1. Scope of activities of the company with 100% foreign capital in China.
The most optimal option for the foreign investors, who intend to do trading, producing and any other activities aimed at making a profit in China is the creation of an enterprise with 100% foreign investments (hereinafter FDI). The company with 100% foreign investment is a Chinese legal body whose activities are governed by the “Law of the Chinese Companies №08» (adopted December 29, 1993, the last changes were made in 2013), as well as the “Law of the enterprises with foreign capital in PRC” ( accepted April 12, 1986, changes were made in 2000, recent changes have been made in 2006) and “Regulations on the Application of the Law on the enterprises with foreign capital in PRC” (accepted in 1990, last amended 12 April 2001).
The Companies with 100% foreign capital have the right of import-export operations, as this area of activity will be shown in the company business license, as well as the company will pass registration procedures with the customs authorities. After the start-up in the first 3 months and implementation of product supply, the company will be able to return VAT, according to the tax rate and the HS code of the imported products.
The size of share capital is the main issue during registration of the company with 100% foreign capital. It is directly depends on the company’s scope of activity. The implementation of import-export operations refers to a neutral sphere of activity, so the size of the share capital legally is not set and it is the subject of self-assessment. SC calculated from the cost based on the initial period of the company till achieving the time of self-sufficiency.
In different cities and provinces of China minimum size of the capital requirements for the company with 100% foreign capital, which plans to do import-export activities may vary. For Beijing, the minimum size of the SC is 120 000 USD, for Shanghai – 140 000 USD. After completing the registration procedures, SC can be spent on the goods purchase, office rent payment and other company needs.
Keep in mind that for the consignment of certain kind of products you may need additional certificates / licenses for the export products from China or import products to China. These procedures require additional time and financial costs, but the need for proceeding the certificates and licenses can be clarified only after giving the HS codes.
The total period of company registration from the date of filing legalized documents to the Ministry of Commerce till the opening bank accounts, as well as the post-approval procedures may be about 3 to 5 months.
2. Required Documents from foreign investors for submission to the registration authorities; The government authorities requirements to the foreign investors;
To register the company with 100% capital required the following documents:
- If the investor is a company, the certificate of registration of the enterprise, translated into Chinese language and legalized by the Chinese Consulate in the country issuing the document. If the investor is an individual person, the passport of the person, also translated into Chinese and legalized (with the registration of the company from an individual, in advance it is necessary to specify the issues related to its legalization in the region of passport issue);
- Bank reference with necessary amounts for investments translated into Chinese and stamped by translation agency, if the investor is the new Hong Kong Company, ordinary reputation bank reference is enough
- Newly created company legal representative’s copy of the passport, photo of the legal representative;
- Office / shop rent contract and the ownership certificate of the office / industrial premises.
- If the number of directors of the investor company, more than one, foundation application for specifying the person authorized to sign the documents. This application should be legalized in the Consulate of China in the country issuing the document.
- The order appointing the members of the Board of Directors or executive director in case the company does not form the Board of Directors.
- The order of appointment of a legal representative;
- Feasibility Study;
Preferably, that all the foundation applications and the decisions are prepared in Chinese at once. If the registration will be charged to our company, we can prepare the forms in two languages - Russian and Chinese, this will reduce the cost of translating documents.
At the beginning of registration the investor should prepare a legalized package of registration documents of the parent company (2 sets), the bank reference of the SC amount on the company account, to choose a legal representative of the company and management team, as well as to determine the location of the office space.
Legal representative of the company can be both a citizen of the Russian Federation, as well as a citizen of China, under the Law of the Companies in PRC; he is responsible for the company activities. In this case, CEO‘s rights and obligations, his deputies and other company executives are defined in the Charter and in the duty descriptions of the company.
After the finishing the registration procedures and at the beginning activities the company is obliged to pay the following taxes:
- Value added tax – 17%;
- The corporate income tax – 25%;
- Urban construction Tax – 7% (basis for the calculation is the amount of paid VAT);
- Education Tax – 3% (basis for the calculation is the amount of paid VAT);
- Education local surtax – 2% (basis for the calculation is the amount of paid VAT);
- Income tax from employees’ wages – floating rate depending on the size of wages, from 5% up to 45%.
In addition to the tax component the cost of accounting services should be taken into account.
Thus, the company registration with 100% foreign capital requires a lot of time and cost.
However, under the law only the company has the right to conduct business in China, respectively, only the company can participate in the import-export operations of products.
In the selection process of registration of any structure in China, the investors should define the purpose, which they expect to achieve – whether commodity supply or market analysis and development of the customer base for the parent company.
The advantages of creating a company with 100% foreign capital in China are:
- A simple system of reception staff, the company has the right to employ both foreign and Chinese employees.
- Before to the self-sufficient the company may not pay income tax (usually within the first year of operation), the taxable base is the company’s revenues. The revenue base of the company can be legally optimized.
- The Company has the right to conduct business, to earn a profit.
- The company’s activities can make changes – add or remove certain activities.
- The Share capital may be increased or decreased by the decision of the company’s shareholders.