Posts tagged as: FICE back to homepage
 |
China Structure – Foreign-Invested Commercial Enterprises(0) Foreign-invested commercial enterprises are capable of conducting the following activities:
These activities can also be achieved through other means such as agents. A FICE will, however, bring the control needed to secure quality, service level and bring you closer to your suppliers as well as enable you to invoice your clients in Chinese currency. Joint Ventures
|
|
Tax planning, finance, and registered capital matters(0) Every foreign investor needs to be aware of what taxes they are liable for, how to calculate those liabilities, and when you can claim exemptions. Registered capital The minimum registered capital requirements Foreign investors enjoy national treatment (meaning regionally consistent) in setting up trading companies with minimum registered capital in accordance with the Company Law of China. Minimum registered capital requirements are very substantially reduced from the previous levels, in general RMB100,000 is sufficient. But whatever the minimum registered capital requirements, you must ensure that the registered capital is sufficient for your initial cash flow, not simply to satisfy regulatory needs. Correctly calculating your total and registered capital requirements One of the most common, and most serious, problems with WFOE and FICE applications, especially for small businesses, is the issue over registered capital. This is a much misunderstood area. Confusion exists, and many ill-advised investments are made in China due to misinterpretation of the local government?s term ?minimum registered capital.? This is meant as a guideline only, and is not supposed to be a ruling on how much you need to invest. Additionally, there is often conflict here between the local government ? keen on securing another foreign investor in order to meet its targets ? and other government departments responsible for monitoring and managing China business issues, especially the tax bureau and customs. It is important to note that tax collection is administered centrally, while the approvals process is at a local level. This means conflicts can and do arise between what the local government says in order to attract your investment, and what the tax bureau then says in dealing with any lack of compliance. And by then it?s too late ? you?re already committed ? and you have no choice other than to go through additional pain and hassle to get things put right, usually involving more investment capital. In fact, some local government officials are downright reckless when using minimum registered capital requirements as a sales pitch. The amounts they may state may not be in compliance with the actual needs of your business or other government department requirements ? the classic obfuscation that so often blurs the thinking and otherwise competent planning by international investors. Registered capital is a key issue when structuring your investment and planning its financing ? you need to get this right or face serious problems ? either immediately, or later on. They can be avoided. |
|
(0) The application process to create a FICE can be divided into three parts:
It is important you hire a firm who can provide a complete one stop service, and one who can properly identify registered capital and tax structuring requirements. If not, a FICE business can go wrong almost immediately after the application process has been completed. Applications are made at a provincial or municipal level (e.g. Guangdong province, Shanghai municipality, Beijing municipality, etc), albeit with input from local offices of state-level authorities. In addition, the five Special Economic Zones in South China have independent approval authority over this issue. Pre-registration Name registration The relevant authority is the State Administration for Industry and Commerce (SAIC). This bureau administers the registration of all kinds of enterprises (including FIEs), organizations or individuals that are engaged in business activities; examines and ratifys the registration of business names; and reviews, approves and issues business licenses. Verification of feasibility of the proposed name by SAIC will take a few working days. Only the Chinese name will be legally binding ? the English name is not legally relevant for Chinese authorities. The word ?China? cannot be freely included in the Chinese name. The name can be translated by meaning and/or phonetically. Tax planning, finance, and registered capital matters
|
|
Establishing Trading Companies In China(0) China has permitted foreign direct investors to establish fully operational, 100 percent foreign owned retail and trading companies that can buy and sell in China, holding their own import-export licenses since June 2004. Generally, such companies are inexpensive to establish, and if properly structured can be of great assistance to the foreign investor in combining both sourcing and quality control activities ? increasingly vital in China given recent scandals over substandard foods and toys ? with a purchasing and export facility, thus providing much more control and reaction times than if sourcing purely while based overseas. Such a trading operation, in terms of the legal structure, is known as a “FICE” – Foreign Invested Commercial Enterprise. In detail, the regulations governing FICEs apply to the following activities:
Limitations do, however, apply to some specific products such as books, periodicals, newspapers, automobiles, medicines, salt, agricultural chemicals such as pesticides, crude oil and petroleum. If a foreign investor has more than 30 retail stores in China and distributes products mentioned in the paragraph above from different brands or suppliers, the foreign investor?s share in a retail enterprise is limited to 49 percent. Retailing enterprises, which do not distribute any of the limited products, are not restricted on the number of stores in China, and additionally all geographical restrictions for retailing enterprises have been removed, and foreign investors can establish retail stores anywhere in China. It should also be noted that new regulations for operating commercial franchises came into effect on May 1, 2007. Generally speaking, these new laws reflect that the Chinese government is willing to adopt a more liberal regulatory system towards foreign enterprises operating in this field. For businesses that are engaged in the import and export of product, a further incentive is that the FICE may have its own I/E license, thus saving on agent’s fees. Be aware however that new regulations concerning the rebate, upon export of Chinese VAT (generally 17 percent of the purchase price) have been announced ? please see the box entry on page six for details. Set-up requirements You must ensure that the registered capital is sufficient for your initial cash flow, not simply to satisfy regulatory needs. Have you considered all your working capital needs, and issues such as placing a bond with customs for imports? 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. This issue ? often misunderstood – will be discussed later in this edition of China Briefing. Business duration is limited to 30 years for foreign trading companies set up in the developed coastal areas ? companies established in the west of China are allowed business duration of 40 years. Foreign companies shall ?possess a sound reputation and comply with Chinese law.? The application process ? FICE
|
|
Opening a branch in China(0) Once your established WFOE is up and running, you may be in the position to open a branch office. To do this, several steps need to be completed. The WFOE first has to complete 100 percent injection of the registered capital already committed. Once that is done, the company can begin the process of establishing a branch office. The procedure The WFOE must first apply in the city where they are established to the local MOFCOM office for authorization and approval to set a branch office in another location. Once this has been done, the WFOE then must apply to the local MOFCOM in the city where they want to establish their branch office for an Approval Certificate and Business License. Once this has been done, the branch office can handle the post-establishment registrations (making chops, enterprise code registration, tax registration, statistics registration, opening bank accounts). During the application process, the following documents are normally requested:
|
|
Increasing registered capital(0) An increase in capital is usually required by the government when an FIE is intending to expand its business scope. Increasing registered capital is also an important way to finance FIEs. Registered capital, total investment, foreign debt, FIE financing Below is a simple formula that may influence the financing of an FIE: maximum amount of foreign debt ≤ total investment ? registered capital The ratio between the registered capital and the total amount of investment shall conform to the relevant statutory ratio between the registered capital and total investment as showed in the form below. If an FIE needs to borrow money from overseas (from the mother company or bank for example), the total amount of foreign debts should not exceed the gap between the total investment and the registered capital allowed by law. In practice, when it is not possible for an FIE to get a bank loan from a Chinese bank, the increase of registered capital is the most straightforward way to gain financing from the mother company. If an FIE will need to seek a loan from abroad, either from the mother company or from a bank abroad, it may be limited by the gap between the registered capital and total investment. If the registered capital is increased, the FIE will be able to enjoy a larger margin to borrow in future. Opening branch offices
|
|
Upgrading your China entity(0) This might involve upgrading their existing China operations, merging them, or housing different entities under one controlling China venture in order to become more effective and efficient. In this issue we look at a variety of different scenarios and how you can best merge or re-structure your business to suit the needs of your China operations in the years to come. REPRESENTATIVE OFFICE TO MANUFACTURING WFOE [By Richard Hoffmann, Dezan Shira & Associates Beijing office] It may happen that due to the company?s development abroad or in the PRC, the representative office (RO) structure no longer suits the needs of the investor and must be altered accordingly. If you wish to sell or import/export, you will need to set up a wholly foreign owned enterprise (WFOE) or joint venture (JV). You will need to consider whether to keep the RO going, or to close and replace it with a local branch of the WFOE or JV. You can’t just change the RO to a WFOE or JV: this is a common misunderstanding. If the RO doesn?t suit your needs anymore, close it. Closure of the RO can be implemented at the same time as the establishment of the new entity. Here are a few examples of instances in which an RO may not suit your requirements any longer:
Closing down a representative office A closing audit must be performed by the tax bureau before an RO is allowed to complete the closing down procedures. As long as the RO has no overdue taxes or other issues to be reported to the authorities, then the de-registration procedure can begin. The first step is to obtain an approval certificate from Customs together with a declaration on the reasons behind the decision to wind up operations in China (the same written explanations shall be given to all other bureaus involved in the closing procedures). This is required in order to clear up all records at Customs involving any office equipment, cars or samples imports. Subsequently, applications need to be made at the tax bureaus (both local and national) with related papers and the RO closure resolution of the parent company, with director?s signature and the parent company?s chop. In most cases, the following documents need to be provided:
Increasing registered capital
|
