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Tax Insights

2018-06-30
154112 | 42 | 5

Business Registration in China


With its rapid economic development, China has become one of the most invested country in the world. Over the past decade, the Chinese government has devoted time and resources on the construction of China’s infrastructure, such as railway and urban transportation, international education, medical facilities, online payment system, well enhanced economic policies, etc. One can now even travel around China without any physical money, every purchase or payment can be executed via your phone through wechat or alipay. With its huge market potential of 1.4 billion population, China has become more attractive for the overseas investors.


Foreign investment into China can be done through various types of entities, for instance, wholly foreign-owned enterprise (WFOE), Representative office (RO), Joint venture (JV), Variable interest entity (VIE), and so on. Choosing the right entity will depend on a number of factors, like the business activities, the industry and the investment size.  However, the most common entity is the WFOE, which we discuss in different sections below:

A.  The information and documents for registration
B.  The registration timeframe and procedures
C.  The compliance work


* Pre-Set Up Documents Checklist


A corporate shareholding might be recommended due to tax reasons, for instance, a lower withholding tax rate will be applicable for profits repatriation to an overseas corporate shareholder as compared to an overseas individual.  


The standard set of documents required from the shareholder are as follows

-  Individual shareholder- Notarised and authenticated passport of the shareholder 

-  Corporate shareholder- Certificate of Incorporation, Register of shareholders and directors, Directors’ resolution and Bank reference letter from investor’s bank


Information required for the new WFOE set up application

-    Shareholder of WFOE
-    Passport of new company’s key positions

-    3 or more company name choices (Chinese name only), for example, XXX + Trading + Shanghai + Co Ltd
-    WFOE's business scope*
-    WFOE’s office address
-    Registered capital
-    Choice of bank


* For foreign businesses especially, it is imperative that company operations be reflected accurately in the business scope, as this is connected to the “Catalogue for the Guidance of Foreign Invested Enterprises”, a policy document governing foreign investment into China.  The Catalogue divides industries into three categories: those encouraged, restricted, and prohibited for foreign investment. Industries not listed in the Catalogue are generally permitted. Please note that different rules may apply in certain special areas; for example, in China’s Free Trade Zones, foreign investment is permitted in any industry not expressly prohibited within the “negative list” of that zone, allowing for somewhat relaxed rules. 



* Registration timeline and procedures

The total time required for the full operation of the company will be around 2-3 months. The company set up procedures can be referred to in the table below:


   Estimated
   Time

                                           Procedures


1-1.5 months

A. Obtain the Company basic certificates 

Note: The company is now  officially registered. However, the company cannot receive payments, issue  invoices, file taxes and so on

1 week to 1 month, depending on the type of  taxpayer

B. Tax registration 

Note: The company can now  issue invoices, make and receive payments and so on.

10 working days

C. Social security registration 

Note: The company can now  hire and employ staffs

20 working days

D. Import and export registration (if involved in trading activities)

Note: After this step, the company can now engage in import and  export transaction


Please note that special license/permit might be required depending on the specific service or product engaged in, for instance

-    Food/beverage products 

-    Nutritional products

-    Medical equipment 

-    Travel agency

-    Finance 


The main Chinese departments involved during the process are

-    Ministry of Commerce (COC)
-    Administration of Industry and Commerce (AIC)
-    State Administration of Foreign Exchange (SAFE)
-    State Administration of Taxation (SAT)
-    Customs Office


* Compliance work

After the company is set up, the company will have to arrange the following monthly, quarterly and yearly compliance work:

-    Bookkeeping and accounting, based on China GAAP

-    Filing of taxes (corporate income tax- CIT, value added tax- VAT, surtaxes)

-    Payroll- Filing of individual income tax- IIT and declaration of social insurance

-    Issue of annual financial audit report

-    Issue of CIT tax audit report
-    File the CIT reconciliation report (annual tax returns)
-    Annual reporting (annual returns) to the Administration for Industry and Commerce(AIC) and other departments
-    Annual foreign exchange reconciliation to the State Administration of Foreign Exchange (SAFE)


* Frequently asked questions (FAQ)

How much capital to invest?
A company can be set up with only 1 RMB except for some special business.  

Note: If the total investment is less than 3 million USD, the paid in capital must be at least 7/10 of total investment. The loan limitation will be the balance between the total investment and the paid in capital.


What are the main taxes to be borne?


 

Main Tax


 

Main Points


 

VAT


VAT taxpayer can be classified as small taxpayer and general taxpayer.  Small taxpayer

incurs a 3% VAT (services or goods) while general taxpayer incurs taxes at different

rates depending on the industry, 6%, 11%, and 17%


 

CIT

 

The CIT rate is set at 25% unless other qualifications are obtained


 

Surtaxes

 

Surtaxes consists of city maintenance and construction fee 7%(in down town area),

national education fee 3%, local education fee 2%

 


             IIT


IIT is imposed on income from wages and salaries at progressive rates ranging from 3% to 45%



Are pro-forma invoices acceptable in China?
In China, invoices (or “fapiao” in Chinese) are more than just ordinary pro-forma receipts - they are also the way in which the government monitors the tax paid on any transaction. Fapiao are printed, distributed, and administrated by tax authorities, and taxpayers are required to purchase the invoices they need from the tax authorities according to their business scope. 


What does the social insurance in China consist of?

-    Social insurance: Medical, Pension, Unemployment, Injury, and Maternity

-    Housing Fund 

Note: There might be differences in the social contribution for employer and employee depending on the city in which the contributions are being made. Also, every year the Chinese government will be making adjustments. 

How to transfer funds back to the HQ?

-    Service contracts 

-    Dividend distribution

-    Decrease capital


Please note we also provide our clients with business registration consulting services to give them an overall and clear picture of China’s company rules and regulations before actually stepping into the China market. For more information, please download our consulting service introduction below or please feel free to contact us.






RTF Company Registration

Consulting Services


RTF Company Registration Consulting Services.htm




Julien Li

-

Assistant  Project Director

julien@rtfcpa.com

Nancy Wang

-

ProjectDirector

nancy.wang@rtfcpa.com

Ashley Ma

-

Tax Consultant

mayuchen@rtfcpa.com









We provide clients with preliminary business and tax consulting services.

Our consulting service is rendered in English and is conducted via phone call or face to face meeting, accompanied by a consulting report or feasibility report, if required.

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