The most common forms of running business in China is through joint venture, wholly foreign-owned enterprise and representative offices of foreign companies.
There are several forms of business organization for foreign companies:
- Equityjoint venture
- Co-operative joint venture
- Wholly foreign-owned enterprise
- Representative office
- Holding company
China allows joint venture to carry out manufacturing and sales operation. The corporate is permitted to sell products through own sales network.
Under the Sino-foreign Equity Joint Venture Enterprise Law, an equity joint venture is a limited liability legal entity and formed by one or more Chinese parties and one or more foreign parties and. A board of directors will manage the joint venture with agreed from both sides. Foreign investors will share profits and losses strictly in an equity joint venture according to their contributions to the registered capital.
The Sino-Foreign Co-operative Joint Venture Enterprise Law governs the establishment of a co-operative joint venture. It may be formed as a separate legal entity with limited liability or an entity similar to a partnership. According to the Co-operative contract, the foreign investors will share joint venture profits and losses.
Foreign companies are allowed established 100% owned enterprises under the 1986 Law of the PRC on Enterprises Operated Exclusively with Foreign Capital. It is a distinct and separately taxable legal entity.
Representative offices are normally set up to carry out liaison work (such as market survey, co-ordination etc...) with parent overseas office. In general, it takes around five to eight weeks for the application to be approved. The representative office has to apply for business registration once the application is approved.
For representative office, it is not allowed to carry out any sales and manufacturing activities.
The official currency is Renminbi (RMB) that is convertible to Hong Kong Dollar with limit. The exchange rate of RMB is based on the market demand and supply through the inter-bank foreign exchange market and it is not a freely convertible currency.
The State Administration of Foreign Exchange (SAFE) and the People's Bank of China may intervene in the market to control and stabilize the exchange rate.
Tax treatment for foreign enterprises are governed under the Income Tax Law of the PRC for Enterprises with Foreign Investment and Foreign Enterprises. The calculation of the taxable income is consistent with international tax practices.
Audits are required for enterprises with foreign investment. All foreign enterprise is subject to Enterprise Income Tax at a standard rate of 30%. An addition 3% of local income tax is also required to pay by foreign enterprises.
Other Taxes in China:
- Individuals Tax
- Turnover Tax including Value Added Tax, business tax and consumption tax
- Customs Duty
- Land Appreciation Tax
- Registration Fees
- Stamp Duty
- Urban Real Estate Tax
- Vehicle and Vessels Operation License Tax
Copyright © SUNG SIM SERVICES LIMITED. All rights reserved.
