According to the PRC Foreign Investment Law, the State adopts the management system of pre-establishment national treatment and negative list for foreign investment. The State will give national treatment to foreign investments outside the negative list.
1. Principal Forms of foreign business entities in China:
1. To establish a Representative office;
2. To establish a WOFE company (Wholly Owned Foreign Enterprise): only one foreign shareholder (an individual or a company);
3. To establish a Joint-Venture Company: at least two shareholders but not exceeding 50 investors, at least one of the shareholders shall be foreign investor(s) (individual(s)
2. Principal Taxation in China
(1) Value-added Tax: 17%、11% 、6%
a) Tax rate for taxpayers engaging in sale of goods, services, lease of tangible movables or importation of goods shall be 17%.
b) Tax rate for taxpayers engaging in sale of transportation, postal, basic telecommunications, construction, lease of immovable, sale of immovable, transfer of land use rights, sale or importation of the following goods shall be 11%: foodstuff; tap water, heating; books and electronic publications; feed, agricultural machinery and agricultural firm; etc.
c) Other tax rate for taxpayers engaging in sale of services and intangible assets shall be 6%.
(2) Principal Corporate income tax: 25%、20%、15%
a) Principal Corporate income tax shall be at the rate of 25%, except that:
b) Corporate income tax for qualified small profit enterprises shall be at a reduced tax rate of 20%. (Small profit enterprises refer to enterprises engaging in non-restricted and non-prohibited businesses, which satisfy three criteria simultaneously, annual taxable income amount does not exceed RMB 3 million, staff headcount does not exceed 300 and total assets do not exceed RMB 50 million.)
c) Corporate income tax for key advanced and new technology enterprises supported by the State shall be at a reduced tax rate of 15%.
(3) Individual Tax rate
a) Consolidated income shall be taxed at progressive rates ranging from 3% to 45%;
b) Income from business operation shall be taxed at progressive rates ranging from 5% to 35%;
c) Income from royalties, income from interest, dividends and bonuses, income from lease of property, income from transfer of property and contingent income shall be subject to proportional tax rate, the tax rate shall be 20%.
Exception:
a) For an individual who does not have a domicile in China and has resided in China for 183 days or more cumulatively in a tax year for less than six consecutive years, his foreign-sourced income paid by an overseas organization or individual shall be exempted from individual income tax;
b) For an individual who does not have a domicile in China and resided in China for not more than 90 days cumulatively in a tax year, his income sourced in China which is paid by his overseas employer and not borne by the said employer’s organization or workplace in China shall be exempted from individual income tax.
c) Donation;
d) tax credit;
e) special deductions from annual income amount, etc. and/or company (ies)).
3. Permits and Licenses:
1. National Development and Reform Commission; Ministry (department) of Commerce (foreign investment information report); State Administration of foreign exchange（to open a foreign exchange account.
2. Subject to different industries or fields to apply for relevant licensing formalities: such as ICP license, import license, export license, etc.
3. Foreign Workers Permit (if necessary).
4. Estimated time of establishment of a foreign invested company (One-stop Processing) and relevant documents submitted.
(1) application form for establishment enterprise;
(2) Joint-Venture contract, articles of association;
(3) name list of legal representative or board member(s), GM, Supervisor(s);
(4) legal documents and creditworthiness documents of the foreign investor(s);
(5) Registered address: hosting address, or actual operation address;
(6) any other documents required to be submitted.
Estimated time of establishment of a foreign invested company in China: around one week. Estimated time of opening a company bank account in China: around one week.
5. Restrictions for foreign investors
(1) Foreign investors shall not invest in any field with investment prohibited by the negative list for foreign investment access.
(2) Foreign investors shall meet investment conditions stipulated under the negative list for any field with investment restricted by the negative list for foreign investment access.
(3) Foreign-funded enterprise engaging in production or operation activities shall comply with the provisions on labor protection and social insurance in laws and regulations, handle the tax, accounting, foreign exchange and other matters according to the relevant laws and regulations, and accept supervision and inspection by relevant competent departments.
(4) The State establishes a security review system for foreign investment, under which the security review shall be conducted for foreign investment affecting or likely affecting the state security.
Article written by
Lawyer Michelle Yanmei CHE
Partner of Dacheng Shenzhen Law Office
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