Consulting WFOE and FICE Applications
For services, there are many structural options. However, for entities such as these, no tax holidays are available. This means you are liable for profits tax from the first year of operations – and that means tax planning is needed at the pre-incorporation stage to work out how legally to minimize this. Trading FICE also need proper investments for working capital – have you considered all your working capital needs ? Issues such as registering a bond with the customs bureau for initial imports - often for the first 6 months of trading - also need to be considered. Or how to apply for VAT rebates on export ?
If not, you can get into trouble very quickly indeed if your registered capital needs are insufficient (we’ll discuss this in detail later).
WFOE Applications - Manufacturing
More options - will you be selling purely to China, purely for export, or a combination of both ? What you do affects your tax position and how you handle this. Selling in China means collecting local revenues. How can you minimize tax on this ? How can you get the money back home ? Can you import duty free ? How can you claim back VAT on export ? Can you get tax holidays ? How do you apply for these ? What other incentives are on offer ? Are you an encouraged industry that brings additional benefits ?
These and many other questions start to bite when looking at manufacturing in China. Of particular consideration are the arrangements that need to be made if you are generating income – that puts you firmly into the Chinese tax payer bracket and you need to know how to deal with this to your best advantage.
Location Issues as Pre-Investment Planning
Inappropriate Site Locations
Not all locations are applicable to all kinds of business - industrial, commercial, residential – and if you commit to the wrong type of location, you will be unable to proceed with your desired business licence application at a later stage. Do your due diligence and make sure you know exactly the status of the building or land and its suitability for your particular type of foreign investment. If incorrect, this is an expensive mistake to make. Check what is being told to you by the local government with the land bureau. We have had instances whereby the local government misled the investor over the land, took the money, and watched from the sidelines as other government departments refused to co-operate over the issuing of operational licences. The mess took two years to resolve.
Land Use Rights
There has been an increase over the past few years in the abuse, and occasionally quite deliberate misrepresentation to foreign investors, of the actual circumstances concerning land use rights. Often we have been called in to clear up an issue of conflict – however by then the damage has been done and it can be immensely difficult to repair. This is essentially a legal due diligence issue that is required when acquiring land, and it is vital to carry out background checks to confirm the status of the land in question. There are two types of land use rights :
- Allocated Rights – meaning someone else has the title but permission to use for a specific purpose is provided to you. These take the form of an issued certificate in your name.
- Granted Rights – meaning you have title (ownership) of the land.
