《協力：2023年中國營商指南（英文版）（98頁）.pdf》由會員分享，可在線閱讀，更多相關《協力：2023年中國營商指南（英文版）（98頁）.pdf（98頁珍藏版）》請在三個皮匠報告上搜索。

1、AN INTRODUCTION TODoing Business in China2023Getting Ready for Chinas Rebound in 2023 and the New OpportunitiesSpecial FocusThis edition of Doing Business in China was produced by a team of professionals atDezan Shira&Associates,with Qian Zhou as Editor.Creative design of the guide was provided by A

2、parajita Zadoo.2023 Dezan Shira&Associates DisclaimerThe contents of this guide are for general information only.For advice on your specific business,please contact a qualified professional advisor.Copyright 2023,Asia Briefing Ltd.No reproduction,copying or translation of materials without prior per

3、mission of the publisher is permitted.VISIT US ON FACEBOOKFOLLOW US ON TWITTERDezanShiraChinaBriefingVISIT US ON LINKEDINChina GuideIndia GuideVietnam GuideASEAN GuideHong Kong GuideRussia GuideSingapore GuideBelt&Road GuideTHE DOING BUSINESS IN ASIA GUIDES SERIES3AN INTRODUCTION TO DOING BUSINESS I

4、N CHINA 2023About Dezan Shira&AssociatesDezan Shira&Associates is a pan-Asia,multi-disciplinary professional services firm,providing legal,tax and operational advisory to international corporate investors.Operational throughout China,India and ASEAN,our mission is to guide foreign companies through

5、Asias complex regulatory environment and assist them with all aspects of establishing,maintaining and growing their business operations in the region.With more than two decades of on-the-ground experience and a large team of lawyers,tax experts and auditors,in addition to researchers and business an

6、alysts,we are your partner for growth in Asia.4AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023CONTACTDezan Shira&Associates 2022 turned out to be a difficult year for businesses operating in China.Unexpected lockdowns caused by COVID-19 outbreaks,weak consumption trends,a struggling real estate sect

7、or,and newfound geopolitical tensions caused serious disruptions to supply chains and damped global business confidence in the country.Still,the actual use of foreign direct investment(FDI)in mainland China expanded in the first ten months of 2022 growing 14.4 percent year-on-year to over US$152 bil

8、lion from January to October.The whole years FDI is expected to create double-digit growth.Another silver lining has emerged out of the tough challenges overcome in 2022 an easing of the zero-COVID policy is now in sight,with Beijing proposing a relaxation of the travel restrictions.Economists expec

9、t China will fully reopen in the second half of 2023,pushing GDP growth to around five percent from three percent in 2022.Industries in line with Beijings policy priorities,such as the healthcare sector,green sectors,consumer market,and sectors related to industrial automation,are expected to be the

10、 biggest beneficiaries.Under these circumstances,it is vital that foreign investors are familiar with the changes happening in Chinas business landscape to identify areas of risk in advance and take steps to prepare for new market opportunities.This is the only way investors can stay nimble in an ot

11、herwise difficult time.Designed to introduce the fundamentals of investing in China,this publication is compiled by experts at Dezan Shira&Associates,a specialist foreign direct investment firm providing corporate establishment services,business advisory,tax advisory and compliance,accounting,payrol

12、l,due diligence,and financial review services to multinationals investing in emerging Asia.Since its establishment in 1992,the firm has grown into one of Asias most versatile full-service consultancies with operational offices across China,Hong Kong,India,Singapore,Vietnam,and Indonesia.The firm als

13、o maintains partner firms across the ASEAN region and in Bangladesh and client liaison offices in the United States,Europe,and Russia.PrefaceALBERTO VETTORETTIManaging PartnerDezan Shira&Associates5AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023Whats New in This Guide?Doing Business in China 2023 in

14、troduces the fundamentals of investing in China.Compiled by the professionals at Dezan Shira&Associates in December 2022,this comprehensive guide is ideal not only for businesses looking to enter the Chinese market,but also for companies who already have a presence there and want to keep up to date

15、with the most recent and relevant policy changes.To be more specific,the below changes are noticeable for your attention:Why China:A new section is added at the beginning to explain why China is still a market that cannot be overlooked by foreign investors.The section covers the countrys growth outl

16、ook,market size,infrastructure and supply chain,workforce and labor market,market reforms and opening,and emerging city clusters.Business suspension:A new section is added in the“How do I make changes to my business”chapter,introducing the requirements and benefits for companies to acquire a dormant

17、 company status amid business difficulty,while retaining its legal standing for a period of up to three years.Tax incentives:The tax incentive policies are updated for each tax in the“What are the major taxes in China”chapter,including corporate income tax,value added tax,stamp tax,surtaxes,resource

18、 tax,and property tax,and information is added on the vehicle purchase tax.E-fapiao updates:The“fully digitalized e-fapiao”is introduced in the“Value-added tax(VAT)”section,providing the latest developments in 2022.Accounting standards:Two other accounting standards have been added the Accounting Sy

19、stem for Business Enterprises and the Accounting System for Non-governmental Non-profit Organizations(NGOs)in the“Accounting and bookkeeping”section.The Accounting System for NGOs applies to NGOs and the representative offices of NGOs in China.This chapter also examines the discrepancies between the

20、 Chinese accounting standards(CAS)and Chinas tax laws,in addition to the differences between CAS and the International Financial Reporting Standards(IFRS).Human resources and payroll:Brief introductions have been inserted on how to get approval for implementing the special work hour system and the c

21、alculation of severance pay in this chapter,both of which are among frequently asked questions by Dezan Shira&Associates clients.Cybersecurity and data protection:This chapter is updated with developments under Chinas major cybersecurity and data protection laws and regulations in 2022,explaining ke

22、y compliance requirements for businesses and providing practical tips on preparing for these new obligations.6AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023Why China?Growth outlookAlthough Chinas economic growth rate is slowing after years of breakneck expansion,especially in 2022 amid multiple eco

23、nomic headwinds,the size of its economy dwarfs almost all others,both developed or developing countries.Simply put,foreign companies cannot afford to ignore the worlds second largest economy.Chinas economy is not done growing either.With a population of 1.4 billion,Chinas GDP per capita was US$12,55

24、1 in 2021,about six times lower than that of the US.While China is not guaranteed to eventually achieve GDP per capita on par with the US,the gap shows that there is still significant room for economic activity and household wealth to continue to grow before leveling off at a saturation point.The Br

25、itish Consultancy Centre for Economics and Business Research(CEBR)projects Chinas economy to continue growing at 5.7 percent per year through 2025 and then 4.7 percent to 2030,at which point it will surpass the US to become the worlds largest economy.Although these growth rates are slower than in th

26、e past,they come from a higher base and reflect Chinas transition towards becoming a high-income country.Why China Remains an Attractive Investment DestinationGDP OutlookWorkforce and TalentsMarket SizeMarket Reforms and OpeningInfrastructure and Supply ChainSuper City ClustersChinas GDP per capita

27、is about six times lower than the US,which means there is significant room for its economy to grow.China has the worlds largest labor market,and workers in the manufacturing sector tend to be more experienced,more educated,and better resourced than their Asian counterparts.Chinas rising purchasing p

28、ower,expanding middle class,and a population over a billion,positions it to become the largest retail market in the near future.Chinas rising purchasing power,expanding middle class,and a population over a billion,positions it to become the largest retail market in the near future.China has a sophis

29、ticated manufacturing and logistics infrastructure set up.Chinas emerging super city clusters offer great growth potential for foreign investors.7AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023Market sizeChinas rising purchasing power,expanding middle class,and a population over a billion,touts it t

30、o become the largest retail market in the near future.Despite the weaker than expected consumption performance observed in 2022,in the longer term,the domestic market will benefit from Chinas dual circulation strategy,which intends to spur domestic demand and simultaneously create the conditions to

31、increase foreign investment and boost production for exports.The focus on tapping into Chinas internal consumption patterns may also buffer the impact of global headwinds on the countrys economic and financial stability.Bearing this in mind,it is not hard to understand why foreign investors are stil

32、l betting big on China.Many foreign companies have started to produce goods specifically for local consumption in China,rather than use the country as a production base for export-led manufacturing as in the past.For many companies,China is now their largest market for growth.Infrastructure and supp

33、ly chainChinas sophisticated manufacturing and logistics infrastructure ensures it will not get replaced in the global supply chain easily.According to Xinhua,the state-run press agency,China is the only country that possesses all the industrial categories in the United Nations industrial classifica

34、tion,which allows firms to source goods easily.China also boasts of the largest network of high-speed rail and expressways in terms of mileage,which allows products to be transported efficiently.The importance of these transport advantages became fully clear right from the start of the pandemic when

35、 global supply chains were seriously disrupted due to the aggressive implementation of infection control measures.From the production and supply of masks,protective suits,and medical equipment in the early stage of the outbreak,to consumer electronics,household goods,and festival products during lat

36、er months,Chinas exports have made up for overseas shortages in all kinds of goods segments.Workforce and labor marketChina has the worlds largest labor market even though its working age population is shrinking.The labor force of China,which refers to the population aged between16 and 59 and capabl

37、e of working,stood at around 880 million in 2020.And by the end of 2021,the number of employed people in China amounted to around 746.5 million people.Despite the increasing concerns that Chinas labor costs keep rising,the countrys workforce still earns considerably less than their counterparts in d

38、eveloped countries,while at the same holding advantages in experience and efficiency compared to lower cost emerging markets.8AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023For example,in 2020,the average hourly cost for labor in the manufacturing sector was US$6.50 in China,compared to US$4.82 in M

39、exico and US$2.99 in Vietnam,two popular alternatives for manufacturing.However,while Vietnams labor costs in manufacturing are less than half of Chinas,Vietnams productivity per worker is about one-third of productivity levels in China.Workers in Chinas manufacturing sector tend to be more experien

40、ced,more educated,and better resourced than in competing countries,often making China a more cost-efficient option despite slightly higher wages.The breadth of Chinas labor pool means that the countrys human resources are highly adaptable to business needs,as companies will be able to find workers a

41、nd technical specialists experienced in a wide variety of fields.Further,Chinas labor market is becoming an asset not just for its size and cost efficiency,but for the quality of education.For instance,the Times Higher Education World University Rankings had 10 Chinese universities in its 2022 top 2

42、00 list the most ever including two in the top 20.Market reforms and openingChina has endeavored to attract greater foreign investment by relaxing more market access restrictions and continuously introducing improvements to the business and regulatory environment.Key among its reform actions,are cha

43、nges to the negative lists.These lists indicate which industries are subject to special administrative measures for foreign investors,or in other words,supervised by authorities when determining market entry,scope of operation,and access to local market.The negative lists were shortened again in 202

44、1.The 2021 National Negative List removed two restricted items from its 2020 counterpart,cutting it 33 to 31,while the new 2021 FTZ Negative List removed three items,cutting it down to 27 from 30.Taking auto manufacturing as an example,the restrictions on the share ratio of foreign investment in pas

45、senger vehicle manufacturing has been liberalized.Before,the Chinese party shareholding percentage in passenger automobile manufacturing was to be no less than 50 percent.Besides,with the Foreign Investment Law and supporting regulations coming into effect in 2020,together with other reforms in the

46、areas of company establishment,tax,finance,reporting and compliance management foreign investors in China are playing on a more even ground with domestic competitors.China has also repeatedly and publicly stated its intentions to accelerate market opening reforms,most recently in President Xi Jinpin

47、gs televised speech to kick off the fifth edition of the China International Import Expo(CIIE)in November 2022.And in 2022,a couple of well-known companies in the financial sector,including Credit Suisse,took full control of their Chinese joint venture.Such policy orientation towards high-tech innov

48、ation and market opening that was initially an outcome of US-China trade tensions will pave the ground for future and sustainable patterns of growth and investment in China.9AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023Innovation and emerging industriesOnce known as an economy rife with copycats a

49、nd counterfeits,China-based enterprises are leading on R&D and pursuing experimental business models.Companies that do not pay attention to China will not just miss out on the market,but also the countrys increasingly dynamic pace of innovation.Chinas spending on R&D is equivalent to about 2.5 perce

50、nt of GDP,which is far higher than other countries at similar levels of development.This spending has contributed to the growth of business models in areas like e-commerce,fintech,and artificial intelligence that are competitive with or even lead advanced economies like the US.One unique advantage f

51、or data-fueled innovation in China is the size of its internet-using population.China has close to a billion internet users,which is more than the US and EU combined.About 800 million people in China use mobile payments on a daily basis over eight times more than the US leading to a world-leading fi

52、ntech industry.Beyond operating in an enormous market,investing in China positions international companies to gain experience with innovative products that can make them more competitive in their home countries.Chinas emerging super city clustersThe scale of Chinas urbanization over the past four de

53、cades is a staggering feat in human history.City clusters,as the main form of Chinas new urbanization,are important pillars to support Chinas economic growth,promote coordinated development among regions,and enhance Chinas international competitiveness.Among the 19 super city clusters,which cover mo

54、st of the provinces throughout the country,four of these clusters-the Yangtze River Delta,the Pearl River Delta(or the Guangdong-Hong Kong-Macao Greater Bay Area),the Beijing-Tianjin-Hebei(or Jing-Jin-Ji),and the Chengdu-Chongqing Economic Circle-are among the most important,and areas which China is

55、 working particularly hard to optimize and improve.These four city clusters,spread over just eight percent of Chinas land,account for over 50 percent of the countrys economic output and foreign investment.The Yangtze River Delta alone accounted for 24.1 percent Chinas total GDP and 48.9 percent of C

56、hinas foreign direct investment in 2021,while the Guangdong-Hong Kong-Macao Greater Bay Area accounted for 11 percent of Chinas total GDP and 15.7 percent of Chinas FDI the same year.Businesses that have operations in China or that are planning to expand to this enormous market are advised to seriou

57、sly consider and fully understand the potential of these city clusters.Our Business Intelligence experts help with Asia Country Benchmarking,Location Analysis and Market Entry support.For more information,please .RELATED SERVICES10AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023Table of ContentsPrefa

58、ce04Whats New in This Guide?05Why China?06Part 1|Establishing and Running a Business13What are my options for investment?14Representative office(RO)14Wholly foreign-owned enterprise(WFOE)15Joint venture(JV)16Foreign invested partnership(FIP)17Global staffing solutions(GSS)18Mergers and acquisitions(

59、M&A)18Variable interest entity(VIE)19How do I establish a business?22Pre-establishment considerations22Corporate establishment26Key positions in a foreign invested entity28Office premises requirements31Opening a bank account32Intellectual property considerations34How do I make changes to my business

60、?35Company name35Business scope36Registered capital36Shareholder structure3711AN INTRODUCTION TO DOING BUSINESS IN CHINA 202311AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023Part 2|Tax,Audit,and Accounting44What are the major taxes in China?45Income taxes45Turnover taxes49Other taxes52What are some

61、of the key compliance requirements?57Accounting and bookkeeping57Annual compliance58Due diligence63Internal control and financial review64Transfer pricing65Foreign currency controls67Part 3|Human Resources and Payroll68How do I hire employees?69Direct hiring69Dispatch71Outsourcing72How do I manage f

62、oreign employees74Unified work permit system and tiered talents system74Table of ContentsRO to WFOE conversion38Relocation40Business suspension41Deregistration4212AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023Chinas visa system75Residence permit75Renewal and deregistration of foreigners work permit

63、76What obligations do I have as an employer?77Minimum wages across China77Work hour system and overtime payent77Social security79Leave and vacations81Termination83Part 4|Cybersecurity and Data Protection85What are the major cybersecurity and data protection laws?86What are some of the key compliance

64、 requirements?89Personal information protection 89Cybersecurity and security review95Important data management97Table of Contents12AN INTRODUCTION TO DOING BUSINESS IN CHINA 202313AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023What are my options for investment?How do I establish a business?How do I

65、 make changes to my business?Establishing and Running a Business114AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023Foreign investment into the Peoples Republic of China(hereafter“China”)can be made via one of several types of investment vehicles.Choosing the appropriate investment structure for your

66、business depends on a number of factors,including its planned activities,industry,and investment size.In this section,we discuss:1 Representative office(RO);Wholly foreign-owned enterprise(WFOE);Joint venture(JV);Foreign invested partnership(FIP);Global staffing solutions(GSS);Mergers and acquisitio

67、ns(M&A);and Variable interest entity(VIE).We will also discuss the impact of the Foreign Investment Law(FIL)on choosing the investment structure.Representative office(RO)An RO is an attractive way for foreign investors to get a feel for the Chinese market as it is the easiest type of foreign investm

68、ent structure to set up.Unlike more robust vehicles,such as the WFOE,an RO is an extension of the foreign company without independent legal personality.That is to say,it does not possess the capacity for civil rights and cannot independently assume civil liability.When an RO signs a contract,it is t

69、he foreign company that is bound by the agreement.Besides,there are only a limited number of activities an RO is permitted to be engaged in.ROs are generally forbidden from engaging in any profit-seeking activities and may only be used to facilitate the activities of the foreign company in China.The

70、se are:Market research,display,and publicity activities that relate to company products or services;and Liaison activities that relate to product sales or services and domestic procurement and investment.ROs acting in violation of their allowed activities will be fined,and their illegitimate income

71、will be confiscated.In addition,as an RO is not a capitalized legal entity in China,it is limited in its hiring ability.An RO cannot directly hire Chinese employees.Instead,it is required to employ local staff through a qualified labor dispatch agency.The agency acts as the employer for legal purpos

72、es,and sends employees to work at the RO for a fee.An RO may directly hire up to four foreign nationals as the representatives,and these do not need to go through the agency.What are my options for investment?SABRINA ZHANGPartner Beijing OfficeDezan Shira&Associates“ROs areoften used by foreigncompa

73、nies to facilitateactivities in China,suchas communicating andliaising with China-based agents and distributors.”1 Under the FIL,the terms of the WFOE Law and the JV Law are no longer binding.Nevertheless,we still use WFOE and JV to refer to relevant investment forms for consistency and easier commu

74、nication.15AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023Even though an RO does not earn revenue,it is still subject to Chinese tax.ROs are taxed as a permanent establishment in China,which usually amounts to a liability of approximately eight percent of the total expenses of the RO.RO is generally

75、 a good solution for companies that are procuring from China and want to keep staff on the ground for quality control,or for maintaining short communication lines with China-based suppliers,agents,and distributors.Wholly foreign-owned enterprise(WFOE)A WFOE is a limited liability company wholly owne

76、d by one or more foreign investor(s),which offers a very straightforward management structure.Unlike an RO,a WFOE can make profits and issue local invoices in RMB to its suppliers.A WFOE can employ local staff directly,without any obligations to employ the services of an employment agency.A WFOE can

77、 also expand to create subsidiaries in China.And compared to a JV,a WFOE has better autonomy and flexibility to execute the company policies intended by the investors without considering the Chinese partner.It is also believed to be better at protecting the companys intellectual property and technol

78、ogy.However,the setup procedure of a WFOE is more complicated.And WFOE is not feasible if the targeted sector is listed as“restrictive”in the Special Administrative Measures on Access to Foreign Investment(“National Negative List”)or the Free Trade Zone Special Administrative Measures on Access to F

79、oreign Investment(“FTZ Negative list”),where foreign investors need to have a Chinese equity partner to form the business.In other words,incorporating a WFOE to engage in these sectors would not be permitted.Investors that try to do so will see their application denied.WFOEs that engage in these act

80、ivities illegally after being incorporated face fines or even the cancellation of their business license.There are three distinct WFOE setups available:Service(or consulting)WFOE;Trading WFOE;and Manufacturing WFOE.While all three structures share the same legal identity,they differ significantly in

81、 terms of their setup procedures,costs,and the range of commercial activities in which they are allowed to engage.Trading WFOEs and manufacturing WFOEs must derive the majority of their revenue from their namesake business,but can also provide associated services.Service WFOEs are additionally permi

82、tted to conduct trading activities related to their services.16AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023Joint venture(JV)A JV is formed by one or more foreign investor(s),along with one or more Chinese party.Previously,Chinese individuals were explicitly excluded from being shareholders in a J

83、V with few exceptions.However,under the FIL,which took effect January 1,2020,this limitation has been eliminated.Chinese individuals can jointly invest with foreign investors,which offers more flexibility in choosing business partners.There are mainly two reasons for foreign investors to choose a JV

84、 structure:The foreign investor wants to invest in a restricted industry sector,where the law permits foreign investment only via a JV with a Chinese partner;and The foreign investor wants to make use of the sales channels and network of a Chinese partner who has local market knowledge and establish

85、ed contacts.Before the FIL was enacted,there were two types of JVs in China,and they differed primarily in terms of how profits and losses get distributed:Equity Joint Venture(EJV):Profits and losses are distributed between parties in proportion to their respective equity interests in the EJV;Genera

86、lly,the foreign partner should hold at least 25 percent equity interest in the registered capital of the EJV;and An EJV should be a limited liability company.Cooperative Joint Venture(CJV):Profits and losses are distributed between parties in accordance with the specific provisions of the CJV contra

87、ct;and A CJV can be operated either as a limited liability company or as a non-legal person.With the FIL coming into force,the newly established JVs will be subject to the provisions of the Company Law,which implies changes in many aspects,such as governing structure and operating rules.However,JVs

88、established before January 1,2020 following the old EJV Law or CJV Law will have a five-year transitional period to arrange relevant transitions to be compliant with the new requirements.VISIT US ON LINKEDINRELATED READINGChina Joint Venture:7 Considerations to Reach a Successful JV AgreementChina B

89、riefing ArticleAugust 5,2021A China joint venture is becoming the market-entry strategy of choice for many foreign investors since the COVID outbreak.We list some best practices.AVAILABLE HERE17AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023Foreign invested partnership(FIP)An often-overlooked option

90、 is the FIP,which was introduced in 2010.As the name suggests,this entity requires two or more investors to conduct business together.The option would therefore not work for foreign investors looking to set up an entity over which they have 100 percent control.In addition,foreign investors cannot en

91、gage in sectors subject to equity limitations as provided in the negative lists via an FIP.An FIP can be newly established by foreign investors contributing to the partnership,or by acquiring the equity interests in an existing domestic partnership.A partnership is not a separate legal entity,but a

92、contractual arrangement between two or more parties to do business together under a common name,and is registered as such with the government.Instead of having to stay within the boundaries of the Company Law,a partnership affords investors broad freedoms to make internal arrangements as they see fi

93、t.For example,the profit shares and voting rights need not be aligned with the investors capital contribution.While the Partnership Enterprise Law says that,in principle,the unanimous approval of all other partners is needed when a partner sells their share in the partnership,investors are free to s

94、tipulate otherwise in the agreement.It can therefore be much easier to transfer ones participation in a venture this way.In practice,FIPs sometimes are used by foreign private equity funds to manage money in China through limited partnerships.Foreign invested commercial enterprise(FICE)A FICE,which

95、can be set up either as a WFOE or a JV,is a type of company for retail,franchising,or distribution operations.A WFOE or JV can be established exclusively as a FICE,or can combine FICE activities with other business activities,such as manufacturing and services.Generally,a FICE is inexpensive to esta

96、blish and can be of great assistance to foreign investors because it combines sourcing and quality control activities with purchasing and export facilities,thus providing more control and a quicker reaction time compared to sourcing exclusively via an overseas headquarters.FICEs are also the ideal c

97、hoice for foreign companies that need to source in China in order to resell to its domestic consumer market.Without a Chinese trading company,the alternative would be to buy from overseas,and have the goods shipped out of China before then reselling them back to China(which would mean additional log

98、istical costs,customs duties,and value-added tax).VIVIAN MAOPartnerShanghai Office“Choosing aninvestment structuredepends largely onyour goals in China.For companies lookingto target the Chineseconsumer,the foreign investedcommercialenterprise(FICE)hasbecome the gold standardinvestment model.”18AN I

99、NTRODUCTION TO DOING BUSINESS IN CHINA 2023Global staffing solutions(GSS)GSS is a market entry strategy that alleviates the stress on businesses to establish a corporate entity and outsources the burden of keeping up with the day-to-day management of an employees payroll and the entitys tax complian

100、ce to a local firm.This frees up critical resources for the foreign firm to explore its options in a new or unfamiliar market.In simple terms,the way GSS works is that it enables businesses to place boots on the ground,without needing to physically set up a local establishment.The service works with

101、 the third-party service provider signing separate contracts with both the foreign company and the foreign employee.This means that while the normal day-to-day control and working employee relationship will exist between the overseas company and its outsourced hires,the local service provider in Chi

102、na will handle all the risk mitigation,compliance,payroll,and benefits on the ground.Under the GSS service,foreign companies can enjoy the benefits of having full-time staff working in overseas markets and remaining compliant with local laws,without the time and investment required to set up and ope

103、rate an overseas establishment.It empowers foreign firms with the ability to look at alternatives within a specific sector and try out different strategies.Investors can use this in a new market to gain first-hand knowledge of the local business environment and culture to determine market suitabilit

104、y,plan against supply chain disruptions,and establish sustainable long-term strategy.Mergers and acquisitions(M&A)In addition to greenfield investment in which a company makes foreign direct investment by building operations from the ground up,investors can also expand their business presence in Chi

105、na by acquiring existing assets or buying a controlling stake in an existing company,i.e.,mergers and acquisitions(M&A).In general,acquiring an existing company can simplify a lot of the tedious details involved in entering a new market,such as the lengthy setup processes.Also,it can help a company

106、acquire capabilities it cannot or does not want to develop internally.By becoming the controlling stakeholder of the acquired company,the acquirer can obtain difficult-to-acquire licenses,such as the permit for running medical institutions,and also utilize the established experience and framework of

107、 the acquired company to better prepare for the market conditions they are about to face.More importantly,if an existing company holds a significant market share in the sector that the investor plans to enter,the extended time to market and competition for a greenfield investment may not be worthwhi

108、le.RELATED READINGPlanning for Uncertainty:Global Staffing Solutions to Facilitate Your China Market EntryChina Briefing ArticleJuly 6,2020For many businesses,setting up their own company,is the only known or viable way to enter a new market.In this article,we introduce an alternative market entry m

109、ode,called Global Staffing Solutions.AVAILABLE HERE19AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023However,the effectiveness of such an arrangement is largely dependent on the makeup of both the acquiring company and the acquired company.Companies have different work cultures,management styles,and

110、operational procedures.It can be a difficult task to combine the best of both sides to achieve the desired synergies.The acquiring company can only gain a quick and strong foothold in the target market when the two parties are compatible with each other.For this reason,it is imperative that thorough

111、 due diligence of both companies is done beforehand on the assets,contracts,credit and debt,employment relationships,and management of both firms,to expose sensitive areas,disputes,and weaknesses so that the transaction is made on the basis of fair,transparent,and reasonable evaluations.Another fact

112、or to be noted is that the definition of foreign investment under the FIL includes a foreign investor acquiring shares and assets of a Chinese enterprise.Consequently,all FDI rules and regulations must be observed,including restrictions on investment,qualifications of investors,and scope of business

113、.In addition,M&As in China are subject to antitrust review as required by the Anti-Monopoly Law and a potential national security review if the transaction could raise national security concerns.Variable interest entity(VIE)VIE structures are adopted by many foreign investors to engage in sectors th

114、at are restricted or prohibited to foreign investment in China as provided in the negative lists,such as telecommunication and education.Under this model,foreign investors retain final control over the China domestic operating entities through a series of contractual arrangements rather than direct

115、shareholding.Consequently,there are risks that the investors control over the structure might be threatened by the intentional breach of the contractual arrangements.In addition,the governments attitude towards VIE structure remains vague.There is no clarification in the FIL whether it is legitimate

116、 and whether it falls within the scope of foreign investment.However,in a legislative draft released in 2020 regarding pre-school education,which was still a draft at the time of writing this guide,VIE structure is explicitly prohibited in the sector.VIE structure could be regarded as illegal in suc

117、h sectors that are not yet open to foreign investment.On the other hand,the China Securities Regulatory Commission(CSRC)the China security watchdog confirmed that qualified companies with VIE structures can still go public on foreign stock markets.Foreign investors interested in this structure are r

118、ecommended to closely follow the regulatory trends.SIMON LAUBESenior AssociateInternational Business AdvisoryShanghai Office“With global economic headwinds continuously affecting the business world,SMEs are suggested to reconsider M&A as a strategy that can help them survive and thrive in the post-p

119、andemic era.”20AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023Comparison of Different Investment OptionsInvestment optionsCommon purpose(s)ProsConsRO Market research Liaise with overseas headquarters Easiest foreign investment structure to set up Paves way for future investment Cannot invoice locall

120、y in RMB Must recruit staff from local agency;no more than four representatives Heavily taxed if expenses are highWFOE Manufacturing Servicing Trading(if a FICE)Greater freedom in business activities than RO 100%ownership and management control Registered capital requirement(for select industries)Le

121、ngthy establishment processJV Entering industries that by law require a local partner Leveraging a partners existing facilities,workforce,sales/distribution channels See common purposes Split profits Less management control than a WFOE Technology transfer/IP risks Inheriting partner liabilitiesFIP I

122、nvestment vehicle Servicing Allows for domestic and foreign ownership Easier setup Unlimited liability of the general partner Newness of structure(potential challenges with taxation or foreign currency exchange)GSS Market research Supply chain management Having full-time staff working in overseas ma

123、rkets and remaining compliant with local laws without the time and investment required to set up and operate an overseas establishment Limited capabilities Temporary arrangement rather than a long-term strategy M&A Expanding business presence in a new market without establishing operations from the

124、ground up Simplify the tedious details involved in a greenfield investment Inherit the market share and established framework of the target company Help the investing company acquire capabilities it cannot or does not want to develop internally Subject to all FDI restrictions and rules Higher scruti

125、ny from the authority Antitrust review and potential security review Post-merger integrations may require additional resourcesVIE Getting access to sectors that are restricted or prohibited to foreign investment See common purpose Breach risks of the contractual arrangement Vague attitude of the Chi

126、nese authority towards VIE structure21AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023The impact of the Foreign Investment LawOn March 15,2019,China passed a new Foreign Investment Law(FIL),a landmark legislation whose stated aim is twofold:improve the business environment for foreign investors and e

127、nsure that foreign invested enterprises participate in market competition on an equal basis.The FIL came into effect on January 1,2020 and thus became a new guiding document governing foreign investment in China.For foreign investors who maintain operations in China,or plan to enter the market,figur

128、ing out the impact of the FIL on their plans is a business-critical task.Among the incentive,management,and protection measures introduced,Article 31 and Article 42 of the FIL clarify issues related to the organizational form,governing structure,and operating rules for foreign investments.According

129、to Article 31 of the FIL,the organizational form,governing structure,and operating rules of FIEs shall be subject to the provisions of the Company Law,the Partnership Enterprise Law,and other applicable laws,in the same way as enterprises established by domestic investors are treated.According to Ar

130、ticle 42 of the FIL,the Law on Wholly Foreign-owned Enterprises(WFOE Law),the Law on Sino-foreign Cooperative Joint Ventures(CJV Law),the Law on Sino-foreign Equity Joint Ventures(EJV Law)shall be repealed simultaneously when the FIL came into force on January 1,2020.However,FIEs established before

131、the FIL took effect-and in accordance with the three laws on WFOE,CJV and EJV-may keep their original organizational forms for five years after January 1,2020.For foreign investors who are looking to establish new operations in China,the impact of the FIL is limited.Firstly,and most importantly,fore

132、ign investors planning to enter the market need to learn more about the investment structures that are available.As mentioned,previous investment structures,such as a CJV,will no longer exist since the FIL came into effect.Foreign investors need to set up their businesses in accordance with the prov

133、isions of the Company Law,the Partnership Enterprise Law,and other applicable laws,similar to domestic investors.On the one hand,the unified treatment of foreign domestic investments will make the investment path less complicated in the long run.However,on the other hand,it also means that anything

134、foreign investors have learned about investment structures in China has become partly outdated.Foreign investors should pay close attention to relevant legislative updates and seek professional advice before making an investment following the implementation of the FIL.RELATED READINGThe New Foreign

135、Investment Law in ChinaChina Briefing MagazineJuly 2019China passed a new Foreign Investment Law in March 2019.The law establishes a new framework to govern foreign investment in China and addresses a number of common concerns among overseas businesses.Critics,however,have questioned the extent to w

136、hich the law addresses these issues in practice,pointing to the laws at times broad and vague language.This issue of China Briefing magazine offers a comprehensive analysis of Chinas new Foreign Investment Law.AVAILABLE HERE22AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023How do I establish a busine

137、ss?When establishing a company in China,it is highly advisable to seek professional assistance to guide you through the complex setup procedure and outline the roles and responsibilities of key positions in the company.This can be a critical factor in ensuring the success of the venture and avoiding

138、 time-consuming changes to the company later on down the line.In this section,we discuss:Pre-establishment considerations;Corporate establishment;Key positions in a foreign invested entity;Office premises requirements;Opening a bank account;and Intellectual property.Pre-establishment considerations

139、Business scope The business scope is an enumeration of the commercial activities in which a business is authorized to operate in.It is administered by two state bodies-the Ministry of Commerce(MOFCOM)and the State Administration for Market Regulation(SAMR)1 -and is printed on its business license al

140、ong with other registered information such as its name,registered capital,and legal representative.For foreign businesses,its imperative that the company operations must be reflected accurately in the business scope.Under the current laws and regulations,foreign investors are still restricted or pro

141、hibited to engage in certain sectors,as stipulated in the National Negative List and the FTZ Negative List.In addition to the legal risk of disingenuously operating in an unregistered domain,not keeping the companys commercial operations within the range of activities set out in its registered busin

142、ess scope can also be detrimental to a companys ability to issue official invoices(fapiao)to its clients.While a company still can issue fapiao for occasional activities out of the business scope,regular discrepancies may trigger potential tax investigations.It is therefore critical that companies c

143、arefully plan their business scope prior to initial incorporation in China,or else risk having to undergo the onerous and time-consuming process of changing this later.Depending on the business scope,FIEs can be classified as being a manufacturing company,a service company,a trading company,regional

144、 headquarters,an R&D center,an investment company,or several others.Often,the capital requirements will differ depending on the type of company that is being incorporated.FANNY ZHANGSenior ManagerBusiness Advisory ServicesBeijing Office“Setting your business up right from the start can save a lot of

145、 hassle in the long run.”1 In 2018,China announced a sweeping restructuring of its government institutions,under which the the State Administration for Industry and Commerce(SAIC)was integrated into the State Administration for Market Regulation(SAMR).In practice,SAMR and its local branches might st

146、ill be referred as AIC as the body in charge among business society.23AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023Registered capitalRegistered capital is the fund all the shareholders contribute or promise to contribute to the company when they apply to the local Administration of Market Regulati

147、on(AMR)for incorporation of the company.The amount of the registered capital depends on a range of factors,which include the region,the sector,the companys business scope,the planned scale of operations,etc.It will show in the companys business license,this information is available to the public to

148、show the fund strength or capacity of a company to some extent.The registered capital does not need to be paid completely up front.The previous system of paid-up capital has been replaced by a subscribed capital model,under which a schedule of contributions must be declared in the Article of Associa

149、tion and be registered with the local AMR in charge.The government will check whether the investors follow the capital injection plan.There is no minimum registered capital requirement for corporate establishment except few industries,such as banking,financing,insurance,etc.Despite this,in practice,

150、the governing authorities will ensure that a companys registered capital is sufficient to support its business operations for at least one year,including its rent,labor costs,and office expenses.Moreover,the registered capital can affect the amount of offshore debt the FIE can borrow from other inve

151、stors or foreign banks,if the FIE chooses to follow the ratio between registered capital and total investment1 as shown in the following chart.The upper limits of the offshore debt is the gap between the total investment and the registered capital.Registered capital contributions can be made cash or

152、 in kind,as a lump sum,or in installments.The companys payment schedule for contributions must be specified in its Articles of Association,and once paid,the amount cannot be freely wired out again.1 Offshore debt can also be decided by another method called“macroprudential management of foreign debt

153、”method,the calculation of which is more complicated.Investment to Capital RatiosTotal investment(US$)Minimum registered capital3 million or less7/10 of total investment3 million -4.2 millionUS$2.1 million4.2 million-10 million1/2 of total investment10 million-12.5 millionUS$5 million12.5 million-30

154、 million2/5 of total investment30 million-36 millionUS$12 million36 million or greater1/3 of total investment24AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023Expense and tax planningWhen setting up a company in China,one inevitably incurs costs prior to the company being formally incorporated.The qu

155、estion then arises what part of these costs may be deducted from the companys tax bill.This becomes especially relevant if the investment is a large project,such as setting up a factory and purchasing machinery,where the costs incurred prior to incorporation can be substantial.An FIE,being an indepe

156、ndent legal entity registered in China,is taxed on its income,and may therefore deduct expenses from Chinese tax.As pre-incorporation expenses by definition have been incurred prior to the FIE formally existing,only some of these expenses can be taken on by the FIE.Of all the expenses made before fo

157、rmal incorporation,only the so-called pre-operation costs(開辦費)may be allocated to the FIE and deducted.The key point in defining pre-operation costs is the time when they occurred.In practice,the starting point of this period is seen as either the establishment date on the business license,or the da

158、y on which the investor gets the company name confirmation from the AMR.This is usually one month before the establishment date on the business license.The ending point of the pre-operation cost period is when the company issues its first invoice,or generates its first revenue.Most of the costs incu

159、rred during this period,such as wages,training,printing,transport fees,registration fees,and purchases of items not considered fixed assets,may be deducted if relevant valid tax invoices can be provided.Up to 60 percent of advertising and business-related entertainment expenses(business dinners,gift

160、s,baijiu,etc.)may be allocated to the FIE during this period.It is often hard to predict what the establishment date of the company will be.This largely depends on how the incorporation process is conducted.However,the better the investor manages the incorporation from its side,the more clarity one

161、can hope to get.Before the company is incorporated,the foreign investor may open a temporary bank account in China.The investor may wire foreign currency into this account and spend these funds on pre-operation and other expenses.After the company has been established,it needs to open a capital acco

162、unt.The funds from the temporary account can then be wired to this account.In practice,the only cost incurred prior to the pre-operation cost period is office rent.Allocation to the FIE is accepted,as an office lease is a required step of the incorporation process.Enterprises,especially manufacturin

163、g companies,which often have a long pre-operation period,should take careful consideration of when their pre-operation period ends.These companies in particular need to make sure costs incurred can be carried forward as a loss over the next few years.25AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023

164、LocationChoosing a location is one of the first decisions that companies must make when entering a new market.Location and a strategic site selection plan can have a major impact on the success of the business,affecting production,operation,and sales.Therefore,companies must take steps to ensure the

165、y have the right information before committing their time and money.Some locations offer more preferential policies to foreign investment based on the local economic priorities,such as the Guangdong-Hong Kong-Macao Greater Bay Area(GBA),the Hainan Free Trade Port(FTP),Western China,and the pilot fre

166、e trade zones(FTZs).By far,China has established 21 FTZs,which constitutes part of Chinas efforts to transform into a more innovative,service,and consumption-driven economy and the creation of sustainable and high-end manufacturing capacity to attract international businesses.However,investors are n

167、ot suggested to make decisions solely based on preferential policies.Rather,there are multiple considerations that companies must grapple with when choosing a location,including but not limited to real estate,infrastructure,supplier and customer market,cost,operating environment,legal and regulatory

168、 environment,and human resources.A Typical Location Search Service ProcessA Typical Location Search Service ProcessPHASE 1PHASE 2Screen for potential sitesbased on search metricsReport data metrics and analysis of property optionsIdentify location needsand set search metricsNegotiationsDeep dive ana

169、lysis on shortlisted sitesDue diligence on siteVisit sitesShortlist top locations26AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023Holding companyMany companies choose to establish holding companies,or“special purpose vehicles”,in jurisdictions,such as Hong Kong or Singapore,to hold their Chinese ent

170、ity.Holding companies allow for an additional layer of distance between the Chinese subsidiary and parent company,and can“ring-fence”the investment to an extent,protecting it from the potential risks and liabilities of the Chinese subsidiary.In the case that an investor wishes to sell their Chinese

171、business,or introduce a third-party partner/shareholder into the structure,the administrative changes can also be done at the holding company level,rather than at the China level,where the regulatory environment is tougher and procedures are more time-consuming.Given the comparatively sophisticated

172、banking systems of Hong Kong and Singapore,establishing a holding company in either jurisdiction is a popular option for foreign companies wishing to hold their China-earned profits offshore.In this way,the profits can be re-invested into China if the need arises,or used to further expand operations

173、 elsewhere in Asia.Subject to the parent countrys anti-avoidance tax rules,this method is often used as a tax deferral mechanism for foreign companies who do not want to remit their China profits immediately back to the home country.In addition,Hong Kong and Singapore holding companies present a num

174、ber of tax advantages,including reduced withholding tax rates on the repatriation of profits and limiting tax exposure on capital gains.Note that the Foreign Account Tax Compliance Act(FATCA)has significantly disrupted theability of U.S.investors to open or maintain bank accounts through Hong Kong,t

175、hreatening tocut off the cash flow to their mainland China subsidiaries.Although also a signatory to FATCA,Singapore appears to be less affected by these developments.Corporate establishmentEstablishing a foreign investment structure in China generally takes between three and six months and involves

176、 the following government authorities:Ministry of Commerce(MOFCOM)and its local branches;State Administration for Market Regulation(SAMR)and its local branches;State Administration of Foreign Exchange(SAFE)and its local branches;State Taxation Administration(STA)and its local branches;General Admini

177、stration of Customs(GAC)and its local branches;and National Bureau of Statistics(NBS)and its local branches.The establishment process varies based on ones chosen investment structure and planned business scope.For example,manufacturing WFOEs require an environmental evaluation report be completed,wh

178、ile trading WFOEs need to comply with the customs/commodity inspection requirements.27AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023Below we take WFOE as an example to demonstrate the setup procedure.WFOE Setup Procedure*BASIC INFORMATION COLLECTION FROM CLIENT(depends on client)INCORPORATION DOCUM

179、ENTS PREPARED BY CLIENTIncluding the proof on lawful use of the office premises(depends on client)ENVIRONMENT IMPACT ASSESSMENT*Including report assessment,on-site environmental impact assessment,and report approval from authorities in charge(3-6 months)AMR BUSINESS REGISTRATION*Including online inc

180、orporation information submission and pre-review,and on-site documentation submission to the authority in charge(7-10 working days)FOREIGN INVESTMENT INFORMATION REPORTING*(real time)COMPANY NOW LEGALLY EXISTSCARVE COMPANY CHOP,FINANCIAL CHOP,INVOICE(“FAPIAO”)CHOP,AND LEGAL REPRESENTATIVE CHOP(1-2 w

181、orking days)Pre-licensing(2-3 months)Post-licensing(2-3+months)*For manufacturing WFOE only.*In an effort to simplify company establishment procedures,the government intends to integrate the customs registration with the AMR business registration.However,at the time of writing this guide,the reform

182、hadnt yet been fully implemented in practice.*No separate reporting is needed in cities offering one-stop service such as Shanghai.The reporting can be conducted contemporaneously after the company name is filed for record.*For manufacturing and trading WFOE only.RMB BASIC ACCOUNT(2 weeks)TAX REGIST

183、RATIONIncluding tax identification authentication of the legal representative or financial employee in charge,VAT taxpayer status set-up,invoice set-up,and on-site submission of documentations(3-5 working days)FOREIGN EXCHANGE REGISTRATION CERTIFICATE(around 2 weeks)MOFCOM FOREIGN TRADE DEALER/OPERA

184、TOR FILING*(around 5 working days)FOREIGN CAPITAL ACCOUNT(5-7 working days)CUSTOMS REGISTRATION*(around 2 weeks)CAPITAL INJECTION(in accordance with Articles of Association)E-PORT REGISTRATION*(around 2 weeks)CAPITAL VERIFICATION ASSISTANCE(2 weeks)SAFE IMPORT-EXPORT ENTERPRISE NAME FILING*(2-3 work

185、ing days)28AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023Key positions in a foreign invested entityThe key positions in a foreign invested entity vary by the investment structure and size,with some overlap.ROs should designate a chief representative to sign documents on behalf of the company.In add

186、ition to a chief representative,an RO can also nominate three more general representatives.For WFOEs and JVs,key positions include shareholders,an executive director(or board of directors),supervisor(s),general manager,chief finance officer(CFO),and legal representative.Shareholders and executive di

187、rector(or board of directors)For WFOEs,the board of shareholders represents the highest authority of the company,whose decisions regarding company operations are executed by the executive director or board of directors.For JVs established before January 1,2020,i.e.the effective date of the FIL,the b

188、oard of directors is the highest authority.But they will need to make relevant changes within the five-year transitional period.For JVs established after January 1,2020,the board of shareholders will be the highest authority of the entity.Supervisor(s)WFOEs must have at least one supervisor to overs

189、ee the execution of company duties by the director(s)and senior management personnel.For JVs,this used not to be a mandatory obligation before the FIL enacted.However,starting from January 1,2020,JVs are also required to have supervisors following the rules stipulated in the Company Law.To ensure th

190、ere are no conflicts of interest,a companys director(s)and/or senior management personnel(general manger,deputy general manager,and chief financial officer)cannot concurrently serve as supervisors.Where a company has a relatively small number of shareholders and is small in scale,one or two supervis

191、ors will suffice.For larger companies,a board of supervisors composed of no less than three members is required.General managerBoth WFOEs and JVs need a general manager who is responsible for day-to-day company operations.This position may be concurrently filled by the executive director or a member

192、 of the board of directors.For JVs,several deputy general managers can also be appointed;this group is collectively referred to as the management office.INES LIUManager International Business AdvisoryBeijing Office“The legal representative is the person who really carries responsibility for a compan

193、y in China.You will need to appoint someone who is not just technically competent,but China competent.”29AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023Chief financial officerChief financial officer(CFO),or financial employee in charge,is a key personnel of a company that has primary responsibility

194、for managing the companys finances,including financial planning,finance and accounting compliance,taxation,cash flow tracking,as well as financial reporting analysis.CFO is senior management by nature and typically reports to the general manager of the company.This position may be concurrently fille

195、d by a member of the board of directors.CFO is of special importance in China during the company setup stage,where the CFO needs to go through real name authentication and be the contact person with the authority in charge.Legal representativeEvery business established in China,foreign or domestic,i

196、s required to designate a legal representative,i.e.the person responsible for performing the duties and powers on behalf of a company.The legal representative is,by definition of their role,one of the most powerful people in a FIE.Yet this power comes with heavy responsibility,and if a single indivi

197、dual in a foreign invested entity is to be held accountable for company actions,that person is more likely than not the legal representative.For WFOEs and JVs established after January 1,2020,the executive director,the chairman of the board of directors,or the general manager are all eligible to be

198、legal representatives.Before that,only chairman of the board of directors can take the legal representative role of the JVs.Powers and responsibilities of a legal representativeThe Company Law does not clearly define the powers of a legal representative.However,it is clear that a legal representativ

199、e is authorized to perform all acts regarding the general administration of a company according to the companys aims and objectives.This may include:Acting(legally)to conserve the companys assets;Executing powers of attorney on the companys behalf;Authorizing legal representation of and litigation b

200、y the company;and Executing any legal transactions that are within the nature and scope of that companys business.30AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023The FILs impact on key positions in FIEsConsidering that WFOEs are generally limited liability companies,which are basically in line with

201、 the Company Law,the FIL has a limited impact on key positions in WFOE.For existing FIEs in the form of a CJV or EJV,they need to change their governing structure within the five-year transitional period to the three-tier structure(the board of shareholders,the board of directors,and the general man

202、ager),in accordance with the Company Law.Below,we take EJV as an example.FILs Impact on Key Positions in EJVItemsUnder the EJV LawUnder the FILHighest authorityBoard of directorsBoard of shareholders or the general meeting of shareholdersBoard of shareholdersNo board of shareholdersThe following mat

203、ters must be be reviewed and approved by shareholders holding two-thirds or more of the voting rights on the shareholders meeting:Amendment to the article of associations;Increase or reduction of registered capital;and Company merger,division,dissolution,or change of company structure.Board of direc

204、tors The board of directors shall comprise no less than three members;Directors shall be appointed and removed by EJV parties;Where a Chinese national takes the position of chairman,the position of the deputy chairman shall be held by the foreign party,or vice versa;and The tenure of a director shal

205、l be four years.Company can choose to appoint an executive director instead of establishing a board of directors;The board of directors shall comprise three to 13 members for limited liability companies,or five to 19 members for joint-stock companies;Directors who are not employee representatives sh

206、all be elected and replaced by the board of shareholders/shareholder;and The tenure of a director shall not exceed three years.SupervisorBoard of supervisors/supervisor is not obligatorily required Board of supervisors should comprise no less than three members;Limited liability companies with fewer

207、 shareholders may appoint one to two supervisors instead of establishing a board of supervisors;The tenure of supervisor is three years;and Directors and senior management personnel shall not hold the post of supervisor concurrently.Legal representativeChairmanChairman,executive director,or general

208、manager Senior management personnelWhere Chinese party takes the position of general manager,the position of the vice-general manager shall be held by the foreign party,and vice versaNo limitation31AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023Office premises requirementsTo register a FIE in China,

209、it is a prerequisite to own or lease office premises1(as the primary place of business)and register this with the local AMR in charge.Doing so requires that the FIE possess all legal documents pertaining to the premises as required by the Chinese authorities,such as the Real Estate Ownership Certifi

210、cate.If the office premises is leased from another individual or organization,the lease term of the original lease agreement should be no shorter than one year.Generally,the AMR does not accept“residential”purpose real estates to be used for business registrations.The purpose of the premises as indi

211、cated in the Real Estate Ownership Certificate,(i.e.,residential purpose,commercial purpose,or industrial purpose)must match the nature of the businesses.For example,the premises for a FICE should be for commercial use,while the premises for a manufacturing company should be for industrial use.In mo

212、st cases,only one business may be registered per office unit.Under limited conditions,one office unit can be used to register multiple businesses.Many new entrants to the China market find success using serviced offices offered by a number of providers in major cities across China.For recent start-u

213、ps or foreign companies wanting to test the waters first,having to lease office space can be a burdensome commitment.Serviced offices offer an option in which businesses can lease the required office space under flexible terms and at more accessible prices.Apart from simply being a cost-efficient wa

214、y to meet the office space requirement,using a serviced office provider allows companies to use their on-demand services,such as IT packages,secretarial support and meeting rooms.While these often-tiny work places can offer a solution,it is important to realize that not all of them are in compliance

215、 with the AMR standards.Investors who consider this option are suggested to confirm with the service officed as well as the authority in charge whether the serviced office address can be used as premises for business registration.1 In some cases,virtual offices might be accepted as registered addres

216、s,such as in some industrial parks.VIKTOR ROJKOVAssistant ManagerInternational Business AdvisoryShanghai Office“If a FICE intends to include retail activities in its business scope,the company needs to be registered at an address suitable for the specific retail activities.The investor is advised to

217、 double-check the suitability of the premises before signing the lease agreement.”32AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023Opening a bank accountOnce obtaining a business license in China,the newly established FIE must choose a specific bank to open the bank account,without which the entity

218、will not be able to carry out its daily operation.Account typesFIEs in China need to establish at minimum two bank accounts:an RMB basic account and a foreign currency capital contribution account.1.RMB basic accountAn FIE must have one(and only one)RMB basic account for daily business operations in

219、 China1.This account is the only account from which the company can withdraw RMB cash.The RMB basic account often acts as a designated account for making tax payments.2.Foreign currency capital contribution accountAn FIE must also have a foreign currency capital contribution account to receive capit

220、al injections from the foreign investor.Approval to open this account can be obtained from the SAFE.Additional general RMB accounts and other types of foreign currency accounts can be opened for different purposes.For foreign currency accounts,these may include a settlement account for the collectio

221、n of current items in a foreign currency,foreign debt special accounts,and temporary capital accounts.International and Chinese banksForeign investors can establish the above accounts in China through international banks with a local presence,the major banks being Bank of East Asia,Citibank,DBS Bank

222、,Hang Seng Bank,HSBC and Standard Chartered;or through a Chinese bank,the largest being Industrial and Commercial Bank of China,Bank of China,China Construction Bank,Agricultural Bank of China,and Bank of Communications.Foreign investors in China often prefer to establish an account with an internat

223、ional bank because of an existing business relationship.However,establishing accounts with a Chinese bank has a number of advantages,namely:The application process for opening a bank account with an international bank in China will be more document-intensive and take longer compared to opening such

224、an account at a Chinese bank;FOLLOW US ON TWITTERDezanShira1 China is piloting to remove the RMB basic account requirement in Lingang arear,Shanghai FTZ.33AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 There are substantially more Chinese commercial banks than foreign bank branches,which allows for

225、 more convenient and faster RMB remittance;Most Chinese companies have local bank accounts conducting transactions with them will be easier and faster if done from a Chinese bank instead of an international bank;and Bank account security.When opening a bank account in China,an FIE will need to speci

226、fy what will act as the“signature”of the company.Usually the companys financial chop(seal)is required to do so,along with either the legal representatives chop(or chief representatives chop for an RO)and a handwritten signature.Banks generally prefer using the legal representatives chop instead of a

227、 handwritten signature,as the latter is easier to forge and harder to verify.Many bank transactions can now be done online in English,including the approval of transactions and viewing account balances from abroad.It is possible and sometimes necessary to make tax payments online in in many cities b

228、y signing a three-party agreement with an authorized Chinese bank.For an entitys RMB basic account,it is possible to apply for different levels of e-banking access and multiple security keys(in the form of a key-ring/USB dongle)one with access rights and another with approval rights.Another common s

229、ecurity measure is a device that generates a new password for every check that is written.What are the latest requirements for opening a bank account in China?Foreign investors might get the feeling that it will not be a straightforward process to become the banks new clients.This is because banks i

230、n China are subject to high scrutiny from the Peoples Bank of China(PBOC),resulting in the emphasis now given to the KYC(know your client)policy.Under PBOC direction,Chinese banks have also become stricter about opening bank accounts since April 2020,especially for newly established companies no mat

231、ter whether it is a domestic company or a foreign invested company.To validate the“real business”of the applicant,banks have now implemented an on-site visit procedure.This procedure includes a bank officer visiting the physical location(the office)of the applicants to verify that they have a physic

232、al location and staff.The photo of the location with the company nameplate and a business license will be taken for the banks internal compliance purposes.Based on this situation,the bank will require the individual who has submitted their passport as verification documentation on behalf of the comp

233、any(the legal representative,that is)to be present at the time of the account opening,which is difficult to mange with the ongoing COVID-19 pandemic and the travel restriction policies implemented in China.Investors are suggested to contact the bank or consult with professional services for solution

234、s.34AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023MONICA LIManagerBusiness Advisory ServicesBeijing Office“To protect their IPR,most FIEs adopt measures to proactively search the internet for violations,in addition to sending staff to corporate functions and trade fairs.”Intellectual property consi

235、derationsIntellectual property(IP)protection is a longstanding and critical concern for companies operating in China,which has also been a key point of contention in the US-China trade war.China has already made strides in recent years to improve IP protection as the government seeks to spur domesti

236、c Chinese innovation and improve the business environment for investment,such as revising its IP laws and establishing a new national IP appeals court.However,challenges remain,as counterfeiters and infringers are getting increasingly sophisticated.For example,infringers may take advantage of proced

237、ural loopholes and proactively seek to invalidate legitimate IP rights.Companies are thus suggested to develop a comprehensive strategy to identify and protect their IP in China.This includes enhancing internal controls and making the best use of external resources.In China,IP is defined as a propri

238、etary right enjoyed by a holder with respect to their works,inventions,trademarks,geographical indications,trade secrets,layout design of integrated circuits,new varieties of plants,etc.Among others,copyrights on works,patent rights on inventions,utility models,and designs,and trademark rights,are t

239、he most common IP rights.China follows the principle of territoriality in IP protection,meaning IP rights acquired under the laws of a country can only be valid and protected within the territory of that country unless an international convention or bilateral or multilateral agreement is in place.Wh

240、at that means is that enjoying IP rights in a foreign country will not automatically secure the IP rights in China.A domestic IP registration/filing in China is necessary to effectively protect your IP in the country.Besides,China mainly applies a“first-to-file”rule for IP registration,which means t

241、hat the first entity or individual who registers IP rights will hold those rights exclusively,irrelevant of the original user,with limited exceptions.Thus,the first and foremost strategy we can offer is to register/file your IP rights in China as early as possible.In addition to registration,busines

242、ses are also suggested to establish a thorough internal IP protection system,to adopt preventive measures to protect IP,and to confront IP infringements in business operations.This system can be set up with the help of external third-party professional services,especially for businesses that are new

243、 to China and have limited knowledge of Chinas trademark protection situation.For businesses engaging in import-export,they are suggested to file their patent,copyright,or trademark,with the customs authorities.This is necessary because:It is a prerequisite for the customs to take active IP protecti

244、on measures.It helps customs to find infringing goods.It can have a deterrent effect on the infringer.35AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023Making changes to a Chinese entity after establishment such as to its range of commercial activities or registered address can be challenging and one

245、rous.In some cases,closing the entity all together and starting from scratch may be easier,or even mandatory.For these reasons,it is always better to start out with a clear and informed business plan,rather than attempt to make on-the-fly adjustments later on.In this section,we discuss:Company name;

246、Business scope;Registered capital;Shareholder structure;RO to WFOE conversion;and Relocation.Company nameThe procedure for changing the name of a company in China is quite complex.Because a companys name is displayed on several types of official documents(such as its business license and company cho

247、p),any changes to this information must be filed with each respective governing authority.Step 1:After preparing several new company name options that are in line with the company name requirements imposed by the laws and regulations,the company should conduct a company name self-declaration on the

248、platform maintained by the AMR,which can spotlight duplications,similarities,and other prohibitive or restrictive situations at the same time.In some cities,the self-declaration might be integrated with the company name change registration.Under certain situations,the company may need to go through

249、a company name pre-approval procedure instead,such as when the new company name contains“China”,“national”,“international”,etc.Step 2:The company should prepare the documentation required for the company name change registration,which includes a board resolution1(or shareholder resolution)on the mat

250、ter and an amended Articles of Association signed by the legal representative,among others.Step 3:The company must file an application with the local AMR for company name change registration.Upon examination and approval,a new business license with updated information will be issued to the company.S

251、tep 4:FIEs are also required to submit a change report through the foreign investment reporting system,which might be integrated with the company name change registration in cities offering one-stop services.How do I make changes to my business?1 JVs that havnt adapt to the new governing structure b

252、ased on the FIL need to pass a board resolution on the matter.RELATED READINGRestructuring Your China Business to Outperform in the New NormalChina Briefing MagazineNovember 2020In this issue of China Briefing magazine,we walk foreign investors through the different considerations when restructuring

253、 their China businesses.AVAILABLE HERE36AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 Step 5:After the name change procedures has been successfully made with the AMR,the company must then go about updating other documents on which its name appears,including various types of chops(Financial Chop,Co

254、mpany Chop,Customs Declaration Chop,etc.),which must be newly carved and registered with the companys local public security bureau.Moreover,the company will have to make changes to all ongoing contracts with suppliers,clients and employees.Business scopeGenerally,when an enterprise intends to change

255、 its business scope,it must first come out with a board resolution(or shareholder resolution)and amend its Article of Association on this matter.After that,the company need to filed the modified business scope with the local AMR within 30 days of the resolution being made,and submit a change report

256、through the foreign investment reporting system(which might be integrated with the AMR registration in cities offering one-stop services).Upon registration with AMR being completed,the enterprise will get a new business license.Following this,other business certificates and bank information may need

257、 to be amended correspondingly.To be noted,if the new business scope diverges significantly from the original business of the company,the company name should be changed as well,since this must generally reflect the main business of the company.Registered capitalIf companies plan to adjust their regi

258、stered capital bases on financial,strategic,or regulatory considerations,similar to other changes,it is a time-consuming process that involves working with multiple government authorities.Generally,increasing registered capital is easier than decreasing registered capital,the latter of which involve

259、s additional procedures.Step 1:The company should reach a board resolution(or shareholder resolution)on the matter and revise the Article of Association accordingly.Step 2:For decreasing registered capital,the company needs to inform the creditor within 10 days of the company resolution,or announcin

260、g the decrease on a designated newspaper for the 45 days within 30 days of the company resolution.Step 3:The company should apply to the AMR for business license update within 30 days of the company resolution.Step 4:The company should make relevant updates in the bank regarding capital increase/dec

261、rease.Step 5:The company should apply to the SAFE to make relevant foreign exchange registration.37AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 Step 6:FIEs are also required to submit a change report through the foreign investment reporting system,which might be integrated with the company name c

262、hange registration in cities offering one-stop services.The bank will facilitate the capital increase afterwards.And other business certificates may need to be amended correspondingly.Shareholder structureA company typically decides to make changes to its shareholder structure upon the entrance of a

263、 new shareholder who is to receive an equity transfer from one or more existing shareholders.Alternatively,it may be necessary to revise the shareholder structure as the result of equity transfers between shareholders or the exit of a shareholder from the company.Though information on company shareh

264、olders is not explicitly listed on a Chinese business license,in most cases,the company will still need to apply for a new business license,especially where the registered information listed on the business license needs to be changed as a consequence.Step 1:An equity transfer agreement should be si

265、gned between the transferor and the transferee.The transfer agreement must be a valid agreement that is reached through due procedure stipulated in relevant laws and regulations.For example,when equity is transfered to someone other than the original shareholders,there must be proper documents to sh

266、ow the transfer agreement are agreed by the current shareholders.In addition,there must be proper documentation to show the qualification of the new shareholder.Step 2:The equity transferor or transferee(the taxpayer)shall file with the competent tax authorities and obtain a tax payment certificate

267、for relevant taxes incurred or a tax exemption certificate.Step 3:The company must apply to the original AMR of registration for a change of company shareholders within 30 days of the change being made.Step 4:The company should submit a change report through the foreign investment reporting system,w

268、hich might be integrated with the AMR registration in cities offering one-stop services.Step 5:The company must apply a new business license if relevant information listed on the business license gets changed.Following this,other business certificates and bank information may need to be amended corr

269、espondingly.38AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023“RO to WFOE conversion”Multinational companies operating in China through an RO occasionally encounter the need to convert their existing operations to a WFOE,as ROs are unable to engage in profit-making commercial activities.In fact,the a

270、ct of“converting”an RO to a WFOE is a misnomer;rather,deregistering an RO and establishing a new WFOE are two separate procedures that must be done either in sequence or simultaneously.As an RO has no legal personality,the term“deregistration”is used instead of“liquidation”,though the two processes

271、share many similarities.Step 1:Prior to actual deregistration,the RO must apply to the local tax bureau in charge of tax audit and tax deregistration.To do so,the RO may first undergo an audit by a local Chinese certified tax agent(CTA)firm for taxes owing from the past three years.Once the audit is

272、 completed,the enterprise should submit to the tax bureau a board resolution affixed with the signature and seal of the chairman of the board of directors,as well as a cancellation application signed by the chief representative of the RO.Should any unpaid taxes or other irregularities be found by th

273、e tax authorities at any point during this process,the RO may be required to submit additional documentation,pay penalties,or settle unpaid taxes with the authorities.Step 2:The RO should then deregister its foreign exchange registration in the local SAFE and custom registration in the local customs

274、.In case it has not registered,the RO will still need to get corresponding official statements from the bureaus in charge as proof.Step 3:The enterprise can then proceed to deregister with its local AMR where its application will be processed within 10 workdays of of receipt by law.If successful,the

275、 enterprise will be issued a“Notice of Deregistration”and all the registration certificates will be cancelled,as well as the chief representatives work certificate.Announcement of the ROs deregistration must be listed in a media outlet designated by the AMR.The ROs business registration and office l

276、ease must be valid up until the official notification of deregistration has been issued by the AMR.Step 4:The enterprise should close its bank account.Unissued checks and deposit slips will need to be returned to the bank and any funds remaining in the account should be transferred out.If the RO int

277、ends to transfer the account to its parent company,it will be required to provide reasons for doing so and seek approval from the bank.In cases where the company is required to submit the company chops during AMR deregistration,the bank account is suggested to be closed before AMR deregistration,as

278、company chops are needed in this process.Step 5:Notification of the ROs deregistration should then be filed with the public security bureau to cancel its chops.ALLAN XUDirector Business Advisory ServicesShanghai Office“Investors need to consider the time and cost involved in the conversion process,a

279、nd weigh this against the lower tax treatment and other benefits.The higher the ROs expenses are,the more convincing the case is for conversion.”39AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023The total time required for deregistration is typically three to six months(depending on the region),but c

280、an take over a year in cases containing irregularities,particularly in the tax deregistration phase.Fortunately,the new WFOE can be established according to the procedure outlined in the previous section while the RO deregistration process is underway.Deregistration with customsDeregistration with S

281、AFEDeregistration with tax bureau in chargeCancellation of chops with public security bureau10-20 working days1 working day1-2 monthsClosure of bank account1-2 monthsDeregistration with AMR5-10 working daysRO Deregistration Procedure and TimelinePhase 1Phase 2*Phase 3Phase 4Phase 5Steps and instruct

282、ionApproximate time*Even if the RO did not register with customs and the SAFE,it still needs to get corroborating official statements from the bureaus in charge as proof.40AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023RelocationWhere possible,relocation to a new business address should be avoided t

283、o prevent the loss of time and money necessarily incurred.Relocating within a tax district is a relatively simple process,but cross-district relocations are significantly more involved,requiring several months to complete.The challenges involved in relocation are largely related to taxation,which is

284、 decentralized in China.Taxes are managed directly by local tax bureaus,and transferring to a new tax district requires the foreign investor to actively coordinate between bureaus in both districts.These are often in competition with each other and no tax officer wants to lose out on revenue by allo

285、wing a lucrative company to relocate to another tax district.Under the current policy,companies transferring to a new tax district need to close their tax account in the original tax bureau and then apply for a new one in the new tax district.Besides,labor disputes usually arises in the relocation p

286、rocess,as employees are usually not willing to transfer to a new location due to commute concerns.If relocation is not possible,to avoid interruptions in business operations,establishing an entirely new company and then closing the old company represents the“default”option for relocation.Opening a b

287、ranch office in the desired location is also an option.Branches are easier to set up and maintain,but limited in many ways,such as not being able to expand beyond their parent companys business scope.Branch Office(BO)Common purposesProsCons Geographic expansion Alternative to relocation Simple estab

288、lishment Easy maintenance(only branches wishing to invoice must declare taxable items from locally produced invoices)Limited business scope(must be within that of the parent;cannot import or export)Not a legal entity(all liabilities born by the parent company)KYLE FREEMANPartner Beijing Office“While

289、 the steps for deregistering an RO are few,the difficulty of tax deregistration should not be underestimated.”41AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023Business suspensionBusiness suspension,or company dormancy,refers to a policy that allows enterprises to cease business activities during a g

290、iven period of time and return to the market when they are financially and operationally stable.According to the Administrative Regulation of the Peoples Republic of China on the Registration of Market Entities(the Regulation)and its Implementing Rules that took effect on March 1,2022,business suspe

291、nsion is applicable to those situations when the companys normal operation is challenged by factors like natural disaster,accident,public health incident,or public security incident.The company can decide to suspend its business for a certain period by its own assessment,but the suspension period ca

292、nnot be more than three years.A business suspension filing with the local AMR is required to turn the companys status to“business suspension”.For the company to become dormant,the law in China currently does not impose many restrictions on applicant eligibility.Generally speaking,the company should

293、not be included in the blacklist of abnormal operations or serious illegal and dishonest acts,and the business suspension filing should not endanger national security,public interests,the rights and interests of trading counterparties,etc.During the business suspension period,the company shall be ex

294、empted from retaining physical premises,and the company can suspend their business operation legally,without getting their business license revoked.Besides,the dormant status may also bring the following benefits to the company:Reserve the company name;Reserve the special license or pre-approval,whi

295、ch is hard to apply for again in a special industry;Protect the companys branding or other intangible assets;Hold a particular type of physical asset,such as property;and Save the time and cost of winding down the company and opening a new entity in the future.To be noted,however,the Regulation and

296、its Implementing Rules provide clear guidance on how the dormant company should deal with its tax obligations,such as whether the company is still required to complete monthly/quarterly/annually tax filing or not.The corresponding tax responsibility during the suspension period,however,still needs t

297、o be clarified by the competent tax authority.Moreover,the Regulation and its Implementing Rules do not state that business suspension can be used as a lawful reason for termination.The company can only use the business suspension situation as a strategic condition in the termination negotiation,rat

298、her than as a ground to unilaterally terminate its employees.42AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023Deregistration Companies in China may want to end their operations for various reasons,due to changes in their business scope,failure to adapt in the market,or external pressures like the US

299、-China trade war.Irrespective of what factors might trigger this decision to shut down the business,investors cannot simply walk away without following proper closure procedures.For one,not properly closing the company will attract stringent penalties from the governments tax and regulatory bodies.I

300、t could also do lasting damage to the reputation of the company both in the eyes of the law and among consumers as the business will be blacklisted.Moreover,in case of improper closure,the legal representatives and financial associates of the entity will face difficulty in moving out of the country,

301、starting another business,or even conducting ordinary banking and financial transactions if they are based in China.The Company Law stipulates certain requirements before triggering the closure of a company.This includes organizing the liquidation of the company prior to the cancellation of its regi

302、stration,followed by the announcement of the termination of the company.Overall,the company deregistration process requires dealing with multiple government agencies,including the respective industrial and commercial bureaus,market regulatory bureaus,tax departments,and banking authorities.Take WFOE

303、 closure as an example,the following steps offer a rough guideline to the deregistration procedure:Form a liquidation committee and prepare an internal plan Liquidate the assets File a record with SAMR Newspaper announcement File a record with MOFCOM Begin terminating employees Tax clearance and der

304、egistration SAMR deregistration Deregister with other departments Bank account closure Cancel company chopsCHENCHEN LIUAssistant ManagerBusiness Advisory Services Shanghai Office“A WFOE will usually be subject to special attention during its closure procedure,involving more steps and authority invol

305、vement than that of its representative office and Chinese company counterparts.”43AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023While each case is unique,the whole process of deregistration can take up to a year or longer.The time taken to successfully close a business depends on the enterprise pre

306、paredness,credit-debt record,level of compliance,and submission of information to various government departments.For example,it typically takes six months to one year to deregister a RO and even longer in case of irregularities.In the case of a WFOE,it typically takes between 12 to 14 months.The STA

307、 has issued the Notice on Further Optimizing the Procedures for Dealing with Enterprise Tax Deregistration(henceforth Notice)to ease the difficulties of enterprise deregistration.The Notice takes measures to reduce enterprises repeated errands and to issue tax clearance certificates on the spot even

308、 when some enterprises submit incomplete documents.In particular,the newly introduced commitment system presumes the integrity of the enterprise,which may be reflected in a positive inspections record,high tax credit ratings,and no tax or fines owed.In such situations,the tax clearance time will be

309、unaffected,and only a commitment is needed from the legal representative deregistering the company to provide all tax-related information within a stipulated time period.Through the above measures,many expect that the cancellation time of enterprises can be reduced by at least one-third.At the same

310、time,the government will strictly investigate business entities indulging in the evasion of debt.The names and information on enterprises that have lost credibility due to non-compliance or debt evasion will be jointly published by the respective government agencies.Closing a business requires a hol

311、istic view of every aspect of the business whether it be HR,tax,legal,accounting,IT,logistics,or stock and inventory.Many of these issues are intensified when a company is inactive or there has been insufficient preparation.When an investor decides to close a business,making a plan is essential to s

312、taying ahead at each stage of the closure process,and can mean avoiding lengthy delays,added costs,and serious consequences.Businesses should ensure they retain an experienced local advisor to avoid some of these common challenges and pitfalls.For experienced advice on Corporate Formation from our s

313、easoned specialists,please email .RELATED SERVICESWhat are the major taxes in China?What are some of the key compliance requirements?Tax,Audit,and Accounting245AN INTRODUCTION TO DOING BUSINESS IN CHINA 20232Income taxesCorporate income tax(CIT)According to Chinas Corporate Income Tax Law,which was

314、recently amended in 2018,all enterprises(except sole proprietorships and partnerships),including all organizations that generate income in China,are subject to CIT.CIT is calculated against the companys net income in a financial year after deducting reasonable business costs and losses in other word

315、s,it is effectively a tax on profits.CIT in China is settled on an annual basis but is often paid quarterly,with adjustments either refunded or carried forward to the next year.The final calculation is based on a companys year-end audit.The CIT rate applied to all companies in China today,both forei

316、gn and domestic,is 25 percent.Reduced CIT rates are available based on the entity type,size,sector,or location.A reduced CIT rate of 20 percent is applied to small and low-profit enterprises(SLPEs)on 12.5 percent of the taxable income amount for the portion of taxable income not exceeding RMB 1 mill

317、ion(effective from January 1,2021 December 31,2022)and on 25 percent of their taxable income amount for the portion of taxable income more than RMB 1 million but not exceeding RMB 3 million(effective from January 1,2022 December 31,2024),which means the effective CIT rates are 2.5 percent and five p

318、ercent,respectively.If a taxpayer qualifies as a high-tech enterprise or is engaged in certain sectors within certain regions(such as Lingang and Hengqin),a reduced CIT rate of 15 percent applies.At the same time,China provides multiple CIT incentives to qualified enterprises.Besides lower CIT tax r

319、ates,other CIT incentives include CIT exemption on certain type of incomes,such as dividends,bonuses,and other equity investment income between qualified resident enterprises;CIT reductions on certain incomes,such as income derived from eligible technology transfer;additional pre-tax deduction of ce

320、rtain expenses,such as research and development(R&D)expenses;tax credits for certain costs,such as the investment in seed-stage or start-up technology enterprises;and accelerated depreciation or one-time deduction of the value of fixed assets.What are the major taxes in China?RELATED READINGTax,Acco

321、unting and Audit in China 2022/23(12th Edition)October 2022This edition of Tax,Accounting,and Audit in China,updated for 2022/23,offers a comprehensive overview of the major taxes foreign investors are likely to encounter when establishing or operating a business in China,as well as other tax-releva

322、nt obligations.AVAILABLE HERECIT payable is calculated using the below formula:=CIT PAYABLECIT TAXABLE INCOME x CIT RATE TAX EXEMPTIONS OR REDUCTIONS BASED ON TAX INCENTIVES46AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023Key Preferential CIT Incentives Checklist CIT incentives for small and low pro

323、fit enterprises(SLPEs)CIT incentives for high and new technology enterprises(HNTEs)CIT deductions on R&D expendituresCIT incentives for technology-based small-and medium-sized enterprises(TSMEs)CIT incentives for advanced technology service enterprises(ATSEs)CIT incentives for for qualified enterpri

324、ses established in certain regions,such as western China,Hainan FTP,Shanghai Lingang,Shenzhen Qianhai,Fujian Pingtan,and Zhuhai HengqinCIT incentives for enterprises engaging in pollution controlCIT incentives for hiring disabled employees or retired soldiersCIT reduction for enterprises investing i

325、n seed-stage or start-up technology enterprisesCIT incentives for software enterprises and integrated circuit enterprisesCIT incentive for income derived from eligible technology transfersDeduction Cap for Certain ExpensesExpensesDeduction capEmployee welfare14%of the total amount of employee salari

326、es and wagesLabor union funds2%of the total amount of employee salaries and wagesEmployee education8%of the total amount of employee salaries and wages(theexcess can be carried forward to future years for deduction)100%deduction for enterprises in software and integrated circuit industriesBusiness e

327、ntertainment relating to production and business operations 60%of the actual incurred amount;and 0.5%of the sales revenue of the current year.Advertising and publicity 15%of the sales revenue of the current year(the excesscan be carried forward to future years for deduction)30%of the sales revenue o

328、f the current year(the excess can be carried forward to future years for deduction)for enterprises manufacturing or selling cosmetics,enterprises manufacturing pharmaceuticals,and enterprises manufacturing beverages(excluding alcohol)*Not deductible for tobacco enterprises*Effective from January 1,2

329、021 to December 31,202547AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023Individual income tax(IIT)In accordance with the Individual Income Tax Law of China(the IT Law),which was recently revised in 2018,IIT is imposed on all individuals,including Chinese and foreign nationals,residing in or deriving

330、 income from China.The IIT Law divided IIT taxpayers into two categories:resident taxpayer and non-resident taxpayer.Resident taxpayers refer to individuals who have a domicile in China,or individuals who do not have a domicile in China but have resided in China for 183 days or more cumulatively wit

331、hin a tax year.Non-resident taxpayers refer to individuals who do not have a domicile in China and have not resided in China,or individuals who do not have a domicile in China and have resided in China for less than 183 days cumulatively within a tax year.A tax year starts from January 1 of a calend

332、ar year and ends on December 31.Having a domicile here means habitually residing in China due to household registration,family,and economic interests.Generally,individuals who have no domicile in China wont be subject to paying IIT on their worldwide income until they reside in China for 183 days or

333、 more in a year for more than six consecutive years.According to the official statement,the six-year rule counts starting from January 1,2019.Besides,the count of the six-year can be reset by living in China for less than 183 days in a tax year,or by leaving China for more than 30 days continuously where their days of residence in China has reached 183 days in a tax year.Under the new IIT Law,the