Choosing your China structure

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Choosing your China structure
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-Encouraged ( The companies in this industry benefit from many advantages such as tax incentives, easier approval procedure...) -Restricted (The companies in this industry have to send an audit report to the relevant authority every year (any delay will lead to sanctions) and renew its business licence at the same time.) -Prohibited (These company can not have foreign investment, therefore, it is not possible for a foreign to invest in one of these companies)

 

Before starting, it is good to know that, in China,  the foreign companies can be classified into different categories. These categories and the industries that are part of them can be found in the "catalogue for the guidance of foreign investment industries" released by the government. The different industries are classified as follow:

-Encouraged ( The companies in this industry benefit from many advantages such as tax incentives, easier approval procedure...)

-Restricted (The companies in this industry have to send an audit report to the relevant authority every year (any delay will lead to sanctions) and renew its business licence at the same time.)

-Prohibited (These company can not have foreign investment, therefore, it is not possible for a foreign to invest in one of these companies)

For further explanation visit here

*Any other industry that is not specified in one of these categories can be seen as part of the prohibited category.

In Tianjin, there are 4 different kinds of company a foreigner can invest in.

Wholly Foreign Owned Enterprise (WFOE)

The WFOE is a company owned at 100% by one or more foreign investors. It can be a business oriented towards manufacturing activities, providing services, software development, banking... The activity of the WOFE cannot go beyond the scope that is stipulated on the business licence. The business can be widen but the foreign investor will have to go under further application. Generally the term of a WFOE is comprised between 15 and 30 years but can be extended up to 50 years under certain conditions. The liability of the investor is limited.


There is no minimum capital required. However the registered capital must cover the first expenses of the company, and insure the viability of it. Tianjin Administration of Industry and Commerce will assess whether the capital registered is enought or not. The capital can be deposited within several years. 

Joint Venture (JV)

The JV is composed of at least 2 partners. These investors can both be foreigners as well as one of them can be chinese. The investors will share the expenses, the revenue and the power of decision of the company. Such as the WFOE, the JV has no minimum capital required but has to insure its viability. The capital can also be deposited within several years. Some business activites in China are impossible for a foreigner to invest in. In that case, the JV is the only way for a foreigner to invest in this kind of business such as cosmetics, car production...


There are 2 types of JV


1- Equity Joint Venture (EJV)


The foreign investor’s capital must, at least, amount to 25% of the registered capital of the JV. The profits and loses, the expenses, the share investment as well as the responsibility are shared between the investors and are all equal to the investor’s respective registered capital.


2-Cooperative Joint Venture (CJV)


In the CJV the parties register as separate legal entities. The contribution of one of the parties (usually the chinese partner) can be other than money-related contribution. This party is still entitled to benefit from the benefits of the Cooperative Joint Venture. The profit sharing, therefore, doesn't depend on the parties’ registered capital but on an agreement made by themselves.


Foreign Invested Partnership Enterprise (FIPE)

The FIPE can be made by two foreign investors or one foreign investor and a Chinese investor. There is no minimum capital required. Generally the term of a PE is comprised between 15 and 30 years but can be extended up to 50 years under certain conditions. There are two kinds of FIPE:


1- General Partnership Enterprises. Made of general partners who are responsible of the debts of one and the others.

2- Limited Partnership Enterprises. Made of general and limited partners. The limited partners are responsible for the general’s partner debt to the extent of their capital contribution.

3- Special General Partnership Enterprises.The investors have a limited liability. This protects the patners from one or the other's loss.


Representative Office (RO)

The RO represents a foreign company in China. This Representative office is not allowed to conduct operational activities and can only be involved in business liaisons, quality control, product promotion, exchange of technology and others… Therefore it can't receive paiements or issue invoices.


Unlike the WFOE, the JV and the FIPE who pay taxes on its incomes, the RO pays taxes on its expenses.

Unlike the WFOE the JV and the FIPE, the RO cannot receive paiements or issue invoices.

While the WFOE, the JV and the FIPE can hire employees on their own, the RO can only hire employees through a local human ressources agency.

The JV, the WFOE and the PE have to submit the tax report to the tax administration on a montly, quarterly and annualy basis.

The WFOE, the JV and the FIPE have to make an annual inspection of the company's financial situation. This must be made by an external accounting firm. The report must also be signed by a china qualified certified public accountant. Finally this will be sent to the Administration of Industry and Commerce.

The annual audit is not mandatory since 2017 but it will be required if a new foreigner is hired by the company and/or if we want to extend the business licence when it is expired.

The dividends can be repatriated once in a year, once the annual tax report has been prepared. If there are losses from the previous year, they first have to be covered by the current year dividends, otherwise no dividend can be sent abroad.

 

 

 

 

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