China world’s largest online games market(0)
China’s online game market in 2008 created a 20.8 billion yuan revenue, representing an increase of 52.2 percent over the previous year. More than 80% of the income were from the participation of large-scale multi-player online games, the rest of the games were from the web page games and mobile games. In the next five years, the entire gaming market is expected to be at an average annual growth rate of 20 percent. iResearch estimated that by 2012 China’s online game market scale will be more than 68 billion yuan, accounting for nearly half of global market share.
iResearch report showed that, at present, the United States, China and South Korea are the world’s top three online games market, occupying 29%, 27% and 21% market share respectively. China has a huge group of online game players, the number is still growing, which will further promote China’s online game industry. According to the latest data released by China Internet Network Information Center, China currently has 55.5 million online game players.
Preparing for declaration of dividends in China(0)
Your decision here will depend upon instructions from your parent company overseas, however there are a number of tax-related factors to bear in mind. This article first introduces the procedure that must be followed when declaring dividends and the extra steps necessary if funds are to be reinvested. It also covers the incentives available to investors either re-investing funds into their existing Chinese entity or another operation in the country.
Repatriation of profits from China is of course preferable if your organisation requires the funds for re-investment abroad, or to return to the shareholders.
The process for declaring dividends and repatriating funds
Some of these documents need to be provided by your licensed CPA firm in China (such as the capital verification report) and as the documentation can be awkward to manage for businesses overseas it is usually part of the role of the company’s accountants to assist with the repatriation process and ensure transparency at all stages in the transaction. There have been cases of company employees arranging to have profits distributed elsewhere and then disappearing.
Annual licensing & renewals in China(0)
Luckily, the authorities do try to make it is easy as possible for you ? you can either submit your details via the internet, or by going to an office where officials from a total of seven different agencies come together temporarily for this process.
These seven agencies are (almost) the same as the ones to which you have to submit your audited accounts :
The procedure for the annual co-operative examination for FIEs is as described below
Preparing for declaration of dividends in China
Representative Office annual audits(0)
The information below is limited to RO who are expenses-based taxpayers (the major category for ROs).
Annual licensing & renewals in China
Audit items often queried by Chinese independent auditors(0)
Adjustments for foreign related payment income
Related party transactions
The VAT invoices must be verified by the tax bureau within 90 days of the invoicing date, otherwise they cannot be deducted. Furthermore, if you have any unusual loss of inventory, then the VAT input related to the inventory previously credited has to be reversed in the period when the loss is recognised.
Representative Office annual audits
Audit requirements in China(0)
China uses a calendar fiscal year to impose statutory audits, so those for 2006 are nearly due and must be filed by April 2007 at the latest. So you have about three months to get everything prepared, organized, audited and presented to the government – the clock is ticking !
These statements will be used for calculating the FIE?s taxable and distributable profit. Thus, an annual audit by a firm of Certified Public Accountants registered in the PRC is required under Chinese law.
FOREIGN INVESTED ENTERPRISE ANNUAL AUDIT REQUIREMENTS 2007
AUDIT REQUIREMENTS FOR WHOLLY FOREIGN OWNED ENTERPRISES, FOREIGN INVESTED COMMERCIAL ENTERPRISES AND JOINT VENTURES IN CHINA
[ By Edward Ma, Manager, Dezan Shira & Associates Beijing office ]
Broadly, the audit system for foreign businesses in China operates as described below, apart from some minor regional differences in audit practice for WFOEs and Joint Ventures that we will identify.
National Audit Principles
These need to be prepared and submitted to seven different government departments, namely the Bureau of Foreign Trade and Economic Co-operation (BOFTEC), the Financial Bureau, Customs & Excise, the State Administration of Taxation, the local tax bureau, the Administration of Industry and Commerce (AIC), and the State Administration of Foreign Exchange (SAFE).
FIEs may also need to submit to both the national tax bureau and local tax bureau the Annual Taxation Consolidation Reporting Package, authorised by a CPA firm by the end of April 2007. In this reporting package, a CPA firm shall verify all the taxes including VAT, Business Tax, Consumption Tax, Foreign Enterprise Income Tax (FEIT), and other taxes on the basis of the audit result.
The FEIT is obviously the most important issue to be disclosed in this report. The related taxable elements, and in particular items involved in FEIT such as income, cost and expenses, are specified in detail, while the auditing firm shall make the FEIT reconciliation between financial profit and taxable profit in accordance with PRC FEIT regulations.
If the audited taxes are different from the taxes paid by the FIE, the FIE shall discuss the variation with the tax bureau. For example, should the audited tax figure be lower than the figure paid, the FIE will need to apply for a tax rebate or tax reduction for the fiscal year in question. Accordingly; should the audited tax figure be higher than the paid FEIT, once the FIE submits the report, it would have to pay the balance due to the tax bureau. Your auditors should be competent to handle such rebate issues.
Additionally, there are some regional reporting variations.
FIEs in Shenzhen
And similar to the situation in Shanghai, FIEs in Shenzhen need to complete the annual audit and obtain two auditor reports, a general one and one addressing foreign currency issues. Only after the local CPA firm has performed the audit for your FIE can you submit the documents to the seven government authorities. All submissions should be completed before the end of May 2007.
Furthermore, as part of year end closing formalities, FIEs also need to complete the final EIT declaration and final VAT ?exemption, reduction, refund? declaration in order to satisfy the tax bureau?s requirements.
Audit items often queried by Chinese independent auditors
So what then of Central China ?(0)
Thus far, there are no regionally specific investment incentives available to foreign investors in Central China that are not already generally available on a national basis. Although it may be possible to negotiate preferential treatments for larger investments, Central China as yet does not offer any specific tax breaks for investors to assist with the absorption of the higher costs of transportation in the region. The authorities are however considering what additional incentives might be offered in the future.
Obviously there is a lot of difference between types of international investor, and this piece is non-specific. For retail operations such as Wal-Mart and so on, the region, with its massive population, is going to be (and already is) a fertile playing ground. International commodities manufacturers such as Mittal Steel, ensuring its dominance over global steel supply, have made a strategic investment in the region of one of China’s largest steel manufacturers. In time, businesses supplying such industries may begin to enter the central China market. Yet for export-based businesses, central China, with its burden of increased transportation costs, still seems like a bridge too far until competition, a breaking of existing monopolies, and an increase in transportation infrastructure can start to bring those costs down. This would appear to be a longer goal target. Of the cities and regions to note, two strike us as being worth further investigation :
Hefei (Anhui Province), and its proximity to the regional powerhouse of Shanghai may be worth looking into as a manufacturing area if those logistics costs can be brought under control, and Wuhan, with its river infrastructure. But for now, with no discernable benefits available for investing in the region, China’s desire to move investors out of the coastal cities and inland will have to wait a little while longer and move beyond a pure marketing campaign into something more financially viable.
How This Impacts In Operational Costs For An Average Small Foreign Investor(0)
The remaining 30% is often somewhat industry-specific and we leave this portion open for your specific analysis. Operational overheads such as utilities also vary, however not to a huge extent between first and second tier cities, accordingly we have disregarded them from this survey. However, concentrating on the two most significant manufacturing overheads ? albeit as a mean average, does allow us to fix at least a line in the sand to try and weigh up the pros and cons of investing in Central China. Averages are just that ? and it must be pointed out that in reality you can expect about a 30% swing in costs either way depending upon location, specific investment circumstances and the power of negotiation.
To get at what this could mean for an investor, we?ve assumed an average small scale foreign invested enterprise as an example, and for the sake of calculating a reasonable export amount, suggested an auto component manufacturer as this industry is relatively commonplace and is China wide. We have assumed a factory unit size of 2,500 sq meters and 100 staff to base our cost analysis on. A factory like that with such a product could typically export about 10 containers a week. Taking the figures we have thus far, and converting them to USD for ease, (rate of 8 RMB to 1 USD) we can reach the following assumptions :
So what then of Central China ?
China’s central regions – developing foreign investment inland(0)
Foreign investors should also be keeping an eye on such developments. As the coastal regions and cities get more expensive, pure economics encourages savvy international investors to look inland in order to both reduce costs and develop new domestic markets. Many are already there ? and prospering. But what are the demographics of central China ? Where are the places to look out for ? What risks are there ? And what incentives exist ?
The Go Inland Campaign
Why Go Inland ?
ECONOMICS ? LOWER OPERATIONAL COSTS INLAND ?
Taking the first-tier cities of Beijing, Shanghai and Guangzhou as benchmarks, we can compare the current legally permissible minimum salaries payable in these cities, and the capital cities of each of the six inland provinces and start to draw some conclusions. These statistics are courtesy of Dezan Shira & Associates National Investment Intelligence Unit.
How This Impacts In Operational Costs For An Average Small Foreign Investor