JURISDICTION – PEOPLE’S REPUBLIC OF CHINA (PRC)
Unlike many other countries, setting up / registering an entity in China may face many problems, like choosing the right nature of the investment, arranging the payment schedule of the registered capital, obtaining more than 40 certificates/licenses/approval letters, etc. With China’s constantly changing regulations, inconsistencies with interpretation and enforcement, and general lack of transparency; the process of properly establishing an entity to ensure against encountering problems in the future is far more complicated than in more developed markets. Engaging the professional and qualified consultant can substantially improve changes of avoiding problems with compliance and decrease the time to get established.
- Wholly Foreign Owned Enterprise (‘WFOE’)
The WFOE is the most popular foreign investment company which is 100% owned and invested by foreign investor(s). The WFOE may directly sign contracts, issue invoices, hire employees and also enjoy certain tax incentives in China. There is certain capital requirement for WFOE according to the business you proposed to run in China.
- Representative Office (‘RO’)
The RO represents the interests of the foreign parent company. It may only conduct market research and develop partnerships. Any business transactions including issuance of invoice should only be managed by the parent company.
- Equity Joint Venture (‘EJV’)
An EJV company has capital investments from both local and foreign parties. The percentage of the capital investment determines the amount of profit and risk that both the foreign and local company assumes. The foreign party entering industries where WFOEs cannot operate often use JVs, although this is becoming less prevalent as more and more industries have been opened to WFOEs, post China’s entry into WTO.
- Cooperative Joint Venture (‘CJV’)
The CJV is also a partnerships with a local company. However, unlike an EJV, the amount of risks and profit/loss shared by each party is not determined by capital investment, but rather agreed upon at the beginning of the partnership. CJVs were widely used in the 1990s when the Chinese economy was not as developed. International companies often injected funds while the local Chinese companies provided equipment and other necessities. Laws, regulations, and procedures for CJV’s establishment can very substantially between industries.
- BOD/Independent Director/Supervisor
Most WFOEs/JVs will appoint a Board of Directors as the highest-level of management and authority within a WFOE to oversee all general & management matters of the company. The Board also undertakes strategic decisions and pass resolutions during the conduct of regular business to protect the ultimate interests of the shareholder(s). The Board of Directors should be made up of at least 3 members with one person nominated as Chairman of the Board of Directors.Within the 3 members, one director should at least be very familiar with PRC, especially on company law, accounting & PRC regulations, etc. in order to help / assist with other directors to make right decisions. Under the China’s Company Law Article 52 and 53, companies are required to appoint a board of supervisors or a supervisor board member to check the conduct of the board and financial affairs of the company. The supervisory board member will also advise and supervise the board on the conduct of the company’s general matters.
We provide Independent Director/Board Supervisor Director Service to assist our clients in this aspect.
- Company Secretary/Board Supervisor
We assist our clients by providing the “best practice in company secretarial services”. This include being the independent custodian of your company’s certificates/licenses/stamps/seals. We monitor the expiry and renewals of the certificates and licenses, as well as the proper and authorized use of the stamps/seals. We advise company directors on company compliance matters, prior to their signatory on documents or use of their seals onto documents; given that most foreigner directors are unfamiliar with such conduct in China. We also ensure that company filings eg. Changes of addresses, business scope, and registered capital etc. are properly effected and updated with government bureaus.Our financial and legally trained secretarial team assist our clients to manage the entire cmplete processes involved with the above mentioned secretarial requirements. This include the complex tasks of communicating with multiple inter-connected local governmental agencies. We also constantly update our clients in the changes of company registration and tax matters so that they keep abreast with them.
We have been representing clients from many sectors. A large majority of them feel that our service, “best practice in corporate secretarial” is essential and highly useful to give them a total “peace-of-mind” when doing business in China.
Seeking solutions for your accounting needs is critical for any business in China. Choosing the right accountant can be the most important decision you can make in the process. In the end, a good accountant is a valuable financial consultant and a trusted advisor.
- Accounting System Setup
After setting up the entity, you will need to consider hiring accounting professionals to assist you to establish the accounting system in accordance with the accounting standards generally accepted in the People’s Republic of China (the “PRC”) and the actual operations of the your local WFOE/JV. The accounting and tax compliance requirements are constantly being updated and changed as China continues with its economic reform and progress. Hence, hiring professional accounting professionals like us, will mean an added advantage of a large pool of resources that is trained and in practice.Our responsibilities include: the establishment of accounting policies & procedures, initial set-up of accounting system encompassing the China standard chart-of-accounts, accounting ledgers and adhering to PRC statutory financial & tax reporting processes. We document our entire accounting system and processes, typically into flowcharts that allow client and ourselves to be familiar with each’s roles, functions, responsibilities and deadlines. We will set up the accounting system using the existing China approved accounting software system for local China reporting. We will assist clients to map accounting and financial reports to meet parent company’s reporting format. We will make consolidation adjustments according to client’s parent company consolidation accounting policies & procedures.
- Cashier Services
Cashier services include process domestic / overseas payments, maintenance of cash book, bank support, reimbursement for employees and payment for staff salary / social insurance
- Invoicing Services
In China, the control of the invoices (‘ Fa Piao’) is managed by the tax bureau. The recipient of monies from the payer must issue valid tax invoices, or fa piaos, to the payer. Anyone who pays for goods or services are entitled to tax invoices. Any invoices that do not comply with the requirements can be rejected by the rightful recipient. A Fa Piao is a necessary document for deducting expenses.The management of Fa Piao has been gaining greater scrutiny over time. Most major cities’ enforcement of issuing the Fa Piao has been very stringent.
Our invoicing services starts with having the accounting professionals who are qualified by the tax bureau, and can handle the processes relating to the Fa Piaos. Our services shall include deploying qualified people to “purchase” the Fa Piao eg. The special VAT invoices on behalf of client from the tax bureau. Our people shall then upon your sales of services and goods, issue the services invoices and VAT invoices, which are acceptable by the tax bureau.
We will prepare and maintain the accounting books and records for you in accordance with the accounting standards generally accepted in the PRC (“PRC GAAP”). Our role includes obtaining the relevant accounting information from the company, analyzing the information, coding the transactions and posting the transactions to the accounting ledgers.
- Tax Filling
We will assist clients to comply with the following tax filings based on the taxation laws of PRC
- Monthly Value Added Tax (“VAT”)
- Additional Related Taxes (“AT”)
- Quarterly and Annual Corporate Income Tax (“CIT”)
- Monthly Individual Income Tax (“IIT”)
- Annual Individual Income Tax (“AIIT”)
- Stamp Duty
- VAT Refund
- Group Reporting
The China accountant of a foreign parent company must understand the parent company’s accounting policies and procedures. While the local Chinese GAAP have to be adopted, the financial statement entries will be adjusted towards the parent company’s policies, be it U.S. GAAP or International Financial Reporting Standards (IFRS) for consolidation purpose.Our financial people understand the adjustments that must be made to the books of the Chinese subsidiary and also understand the impact of the adjustments when they are consolidated with the parent. We carry on the group reporting services for clients that need their subsidiaries to report their monthly financials for consolidation purposes.
- Annual Inspection
According to the China Laws, all the companies are required to carry out its Annual Inspection (年检). We will assist the company to carry out the Annual Inspection according to the rules stipulated and in conformity to the laws of the People’s Republic of China. We would deliver and submit the completed forms and other relevant information of the company to the government departments for inspection.The typical Annual Auditing and the Annual Inspection time tables are:
|Annual Audit||1st of January – 28th of February|
|Determination of the Profit Tax||1st of January – 30th of April|
|Annual Inspection||1st of March – 30th of June|
- Annual Audit Assistance
According to the China Laws, every company must hire a certified CPA firm to conduct annual audit on its accounts. We will recommend our affiliated firm to provide this service for your company. We may also provide audit assistance services to assist you eg. preparing necessary audit schedules and presenting information for the auditor’s (appointed by you) checking work. We will also assist you by organizing and preparing your answers towards the auditor’s enquires
|WFOE / JV||Period|
|Annual Audit||1st of January – 28th of February|
|Determination of the Profit Tax||1st of January – 30th of April|
|Annual Inspection for the normal taxpayer||1st of March – 30th of March|
|Join Annual Inspectionr||1st of March – 30th of June|
Post the incorporation of a WFOE/JV/RO, the company would need to hire people. The human resources processes of hiring, registering of employment and establishment of staff social security etc. are fairly complex in China. The 2008 Labour Contract has put a great deal of onus on the part of the employer to comply the laws and the rules and regulations stringently.
Post-incorporation Social Security Registration & Payroll Services Initial Set-up
After the company is registered, we will assist you to set up the entire process flow including below:
- Payroll process – Initial Set-up
- Employees and payroll databases record
- Social Security account opening for the new company
- Personal Files maintenance registration for the company
In the event of any new hiring or termination, we will assist the company to register the new employee or termination records with the relevant authorities eg. Manpower Bureau, Tax Bureau, Statistics Bureau, etc.
Salary Calculation/Pay Slips Distribution / Social Insurance Filling
We may take the role of your HR department, to handle monthly payroll routine work for all your local and expatriate staff:
- Payroll calculation and distribution in RMB
- Social Benefits filing and payment every month
- Personnel File maintenance
- Pay slips to staff
- IIT Declaration
Employment Permission / Residence Permission
We provide the value-added services for the expatriate/foreign national staff of your company:
- EP&RP (Employment Permit/Residential Permit) – new application by first time foreign employee
- Renewal, transfer or cancellation for employee
- RP – new application for family member of foreign employees
- Renewal, transfer or cancellation for family member
Payroll and Related Yearly maintenance
- Social benefits annual inspection for local staff required by Manpower Bureau
- Salary statistics report for local staff required by Statistics Bureau
- Base Adjustment for social benefits for local staff required by Manpower Bureau
- Annual IIT filing (for annual income over RMB120,000) (“AIIT”)
De-registration of a Representative Office
Due to the limited activities available to a representative office, foreign investors may want to expand into a more considerable investment eg. WFOE/JV. Generally speaking, they may want to close their representative office and set up a company in the form of a WFOE / JV. In this instance we shall be able to assist them to de-register their RO and set up a new entity.
Liquidation of a Limited Company
According to PRC law, a Limited Company must be dissolved if any of the following circumstances occur:
- The term of operation expires and is not renewed
- The Company experiences financial difficulties and the Board deems it necessary to dissolve the company.
- Due to force majeure, the company is unable to continue its business
- The company is bankrupt
- The government has decided to close down the entity due to illegal acts damaging the public interest
- Other reasons for dissolution and/or termination clauses stipulated in the original Joint Venture Contract and/or the Articles of Association
We will assist to de-register the certificates / licenses and get certain approval from different government bureaus, such as Ministry of Commerce, State Administration of Industry and Commerce (SAIC), the Customs Administration, the Tax Authorities and State Administration of Foreign Exchange (SAFE).
With our assistance, all the company’s bank accounts shall be closed. In addition, some companies in particular sectors may have other specialized registrations and those should be closed off as well.
In China, it takes approximately 6 to 10 months to complete the RO de-registration while 12 to 18 months to complete the whole liquidation process for WFOE/JV.