Posted by Li Wei on January 29, 2010 under China Law | 
Under the Company Law of China (the “Company Law”) there are two basic forms of companies in China for both local companies and FIEs; limited liability companies and companies limited by shares. The majority of private companies in China (domestic companies, most joint ventures and wholly foreign-owned enterprises) take the form of a limited liability company. A limited liability company may be set up by between two and fifty shareholders.
Articles of Association are the company’s constitutional document. The original capital investment is registered in China and there are requirements for the minimum amount of capital. Under the Company Law, limited liability companies are required to have a minimum registered capital of RMB30, 000. For joint-stock limited companies, the minimum registered capital is RMB 5 million. However, these legal requirements do not have much relevance in practice. The Ministry of Commerce has considerable discretion when approving a company and generally requires higher levels of registered capital than the minimum legal requirements. The registered capital levels are subject to the specific business scope of the FIE. If the business scope is in a more sensitive or specific area then it is likely that a higher level of registered capital will be required. Furthermore, a higher level of registered capital will generally be required for operations with high initial capital costs, such as infrastructure projects.
Posted by Shi Zhiqun on January 27, 2010 under China Law |
China continues to utilise tax policy in its drive to address the country’s environmental problems. Under the proposed scheme, purchasing a higher output car will result in the imposition of higher tax. It is not yet clear as to when the tax will be introduced and if it will apply nationally.
Posted by Li Wei on December 28, 2009 under China Law |
A foreign investor has several options that it can use to establish a business presence in China. The option selected will vary, depending on the type of business activity, and the business plan formulated by the investor. The following are the common legal structures that can be used for foreign investment in the China:
- Representative Office
- Joint Venture (Cooperative or Equity)
- Wholly foreign owned enterprise
- Partnerships (see here http://www.chinataxblog.com/?p=86)
Representative Offices (ROs)
ROs are not separate legal entities but rather are extensions of the parent company. They are limited in the activities that they can undertake. Permitted activities include the general promotion of the parent company, market research and arranging contracts with customers of parent company. Importantly, they are not permitted to engage in direct sales activities nor sign any contracts. Employees of ROs are employed through special employment agencies. ROs are generally being phased out with the growing liberalization of China’s foreign investment laws – at one time ROs represented one of only ways that some foreign companies could enter China. One of the problems with ROs today is that they are generally taxed on a revenue basis as opposed to a profits basis. Previously, it was not difficult to obtain tax free status for ROs to avoid such a method of taxation. However, the tax authorities no longer generally provide such status for ROs.
Wholly foreign owned enterprises (WFOEs)
As the name implies, WFOEs are entities that are wholly foreign owned. There are restrictions on WFOE establishment in China and, as a result, the WFOE structure can only be used in certain business sectors. The amount of business sectors permitted to use a WFOE has grown over the past 5 years as China has implemented its WTO commitments. As WFOEs have minimum registered capital requirements. Under the Company Law of China this requirement is a mere RMB30,000. However, in practice the authorities in China have demanded significantly more capital depending upon the nature of the industry. A unique feature of China’s corporate laws is that all companies must have a prescribed business scope and are strictly only permitted to operated their business within that scope. The required registered capital is tied to the nature of the business scope. Registered capital is required to paid in within 2 years of the company first being established.
Joint Venture (JV)
The JV is the most traditional form of operating structure for foreign investment in China and, previously, was the only vehicle available to foreign investors for many years. There are two types of JV structures: Equity Joint Ventures (“EJVs”) and Cooperative Joint Ventures (“CJVs”). The major difference between the two structures is that partners in an EJV must pay in registered capital and derive profits directly in proportion to the equity invested, with the assets owned in proportion to equity holdings. As the industries in which WFOEs have been permitted to operate have widened, the use of JVs have decreased. There are a number of horror stories of failed JV experiences in China. However, there have also been some very successful cases. With the greater liberalization of China’s foreign investment restrictions, the relevance and need to use the JV model has lessened. Although, in the right circumstances JVs still remain an important business model for operating in China, particularly where the relevant industry is restricted by China’s legal guidelines.
Posted by admin on December 3, 2009 under China Law |
Hwuason Lawyers, China’s first specialist tax law firm, has been named by ALB (Asian Legal Business) as one of 10 firms to watch in China in 2010. On an annual basis, ALB produces a China Watchlist outlining the 10 firms that ALB expects to make a splash in the legal market in the coming year.
The recognition demonstrates Hwuason’s rapid rise to prominence in the competitive Chinese legal market. Hwuason distinguishes itself from other commercial law firms through its specialization in tax. Until very recently, tax was generally dealt with by accountants in China and Hwuason has been a pioneer in respect of combining tax and legal services. This pioneering approach to the practice of law in China has led it to be labeled as a firm to keep your eye on in 2010. Hwuason expertise in the area of tax was previously recognized in 2008 when the firm was a finalist in the “Tax & Trust Law Firm of Year” category at the China Law Awards
ALB is the only independent and authoritative magazine dedicated to the latest legal news, events and developments in Australia, Hong Kong, Singapore, China, Asia and the international business community.
