Despite the continued appreciation of the RMB and rising labor costs through yearly increases in minimum wages, China remains an attractive location for manufacturing activities by virtue of it's increasingly sophisticated supply chain and maturing infrastructure. Coupled with a rising middle class and expanding domestic demand, it remains an attractive and competitive location for foreign investments. In China, companies operate under a very different set of legal and taxation governance to that of Hong Kong. Generally speaking, there are more administrative and regulatory burdens on companies and the tax net is certainly wider with higher tax rates compared to Hong Kong. For businesses intending to set up operations in China, it is important to be aware of local operating conditions including additional administrative and taxation costs of starting a business operation in China.
China Rep Office
A Representative Office is an easy and effective way for foreign investors to get a feel for the china market before committing more substantial investments. The main advantage of an RO structure is that there is no registered capital requirements. It is not a legal entity and registration can be effected at the local level. These factors make the setting up of a RO significantly easier when compared to setting up a Wholly Foreign Owned Enterprise or Joint Venture. For more information, please refer to our PRC Rep Office Guide.
China Legal Representative
Every company in China, both foreign and domestic owned, must have a legal representative. The legal representative of a company in China has broad-ranging power to act in the name of the company. It is therefore important for foreign investors to understand the role of the LR in the day-to-day functioning of a PRC enterprise. It is possible to put in place procedures and processes to limit the powers and therefore potential liabilities of the LR to protect the company and the LR himself. For more information, please refer to our China Legal Representative Guide.
Permanent establishment is a provision within double tax treaties which allows the respective tax authorities within two contracting states to tax the business profits of a resident enterprise of the other contracting state. Practically this has implications for HK based businesses that provide services in China or send staffs to work on projects in China. Under PE provisions, HK companies may be liable to full PRC Enterprise Income Tax on their profits that are "sourced" from China or connected with any service rendered in China. For more information, please refer to our Permanent Establishment Guide.
Indirect (Offshore) Shares Transfer - Circular 698
The sale or transfer of shares of an overseas investment / holding company that holds shares in a PRC resident enterprise may trigger China income tax liability amounting to 10% of capital gain on a withholding basis. For more information, please refer to our guide on indirect (offshore) shares transfer.
China Enterprise Income Tax
The China Enterprise Income Tax Law which came into effect from 1 Jan 2008 has merged the former separate tax regimes for domestic-invested and foreign-invested enterprises under a unified taxation structure, with a standard tax rate of 25%. Preferential tax treatments that were open to FIEs have been gradually replaced with preferential treatments targeting investments in specific high tech industries and backward regions. For more information, please refer to our PRC Enterprise Income Tax Guide.
Need more Information? Contact
Andrew Ng 伍樹彬
+852 2572 7328
+852 2838 2239