Company formation in brief
While the volume of foreign investment in the Chinese economy is growing steadily, it is not easy for foreigners to establish and manage their business in this country. Foreign exchange controls (including restrictions on the export of capital and income), various bureaucratic formalities, the presence of regional specifics in relation to registration, taxation and filing of reports, often imputed requirements for an investor to participate in social security of employees in certain areas and other aspects require careful study before accepting decision to establish a business in China. Among other things, it should be remembered that in this country there is a permissive procedure for registering legal entities and the applicant, after several months of waiting, may receive a refusal without explaining the reasons. Finally, it should be noted that key sectors of the Chinese economy are controlled by state-owned enterprises and not every business is available to foreigners.
Chinese legislation allows the registration of enterprises of various organizational and legal forms, however, for a foreign investor, the only so-called Foreign Investment Enterprises are of practical interest, and which include, in particular, such as:
• an enterprise with 100% foreign participation
• branch of a foreign company
• representative office of a foreign company
An enterprise with 100% foreign participation is created in the form of a limited liability company and can be established by one shareholder, and one director (who can be a foreigner) is enough to manage the company.
In general, the algorithm for establishing such an enterprise can be represented as follows:
1. Discussion of the business plan of the future enterprise in the local office of the Ministry of Trade;
2. Submission of an application for preliminary approval of the name of the future enterprise;
3. Submission of a package of documents in the format of a feasibility study of the feasibility of establishing a future enterprise in order to obtain a certificate of approval at the local office of the Ministry of Trade;
4. Registration at the local office of the Administrative Bureau for Production and Trade and submitting an application for a license within 30 days after receiving the certificate of approval;
5. Obtaining a unified code and registration certificate from the Technology Oversight Bureau;
6. Registration of the company seal with the Security Department;
7. After obtaining a license, an enterprise must register with the following state bodies: Tax Department, Financial Department, Office of Currency Control, Customs Department, Fire safety Department, Department of Environmental Protection, Statistical Office, Employment Department.
The size of the authorized capital may vary depending on the type of activity of the future enterprise, as well as the place of its establishment. The capital must be paid in full to one of the banks in China, and once established, it can be used to purchase equipment, pay rent and other overhead costs for the company's business in China.
Enterprises with 100% foreign participation have the right to engage exclusively in the activities recorded in the statutory documents and licenses. Any other activity of the enterprise in China will require proper approval and obtaining an additional license.
Enterprises with foreign participation are required to maintain a large office in China, have a secretary and an accountant in their staff, submit monthly financial statements, as well as an annual audit report on their economic activities. A branch of a foreign company is not a common form of presence of a foreign business in China due to the current restrictions on the issuance of relevant permits.
A branch of a foreign company is a common form of presence of a foreign business in China due to the current restrictions on the issuance of relevant permits. Generally, only foreign banks and large financial institutions can apply to register their branches in China.
A representative office of a foreign company is a separate legal entity and does not have the right to independently make a profit in China, but only monitors the conclusion and execution of contracts of the parent company, conducts market research and provides information support to the parent company. The mission may employ foreigners and the head of the mission may be a non-resident of China.
China stimulates the export of products, and the country has free economic zones located in cities, the names of which, in order to avoid confusion, we give here in English: Bei Hai, Da Lian, Fu Zhou, Guang Zhou, Hai Kou, Lian Yungang, Nan Tong, Ningbo, Qing Dao, Qing Huangdao, Shan Tou, Shanghai (Pudong), Shenzhen, Tian Jin, Wen Zhou, Yan Tai, Zhan Jiang, Zhu Hai.
Enterprises registered in these cities and licensed to export goods from free trade zones outside China are not subject to corporate taxation in China.
Under China's new taxation law, foreign-owned enterprises are subject to federal income tax in China at the same rate as ordinary local enterprises.
If an enterprise belongs to the category of a high and new technology enterprise, then it has the right to declare a reduction in the tax rate. Enterprises investing in a number of developing regions of western China have the right to demand the same tax rate.
Some other corporate taxes in China include:
• provincial income tax
• turnover tax on profit on road construction
• tax on dividends, interest, on the use of copyright
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