registration procedures for rep office staff and offered three formulas to calculate tax liability, depending on how complete the rep office’s financial records are:

◾Actual amount method Used when the rep office has kept complete records of its expenditures and revenue, this method is comparable to the tax calculation standard laid out in the EIT Law. (Though rep offices typically do not engage in traditional profit-making activities, income has been assessed—and tax levied—based on the services they provide.)

◾Actual-revenue-deemed-profit method The tax authority will use this method when the rep office has kept complete records of its revenue but not its expenditures. The reported revenue is multiplied by the tax rate and a “deemed profit rate,” which can be no less than 15 percent.

◾Cost-plus method This method is used when the rep office has kept complete records of its expenditures but not its revenue. In this case, the tax authority will generate a figure to indicate revenue: Revenue = expenditures / [1 – deemed profit rate – tax rate].

This figure will then be multiplied by the determined profit rate and tax rate to calculate tax liability.

The cost-plus and actual revenue-deemed-profit methods empower local bureaus to determine the formula that rep offices must use to calculate their income tax liabilities, using the all-important deemed profit rate. The new measures increased the minimum rate from the previous 10 percent to 15 percent. Because 15 percent is a base rate, however, local tax bureaus may have the discretion to apply a deemed profit rate that is even higher. The new rules thus create a strong incentive for rep offices to keep accurate records of their revenue and expenditures to avoid using the deemed-amount method to calculate tax liabilities.

Contact Tom Lee for Set Up a Representative Office in shenzhen now

Email: tomlee@tommyconsulting.com, tomlee_cn@163.com,
WhatSapp/Wechat/Cell Phone: +86 18926401128, Skype: tomleeli
Tel: 86-755-25809219,Fax: 86-755-83256658

How to Set Up Wholly Foreign-Owned Enterprises WFOE in ShenZhen China, Shenzhen WFOEs Registration Procedure and Document Required

 

 

WFOE stands for wholly foreign owned enterprise, which is a limited liability company wholly owned by either a foreign legal entity or a foreign natural person. The foreign investors may be foreign enterprises or individuals
.
Wholly owned foreign entities (WOFEs) are the vehicle of choice for most people and companies doing business in China. It is less complex than a joint venture (JV) and allows you to concentrate on what your employees are up to as opposed to your partners. It is required to register as a legal person who is restricted to certain businesses. The enterprise is able to implement strategies that effectively conform to the interests of the parent company aboard. Moreover, technology and know-how are given better protection. 

No. minimum registered capital is required for WFOEs with scope of business of consulting, Trading, retailing, information technology etc. in China. There are minimum registered capital still required for some industries for instance: Banking, Forwarding etc Since China still maintains foreign currency control policy, it's still advisable to choose registered capital within RMB 100,000 ~ RMB 500,000 as the minimum registered capital. Companies can now determine how much capital will be required to maintain their operations and must simply ensure that they meet those targets within a period of 10 years.

 

Advantages of WFOE
1. Independence and freedom to implement the worldwide strategies of its parent company without having to consider the involvement of the Chinese partner;
2. Ability to formally carry on business rather than just a representative office function;
3. Issue invoices to their customers in RMB and receive RMB revenues. Convert RMB profits to US dollars for remittance to their parent company outside.
4. cheap labor, which can lower your cost;
5. not required to share profits with Chinese counterpart;
6. Greater efficiency in its operations, management and future development.

 

Shenzhen is the second largest city in Guangdong province, a regional manufacturing and financial hub and one of the richest cities in China. The city, originally a village north of Hong Kong, was first developed as a special economic zone when economic reforms were introduced in the late 1970s. After over 30 years of sprawling, it has become one of China's top four first-tier cities along with Shanghai, Beijing and Guangzhou. With a population of over 20 million, the city's GDP grew 10% to RMB1.3 trillion in 2012. The Shenzhen Stock Exchanges, one of the only two on the mainland, focuses on small and midsized companies as compared to Shanghai's where larger state-owned companies are traded. With sound infrastructure and easily recruited many talented personnel in Shenzhen, Foreign company can take this advantage to set up WOFEs in Shenzhen as china market entry strategies

 

 

Registration process
The application process to create a company in China generally takes three to six months. The establishment process varies based on the WFOE form and the planned business scope. For example, a Manufacturing WFOE will require an environmental evaluation report, and Trading WFOEs will need to undergo customs/commodity inspection registration. The application process can be divided into two parts:
• Pre-registration – what happens before the company formally exists
• Post-registration – what happens after the company formally exists

 

Pre-registration
1. Name registration
The company name can be translated from English by meaning and/or phonetically. Verification of feasibility of the proposed name by the AIC will take a few working days. Only the Chinese name will be legally binding – the English name is not legally relevant for Chinese authorities. Note that the words “China” and “International” cannot be freely included in the Chinese name, and are subject to further requirements.

2. Issuance of approval certificate and temporary business license
The authorities will issue the approval certificate and temporary business license after assessing the following documentation:
From the investor:
• Business license (certificate of incorporation – depending upon locations, this may need to be notarized in the investor country of origin, and then translated into Chinese);
• Bank statement to demonstrate credit worthiness (from relevant bank in country of origin and translated into Chinese); and
• Photocopy of passport of the legal representative of the investor company.

From the new company:
• About the new business – Name of the company, business scope, registered capital, business term, lease contract;
• About the legal representative – Photocopy of passport and passport-size photos;
• About the directors – CVs, photocopies of passports, and passport-size photos;
• Feasibility study report – Outlining the estimated cash flow for the next three years;
• Articles of association; and
• Environmental protection evaluation report (if applicable). 

The approval certificate will be issued by the local office of the MOFCOM. Upon issuance, there is a 30-day limit for registering the company with the AIC, which then issues the temporary business license.

 

Post-registration
Following the issuance of the temporary business license, the WFOE would need to perform a number of formal registrations at various Chinese government entities, including applying for carving various seals (or chops) in order to authorize documents on behalf of the company, as well as opening an RMB account for managing daily operating expenses and a foreign capital account for receiving foreign currency.

 

Summary

Compared to registering a business in most Western countries, registering a business in China is challenging work filled with paperwork and bureaucratic red tape. It is practically impossible to properly complete the registration process without a qualified agency. Be sure that the agency is qualified and the agency has good connections and relationships with the various local authorities, and that they possess comprehensive knowledge about the numerous important aspects involved with legally and properly registering a WFOE.

 

 

Contact Tom Lee now for setting up your WFOES in shenzhen

Email: tomlee@tommyconsulting.com, tomlee_cn@163.com,
WhatSapp/Wechat/Cell Phone: +86 18926401128, Skype: tomleeli
Tel: 86-755-25809219,Fax: 86-755-83256658

The Options For Foreign Investors To Set Up Business In ShenZhen China

 

Set Up Business ShenZhen

Shenzhen is located on the western coast of the Pacific Ocean and at the central section of the north-south coastline of China. Facing the opportunities and challenges of the 21st century, Shenzhen has set its long-term strategic objectives for social and economic development. In near 
future, Shenzhen is planned to become one of the international economic, financial and trade centers of the world.

As the window of China's reform and opening up, Shenzhen is the first special economic zone established by China's reform and opening-up policy. Shenzhen came in second as the most economically competitive cities in the world in 2016.


Setting up a company in Shenzhen is a good choice for companies that are in computer software, IT, microelectronics and components, video and audio products, electromechanical integration, and key projects of light industry and energy. 

As the seven strategic emerging industries, the Internet, new materials, biology, new energy, energy conservation and environmental protection, cultural creativity, new generation of information technology and the four future industries i.e. marine economy, aerospace, robot wearables and intelligent equipment and life health are gaining momentum.

To facilitate people who want to invest and set up company in Shenzhen, here is an introduction of Types of business presence in China:

Before starting up a business in China, you have to know what are the options. Foreign Investors generally establish a business presence in China in one of five modes: Wholly Foreign Owned Enterprise (WFOE); Representative Office; Foreign Invested Partnership Enterprises (FIPE); Joint Venture and Hong Kong Holding Company.

Wholly Foreign Owned Enterprise (WFOE) is a Limited liability company wholly owned by the foreign investor. WFOE requires registered capital and it's liability of equity , can generate income, pay tax in China and it's profit could be repatriate back to investor's home country. Any enterprise in China which is 100 percent owned by a foreign company or companies can be called as WFOE. No. minimum registered capital is required for WFOEs with scope of business of consulting, Trading, retailing, information technology etc. in China. There are minimum registered capital still required for some industries for instance: Banking, Forwarding etc Since China still maintains foreign currency control policy, it's still advisable to choose registered capital within RMB 100,000 ~ RMB 500,000 as the minimum registered capital. Companies can now determine how much capital will be required to maintain their operations and must simply ensure that they meet those targets within a period of 10 years.

Representative Office (RO) is a Liaison Office of it's parent company. It requires no registered capital. It's activities would be: product or service promotion, market research of it's parent company's business, Quality Control liaison office etc in China. RO generally is prohibited to generate any revenue nor generating contracts with local businesses in China.

Joint Venture (JV) is a Limited liability company formed between Chinese investor and Foreign investor. The parties agree to create a entity by both contributing equity, and they then share in the revenues, expenses, and control of the enterprise. JV usually been used by foreign investor to engage the so called restricted in areas such like: Education, Mining, Hospital etc.

Since March 1, 2010, Measures of Establishment of Foreign Invested Partnership Enterprises (FIPE) in China is taking effect. The regulation, which take effect since March 1, 2010, are known as the Administrative Measures for the Establishment of Partnership Enterprise in China by Foreign Enterprises or Individuals. There's no required minimum registered capital for a Foreign Invested Partnership Enterprise (FIPE) in Shanghai, Beijing, Shenzhen, Hangzhou and rest cities of China

Hong Kong Company usually been used as a Special Purpose vehicle (SPV) to invest Mainland China. Hong Kong is one of the quickest locations to Incorporate a business. Although a HK company is not a legal entity in Mainland China (MainlandChina and Hong Kong, See Wiki 1 country, 2 systems), lots foreign investors, especially investors from Europe and North America still chose to setting up a Hong Kong company as SPV to invest China.

After China's entry to WTO, most industries in China welcome foreign investment, WFOE setting up in China becomes the first option of foreign investment's entity structures instead of Rep. Office setting up in China At the mean time, for tax purpose, effective licensing system etc more and more investors use Hong Kong as the holding company to invest China mainland, using this offshore company to hold their operations in China.

Business set-up in Shenzhen is a big project by itself, which requires financial and time commitments, business management knowledge and China expertise. Identifying a competent agent to manage the complex process will be a cost and time effective way to avoid potential pitfalls

Since 2006, Tommy China Business Consulting has been focusing on consulting services for our clients to register company in ShenZhen.

Contact Tom Lee now for setting up your company In ShenZhen. 

Email: tomlee@tommyconsulting.com, tomlee_cn@163.com,
WhatSapp/Wechat/Cell Phone: +86 18926401128, Skype: tomleeli
Tel: 86-755-25809219,Fax: 86-755-83256658