Shenzhen is The ideal place for starting a business in China, The Options For Foreign Investors To Incorporate Business In ShenZhen

Business in China at its finest

Shenzhen, the brainchild of former statesman Deng Xiaoping, and the PRC's first shot at creating an experimental ground for practice of market capitalism, is a modern day marvel that has far exceeded the expectations of everyone involved in bringing it to the heights it has achieved in its short history.
Shenzhen is a magical place that has many reasons why it is such a hospitable place for starting a business in China, and that's why we've compiled an infographic with remarkable facts and figures that prove exactly why starting a business in Shenzhen is a great option for foreign businesses!

 

Business in Shenzhen (in numbers) 

 

These facts and figures really do go a long way to showcasing Shenzhen's exponential growth in just 35 years andwhy it'sone of the most saught after cities for foreign companies who're looking at starting a business in China!

It is amazing that Shenzhen has managed to do so much in such a short space of time. Eclipsing one of Asia's most popular business hubs, Hong Kong, as the most competitive city to do business in China is surely one of its greatest feats, and a strong indication of the continued prosperity that is set to follow!

 

 

What do YOU think about Shenzhen?

Are you already doing business in China? Which city are you based in, and what do you do?

Are you currently considering starting a business in Shenzhen? When? Which of these facts and figures astounds you the most?

The Options For Foreign Investors Or Foreigner To Incorporate Business In ShenZhen 

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

Set Up E-commerce Company In ShenZhen Qianhai Free Trade Zone, Shenzhen's Qianhai Is The Perfect Place For E-commerce Company Formation

 

Doing Business in China? Shenzhen's Qianhai, the perfect place for e-commerce

The Qianhai Special Economic Zone is a commercial development in Shenzhen that is set to become a major regional center of the modern service industry. The zone encourages a number of future leading industries that include:

• Finance
• Modern logistics
• Information services
• Technology
• Consulting and management
• E-commerce

E-commerce is certainly one of the industries that is flourishing, with Shenzhen becoming a pilot city of a national scheme to develop cross-border e-commerce that started online exports in November 2013 and online imports in September 2014. 

The industry has experienced some exponential growth, most recently in Qianhai, thanks to the increasing demand from the Chinese for quality overseas goods. The zone's close proximity to Hong Kong makes it the ideal ground for developing cross-border e-commerce, and the latest figures on this growth tell a big story that companies planning on doing business in China must take heed of.

Join us as we take answer: "What is QianHai," take a look at e-commerce in the zone, and pinpoint just what makes it the 'perfect' place for this type of business in China!

The e-commerce industry within Qianhai special economic zone

 
The Qianhai Bay Bonded Port Area, an area uniquely placed to benefit from the special functions of a free trade port zone and the preferential policies of the Qianhai special economic zone itself, was chosen by the city to implement the pilot scheme, and the total imports and exports of the cross-border e-commerce business amounted to about $133 million in just the first 10 months of this year, four times the total of last year's haul. 

Official figures show that more than 4,000 e-commerce companies had registered in Qianhai by the end of October. Of these 4000 companies, about 160 of them have registered with customs to conduct online exports and imports, doubling the number in the first half of this year. 

According to Liu Xiao, director of the bonded zone management sector of Qianhai Authority, cross-border e-commerce would eventually generate industrial output of more than 100 billion yuan. 

These staggering figures are a testament to China's growing infatuation with purchasing goods online. People are becoming more accustomed to the convenience and affordability of the online shopping experience with yearly sales such as Single's Day. The great thing about Qianhai is that goods stored in warehouses in the zone enjoy a lower tax rate of 10-20%, as opposed to the general tax of 30-50%, ensuring that one can always get the highest quality international products they want, at the lowest prices!

 

A cross-border shopping center

 
 Image source: ChinaDaily Asia


Whilst online shopping has truly become a massive industry within China, and particularly in Qianhai, a lot of people do still prefer traditional brick and mortar stores when it comes to the 'real' shopping experience. This is an area where Qianhai has risen to the challenge once again, and the zone has done so with the establishment of The Qianhai (Hong Kong) Global Shopping Center.

The shopping complex is a four floor cross-border shopping haven that covers around 20,000 sq m of retail space and has more than 200 parking spaces. Shoppers that would like to try before they buy are able to visit shops, 70-80% of which are stocked with goods from Hong Kong, and take a closer look at what's on offer before being led to pay for the goods online by scanning a QR code in-store, and have their goods delivered to them 2 days later.

The prices of goods within the complex are very competitive with that of prices in Hong Kong, or even lower. 
 

Image source: ChinaDaily Asia


This will certainly be very attractive to those that want to skip on the commute to Hong Kong, and bring Shenzheners that much closer to Hong Kong.

 

 

Advantages for e-commerce companies

Cross-border e-commerce in The Qianhai special economic zone is truly set to take off with its relatively low tax rates and its shopping complex. It presents local and foreign companies interested in starting a business in China with quite a few distinct advantages when it comes to the e-commerce business that includes:

• The very nature of The Qianhai New District lends itself to the fostering of future leading industries such as finance, modern logistics, information services and technologies, which will all inevitably support the continued development of e-commerce within the zone.
• Shenzhen is China's leading import and export hub, and as such it has developed a fast and convenient system for handling foreign trade. The customs, quarantine, tax and foreign currency settlement in Qianhai are very efficient, ensuring that a company's e-commerce business can run smoothly.
• Qianhai’s location allows it to take advantage of the world-leading transport networks in Shenzhen and Hong Kong, which are located within 30 km of the zone.
• Qianhai promises to have Hong Kong standard telecoms and internet speeds, making running an IT company much more efficient and simple than in other areas of the Mainland

 Are YOU considering opening an e-commerce company in China?
Does QianHai sound like an attractive location for your business? What makes it so compelling?

Let us know any questions or issues you may have on the QianHai zone and any other aspects of doing business in China by leaving your thoughts as a comment below...

3 Things You Must Know About Chinese Accounting Standards

 
Anyone who has been to China will probably tell you that they do things very differently over here, and that includes Chinese accounting standards!

Foreign companies coming to China for the first time will be faced with very different attitudes towards accounting, and could potentially get caught out. While getting good local China accounting advice is almost certainly going to be necessary once you're on the ground, it can't hurt to be aware of a few home truths before getting started.

In this blog post we're going to look in more detail at 3 of the common quirks, facts, tips, and differences between accounting in China and that which we're used to in Western (and other foreign) countries...

1. Vet Local Chinese Accountancy Firms Carefully As They Can Play Fast And Loose With The Law

In China there's the legal way, and then there's a way where corners are cut. Of course it's better to stay within the law at all times, but how do you know that your account is keeping on the straight and narrow?

Well, first it's important to know the basics about what employers in China are required to do by law as regards accounting:

• Companies must file their financial statements and business tax returns monthly and in Chinese
• CIT (corporate income tax) must be filed quarterly
• Every employee must have a written, signed, and stamped contract (in Chinese) which outlines their salary and overtime matters
• Profit and Loss statements must be produced in Chinese and English
• Both staff and management need to pay IIT (individual income tax), even if there are few managers and many staff
• A reliable annual China accounting audit where a CPA (certified public accountant) will assess your accounts' compliance and report back to the local MOF authorities, earning you a higher grade of trust
• Before repatriating profits will be allowed, companies must have undertaken an annual China accounting audit, and have paid CIT
•  

If any accountant tells you anything other than this, then there is a chance you could be sailing into stormy waters in future.

2. Since 2007 Chinese Accounting Standards (CAS) Have Been Around 90% The Same As IFRS And Soviet Accounting Was Banished

International Financial Reporting Standards are the commonly held accounting standards in the West that mean that accounting practices are consistent and understandable across borders.

As you can imagine, before China got into line with them with CAS it was very hard indeed to fathom China accounting. Instead it was a fund accounting system where companies' assets were laid out and it was possible just to assess productivity, as in the near past all major industry and commerce was controlled  centrally by the CCP, and so companies only needed to report their productivity by the end of the financial year.

Obviously in more recent years with foreign companies now opening WFOEs and other business types in China regularly, it was important that accounting standards were brought up to date in order to reflect profitability rather than productivity. In a more free market Chinese economy today, the old Soviet ideals of breaking even and being as productive as possible went out of the window.

3. Are There Differences Between CAS & International Accounting Standards?

Yes. As mentioned CAS is about 90% the same as international accounting standards.
The important differences foreign companies need to know are:

• Companies must deal directly with the Ministry Of Finance (MOF) when submitting accounts in China.
• Foreign transactions must be converted to RMB using the government's official rate.
• The financial year begins on Jan 1st in China, running until the 31st.
• Chinese accounts are generally classified by function, as opposed to the international standard to classify them by their nature.
• Historical cost method is more widely used, particularly for private firms since it is difficult to obtain fair-value information
• Fiscal year in accounts must begin on 1st January.
• Companies will need to inform the MOF of the identity of the business partners.
• Accounts must be filed monthly, and indirect cash-flow statements and comments on fairness of transactions must be provided within them.
• Accounting rules are not hard and fast throughout the entirety of China. In fact they may differ from city to city, and indeed even between districts of a certain city.

Conclusion

 
Doing business in a foreign country is never simple, and the same goes for China. Since Chinese accounting standards differ to those which you're familiar with, and accounting must almost completely be done in Chinese, many foreign companies will need assistance.

Hiring a local accountant could be a solution, but you need to watch them like a hawk and make sure that they're not, inadvertently or otherwise, cutting corners which could cause you to fail your annual audit; or you could outsource tolocal accountancy experts like TCBC who will handle everything from completing your books, to paying taxes for you.

Whatever you decide to do, make sure that you don't go into things blind, as by having even an overview of the way things are supposed to be you are able to make better business decisions moving forward.

What Is VAT Tax In China?

What do you know about Chinaa ccounting?  Probably not that much.

What do you know about VAT tax in China? Most foreign companies entering China would probably say, “Very little. It must be similar to the West, right?"

Well, the similarity is that China does have VAT, but the similarities really end there I’m afraid.
VAT in China is notoriously complex and difficult, and so in this blog post we’re going to introduce and explain this important element of China accounting for your consideration so, no matter if you’re planning on entering China, or are already operating here, you have a better knowledge of this thorny topic…

What are the rates of VAT in China?

Well, most countries charge Value Added Tax on products and services sold, imported, etc, so as progressive and modern country it’s no surprise that China follows suit.
However, as is typical with China a lot of the time, VAT here tends to be rather complex.
Here are the rates of VAT in China:

• General VAT on sale, imported, processed, installed, and repaired is 17%.
• Heating, paper, and food products are taxed at 13%.
• Selected specific industries, such as R&D and technology, cultural creativity, IT, logistics auxiliary, and broadcasting, film, and TV only pay 6%.
• Certain small-scale tax payers only pay 3%.
• Transportation services provided from a Chinese company to a foreign company is charged at 0%.

How is VAT paid in China?

As in many countries, VAT tax in China is added at each step throughout a supply chain through which a product (or service) progresses through towards its end user. Each time a product is enhanced, adding value, more VAT is added and must be paid.

Are there any tax exemptions or rebates to know about?

Tax rebates are most commonly focused on exports. This makes sense, as until very recently China has derived a great deal of its industry and income from foreign companies who have sought to use its people and facilities for manufacture of products to be shipped overseas.

However foreign companies who manufacture for export in China oftentimes don’t even know that they’re eligible to gain a refund on their products as they’re exported!

What’s more, in the case of working in partnership with Chinese exporters in order to get your products to you abroad (which many foreign companies do instead of setting up their own exporting operations in China), the local companies will often not disclose the fact that they gain a VAT rebate on the exported products, charging them the full cost and pocketing the rebate themselves!

Mike Bellamy at Passagemaker China warns:
In practice, the exporter may work with the manufacturer to pull a fast one on the foreign buyer by exploiting the buyer’s lack of knowledge of the VAT process. It is not uncommon for the exporter to tell the foreign buyer that in addition to the unit price there is a VAT tax and or an import-export fee. Those items should be included in an “FOB port” unit price already, so if the seller tries to break them out separate, in addition to the FOB price, then it is probably a tactic to get more money out of your pocket.

It is common that the exporting company may apply to be granted a VAT rebate once the products have been exported as long as they can supply their customs declaration, export invoice, export of foreign exchange check-offs list and other official information related to the export. So no matter if you are exporting directly yourself through your China WFOE which has an import export license, or you’re working with a local export company to handle this for you, you need to know the impact of the possible VAT rebate on your bottom line!

The problem.

Many foreign companies don’t know how to apply for their tax rebates, if they’re eligible at all, and whether their products are eligible for a full refund or only partial (both exist).

The solution.

Transparency and understanding are two key issues affecting all foreign companies operating in China. Where do you go for decent advice that you can rely upon?

Well, you need to have a trusted accountant either on your team, or at least to offer advice to. If you’re working with an export agency to get your products overseas you need to have a transparent relationship with them in order to be assured that they’re not undermining you.
Want to get a free consultation from our China accounting and tax experts and discuss your VAT? Click below:

Bottom line.

Knowledge is power.
If you’re a manufacturer and exporter in China, the Chinese VAT rebate is one of your greatest weapons, as it allows your products to gain more profit and remain competitive abroad, which is really the distillation of why many foreign companies choose to manufacture in China in the first place.

The problem is, did you know you can actually gain the VAT tax in China back as a rebate?

Weekend Reading In Detail…

Obviously a lot of time can be spent on VAT in China, and this blog serves as an overview to make foreign companies aware of some of the main points. To get more detailed information, this white paper on China VAT for exporters offers a great deal of value (although is not short form).