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| FAQ |
We provide answers to some frequently asked questions on doing business in China so as to provide our clients with an idea of China's local practice. Due to the changes of laws, regulations and policies, our FAQ will be updated on a regular basis. This is only for your reference purpose, and we will not take any responsibilities for the decisions you made since it is the clients' senior management's judgement.
Q: How to do business in China?
Soft matters
China has changed enormously over the last 20 years. Its economy has been growing at 10% a year, and it's on track to be the world's largest economy soon. Today, 80% of the world's electronic goods are made in China. As a result, more and more western companies want to do business in China. But you shall pay attention to:
Take your time. In the west, business is ruled by deadlines. Chinese business people seem to act slowly by western standards, so be prepared to wait for decisions.
Chinese culture:It can also be useful to find a reliable Chinese ally to work with you. He or she will be able to help with language or cultural problems and will also be able to understand Chinese body language. You must remember to respect 'face'. Face means having high status with your peers.
Q: What are the different legal set-up options available for starting a business in China?
A: 1. Representative Office (Rep. Office)
2. Wholly Owned Foreign Enterprise (WOFE)
3. Equity Joint Venture (EJV)
4. Cooperative Joint Venture (CJV)
1. Joint Venture
Joint venture is allowed to carry out manufacturing and sales operation in China. It is permitted to sell products through its own sales network. Sino-foreign equity joint venture is the most often used type , we will just introduce it. It is a sino-foreign equity joint venture with limited liability, set up by a Chinese company and a foreign participant is an equity joint venture. The parties share profits and losses in proportion to their respective contributions to joint venture's registered capital.
2. Wholly Foreign-owned Enterprise
WFOE is treated as Chinese limited liability entity wholly owned by a foreign investor and is not a branch of a foreign company. However, in accordance with state policies and the Foreign Investment Catalogue, WFOEs are excluded in certain industries.
3. Representative Offices
Representative offices are normally set up to carry out liaison work of its parent office overseas. Special tax rules are applied to representative offices.
Registration Requirements
The registration process typically involves numerous Chinese governmental offices including the Ministry of Commerce, the Administrative Bureau for Industry and Commerce, State Administration of Foreign Currency, Taxation Bureau, the Customs Office, and the Statistics Bureau.
Staff Recruitment
Under the Labour Law, all enterprise must sign labour contracts with each individual labour. The contract forms the basis of labour relation between the enterprise and the employee. All mandatory terms and conditions to be included in a labour contract are stated in the Labour Law and other relevant regulations.The new Labor Law of PRC give more detailed provisions on the responsibilities and liabilities of employers and employees. The labor administration caries out examination on the implementation of the law.
Q: How about the foreign exchange control in China?
A; China is a foreign exchange control country. When you have foreign currency transactions under capital and current account item, , you need follow the relevant foreign exchange control regulations. When you remit fund out of China, you are required to obtain tax receipts from tax bureau, and prepare the required documents.
Q:How are foreign companies taxed in China?
A: Foreign companies in China must register with the relevant tax authorities within 30 days after they receive their business license. Subsequently, they will be subjected to various forms of taxation, including enterprise income tax, value-added tax ,business tax, stamp tax and individual income tax.
According to the new Enterprise Income Tax Law of PRC, which will be effective from January 1, 2008, the applicable enterprise income tax is 25%, high technology and new advanced technology enterprises will enjoy a tax holiday at 15%. The detailed rules of the new enterprise income tax law will give explanation on the deduction criteria and other matters in detail.
The companies will also need to file annual audit report before the end of every April or June. Their profits can only be distributed and repatriated to their home country after the annual audit and the settlement of their relevant income tax liabilities.
Q: How about the individual income tax levied on expatriates?
A In China, an individual income tax (IIT) is calculated based on 9 progressive rates ranging from 5% to 45% and includes a deductible equivalent to 4800 RMB plus their reasonable apartment rental, language training fee and children education fee etc.
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