《协力:2023年美国企业在华营商指南(英文版)(105页).pdf》由会员分享,可在线阅读,更多相关《协力:2023年美国企业在华营商指南(英文版)(105页).pdf(105页珍藏版)》请在三个皮匠报告上搜索。
1、AN INTRODUCTION TODoing Business in China 2023 for US Companies Getting Ready for Chinas Rebound in 2023 US China Trade,Investment&Relations Key Sectors for US BusinessesSpecial FocusThis edition of Doing Business in China 2023 for US Companies was produced by a team of professionals atDezan Shira&A
2、ssociates,with Qian Zhou as Editor and Yi Wu as contributor.Creative design of the guide was provided by Aparajita Zadoo.2023 Dezan Shira&Associates DisclaimerThe contents of this guide are for general information only.For advice on your specific business,please contact a qualified professional advi
3、sor.Copyright 2023,Asia Briefing Ltd.No reproduction,copying or translation of materials without prior permission of the publisher is permitted.VISIT US ON FACEBOOKFOLLOW US ON TWITTERDezanShiraChinaBriefingVISIT US ON LINKEDINChina GuideIndia GuideVietnam GuideASEAN GuideHong Kong GuideRussia Guide
4、Singapore GuideBelt&Road GuideTHE DOING BUSINESS IN ASIA GUIDES SERIES3AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESAbout Dezan Shira&AssociatesDezan Shira&Associates is a pan-Asia,multi-disciplinary professional services firm,providing legal,tax and operational advisory to intern
5、ational corporate investors.Operational throughout China,India and ASEAN,our mission is to guide US companies through Asias complex regulatory environment and assist them with all aspects of establishing,maintaining and growing their business operations in the region.With more than two decades of on
6、-the-ground experience and a large team of lawyers,tax experts and auditors,in addition to researchers and business analysts,we are your partner for growth in Asia.4AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESCONTACTDezan Shira&Associates 2022 turned out to be a difficult year fo
7、r businesses operating in China.Unexpected lockdowns caused by COVID-19 outbreaks,weak consumption trends,a struggling real estate sector,and newfound geopolitical tensions caused serious disruptions to supply chains and damped global business confidence in the country.Still,the actual use of foreig
8、n direct investment(FDI)in mainland China expanded in the first ten months of 2022 growing 14.4 percent year-on-year to over US$152 billion from January to October.The whole years FDI is expected to create double-digit growth.Another silver lining has emerged out of the tough challenges overcome in
9、2022 an easing of the zero-COVID policy is now in sight,with Beijing proposing a relaxation of the travel restrictions.Economists expect China will fully reopen in the second half of 2023,pushing GDP growth to around five percent from three percent in 2022.Industries in line with Beijings policy pri
10、orities,such as the healthcare sector,green sectors,consumer market,and sectors related to industrial automation,are expected to be the biggest beneficiaries.Under these circumstances,it is vital that U.S.investors are familiar with the changes happening in Chinas business landscape to identify area
11、s of risk in advance and take steps to prepare for new market opportunities.This is the only way investors can stay nimble in an otherwise difficult time.Designed to introduce the fundamentals of investing in China,this publication is compiled by experts at Dezan Shira&Associates,a specialist foreig
12、n direct investment firm providing corporate establishment services,business advisory,tax advisory and compliance,accounting,payroll,due diligence,and financial review services to multinationals investing in emerging Asia.Since its establishment in 1992,the firm has grown into one of Asias most vers
13、atile full-service consultancies with operational offices across China,Hong Kong,India,Singapore,Vietnam,and Indonesia.The firm also maintains partner firms across the ASEAN region and in Bangladesh and client liaison offices in the United States,Europe,and Russia.PrefaceKYLE FREEMANPartner,Head of
14、the North American DeskDezan Shira&Associates5AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESWhats New in This Guide?Doing Business in China 2023 for US Companies introduces the fundamentals of investing in China.Compiled by the professionals at Dezan Shira&Associates in December 20
15、22,this comprehensive guide is ideal not only for businesses looking to enter the Chinese market,but also for companies who already have a presence there and want to keep up to date with the most recent and relevant policy changes.To be more specific,the below changes are noticeable for your attenti
16、on:Why China:A new section is added at the beginning to explain why China is still a market that cannot be overlooked by US companies.The section covers the countrys growth outlook,supply chain,workforce and labor market,market reforms and opening,trade and investment relations between the US and Ch
17、ina and key sectors for US investment.Business suspension:A new section is added in the“How do I make changes to my business”chapter,introducing the requirements and benefits for companies to acquire a dormant company status amid business difficulty,while retaining its legal standing for a period of
18、 up to three years.Tax incentives:The tax incentive policies are updated for each tax in the“What are the major taxes in China”chapter,including corporate income tax,value added tax,stamp tax,surtaxes,resource tax,and property tax,and information is added on the vehicle purchase tax.E-fapiao updates
19、:The“fully digitalized e-fapiao”is introduced in the“Value-added tax(VAT)”section,providing the latest developments in 2022.Accounting standards:Two other accounting standards have been added the Accounting System for Business Enterprises and the Accounting System for Non-governmental Non-profit Org
20、anizations(NGOs)in the“Accounting and bookkeeping”section.The Accounting System for NGOs applies to NGOs and the representative offices of NGOs in China.This chapter also examines the discrepancies between the Chinese accounting standards(CAS)and Chinas tax laws,in addition to the differences betwee
21、n CAS and the International Financial Reporting Standards(IFRS).Human resources and payroll:Brief introductions have been inserted on how to get approval for implementing the special work hour system and the calculation of severance pay in this chapter,both of which are among frequently asked questi
22、ons by Dezan Shira&Associates clients.Cybersecurity and data protection:This chapter is updated with developments under Chinas major cybersecurity and data protection laws and regulations in 2022,explaining key compliance requirements for businesses and providing practical tips on preparing for thes
23、e new obligations.6AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESTable of ContentsPreface04Whats New in This Guide?05Why China?09Overview of the US-China Bilateral Relationship13Key Sectors for US Investment in 202317Part 1|Establishing and Running a Business20What are my options f
24、or investment?21Representative office(RO)21Wholly foreign-owned enterprise(WFOE)22Joint venture(JV)23Foreign invested partnership(FIP)24Global staffing solutions(GSS)25Mergers and acquisitions(M&A)25Variable interest entity(VIE)26How do I establish a business?29Pre-establishment considerations29Corp
25、orate establishment33Key positions in a foreign invested entity35Office premises requirements38Opening a bank account39Intellectual property considerations41How do I make changes to my business?42Company name427AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIES7AN INTRODUCTION TO DOING
26、 BUSINESS IN CHINA 2023 FOR US COMPANIES Part 2|Tax,Audit,and Accounting51What are the major taxes in China?52Income taxes52Turnover taxes56Other taxes59What are some of the key compliance requirements?64Accounting and bookkeeping64Annual compliance65Due diligence70Internal control and financial rev
27、iew71Transfer pricing72Foreign currency controls74Part 3|Human Resources and Payroll75How do I hire employees?76Direct hiring76Dispatch78Outsourcing79How do I manage foreign employees81Table of ContentsBusiness scope43Registered capital43Shareholder structure44RO to WFOE conversion45Relocation47Busi
28、ness suspension48Deregistration498AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESUnified work permit system and tiered talents system81Chinas visa system82Residence permit82Renewal and deregistration of foreigners work permit83What obligations do I have as an employer?84Minimum wage
29、s across China84Work hour system and overtime payent84Social security86Leave and vacations88Termination90Part 4|Cybersecurity and Data Protection92What are the major cybersecurity and data protection laws?93What are some of the key compliance requirements?96Personal information protection 96Cybersec
30、urity and security review102Important data management104Table of Contents8AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIES 9AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESWhy China?Chinas growth potentialAlthough Chinas economic growth rate is slowing after years of
31、breakneck expansion,especially in 2022 amid multiple economic headwinds,the size of its economy dwarfs almost all others,be they developed or developing.Simply put,foreign companies cannot afford to ignore the worlds second largest economy.With a population of 1.4 billion,Chinas GDP per capita was U
32、S$12,551 in 2021,about six times lower than that of the US.There is still significant room for economic activity and household wealth to continue to grow before leveling off at a saturation point.The British Consultancy Centre for Economics and Business Research(CEBR)projects Chinas economy to conti
33、nue growing at 5.7 percent per year through 2025 and then 4.7 percent to 2030,at which point it will surpass the US to become the worlds largest economy.Although these growth rates are slower than in the past,the impact is still incredibly significant given the sheer size of the economy and reflects
34、 Chinas transition towards becoming a high-income country.Why China Remains an Attractive Investment DestinationGDP OutlookWorkforce and TalentsMarket SizeMarket Reforms and OpeningInfrastructure and Supply ChainChinas GDP per capita is about six times lower than the US,which means there is signific
35、ant room for its economy to grow.China has the worlds largest labor market,and workers in the manufacturing sector tend to be more experienced,more educated,and better resourced than their Asian counterparts.Chinas rising purchasing power,expanding middle class,and a population over a billion,positi
36、ons it to become the largest retail market in the near future.China is continuously opening its market and improving the business environment.Between 2017 and 2019,China moved from 78th to 31st on the World Banks Ease of Doing Business rankings.China has a sophisticated manufacturing and logistics i
37、nfrastructure set up.10AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESChinas tremendous domestic marketChinas rising purchasing power,expanding middle class,and a large consumer base,all point to the fact China will likely become the worlds largest retail market in the near future.D
38、espite the weaker than expected consumption performance observed in 2022,the domestic market will benefit from Chinas dual circulation strategy,which intends to spur domestic demand and simultaneously create conditions to increase foreign investment and trade,in the long run.The focus on tapping int
39、o Chinas internal consumption patterns and domestic markets will also buffer the impact of global economic headwinds on the countrys economic and financial stability.While the policy emphasizes self-reliance,it does not exclude foreign companies.A successful implementation will depend on robust perf
40、ormance in both domestic and foreign markets.Further,the focus on domestic consumption also creates new opportunities.Many foreign companies have started to produce goods specifically for local consumption in China,rather than use the country as a production and processing base for an export-led bus
41、iness model as in the past.For many companies,China is now their largest market for growth.Chinas supply chain and infrastructuresChinas advanced supply chain and logistics capacity ensures its significance in global trade:Its broad range of industrial capacities allows foreign firms to source goods
42、 easily;its well-connected infrastructure system also allows efficient transportation of products.Chinas supply chain is also hastening its pace to become digitized,with increased use of robotics in warehouses to improve efficiency and security.Chinese companies recognize and embrace the potential b
43、enefits of IoT and AI to digitize the supply chain.This process is increasing the importance of technical skills and automation.Chinas workforce and laborChina has the worlds largest labor market even though its working age population is shrinking.The labor force of China,which refers to the populat
44、ion aged between 16 and 59 and capable of working,stood at around 880 million in 2020.And by the end of 2021,the number of employed people in China amounted to around 746.5 million people.Despite the increasing concerns that Chinas labor cost keeps rising,Chinas labor force still earns considerably
45、less than their counterparts in developed countries,while at the same being more experienced and efficient compared to lower-cost,emerging markets.11AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESFor example,in 2020,the average hourly cost for labor in the manufacturing sector was U
46、S$6.50 in China,compared to US$4.82 in Mexico and US$2.99 in Vietnam,two popular alternatives for manufacturing.However,while Vietnams labor costs in manufacturing are less than half of Chinas,Vietnams productivity per worker is about one-third of productivity levels in China.Workers in Chinas manuf
47、acturing sector tend to be more experienced,more educated,and better resourced than in competing countries,often making China a more cost-efficient option.The breadth of Chinas labor pool means that the countrys human resources are highly adaptable to business needs,as companies will be able to find
48、 workers and technical specialists experienced in a wide variety of fields.Further,Chinas labor market is becoming an asset not just for its size and cost efficiency,but for the quality of education.For instance,the Times Higher Education World University Rankings placed 10 Chinese universities in i
49、ts 2022 top 200 list the most ever including two in the top 20.Chinas market reforms and openingChina has endeavored to attract greater foreign investment by relaxing more market access restrictions and continuously introducing improvements to the business and regulatory environment.Key among its re
50、form actions,are changes to the negative lists.These lists indicate which industries are subject to special administrative measures for foreign investors,or in other words,are supervised by authorities when determining market entry,scope of operation,and access to local market.The 2021 National Nega
51、tive List removed two restricted items from its 2020 version,cutting it down from 33 to 31,while the new 2021 FTZ Negative List removed another three items,cutting it down to 27 from 30.Taking auto manufacturing as an example,the restrictions on the share ratio of foreign investment in passenger veh
52、icle manufacturing has been liberalized.Before,the Chinese party shareholding percentage in passenger automobile manufacturing was to be no less than 50 percent,now foreign investors can hold the majority share.In addition to the Foreign Investment Law and supporting regulations coming into effect i
53、n 2020,other reforms in the areas of company establishment,tax,finance,reporting and compliance management are enabling foreign investors to play on a more even ground with domestic competitors.China has also repeatedly and publicly stated its intentions to accelerate market opening reforms,most rec
54、ently in President Xi Jinpings televised speech to kick off the fifth edition of the China International Import Expo(CIIE)in November 2022.And in July 2022,a couple of 12AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESwell-known companies in the financial sector,including Goldman Sac
55、hs and ICBC Joint Venture,received the green light for further collaboration.Such policy orientation towards high-tech innovation and market opening which was initially a key issue of US-China trade tensions will pave the ground for future and sustainable patterns of growth and investment in China.I
56、nnovation and emerging industriesOnce known as an economy rife with copycats and counterfeits,China-based businesses are advancing to the leading edge of innovation and experimental business models.While this space may be more sensitive or tricky to navigate in the near-term given the current U.S.Ch
57、ina relationship,companies that do not pay attention to China will not just miss out on the market,but also the countrys increasingly dynamic innovation that is beginning to influence trends worldwide.Chinas spending on research and development is equivalent to about 2.5 percent of GDP,which is far
58、higher than other countries at similar levels of development.This spending has contributed to the growth of dynamic and innovative business models in areas like e-commerce,fintech,and artificial intelligence that are competitive with or even lead advanced economies like the US.One unique advantage f
59、or data-fueled innovation in China is the size of its internet-using population.China has close to a billion internet users,which is more than the US and EU combined.About 800 million people in China use mobile payments on a daily basis over eight times more than the US resulting in a world-leading
60、fintech industry.China also benefits from early adoptions of technology.Chinas digital payment development,for example,shows how applications can facilitate changes in lifestyle.Beyond tapping into an enormous market,investing in China positions international companies to gain experience with innova
61、tive products that can make themselves more innovative and competitive in their home countries.Our Business Intelligence experts help with Asia Country Benchmarking,Location Analysis and Market Entry support.For more information,please .RELATED SERVICES13AN INTRODUCTION TO DOING BUSINESS IN CHINA 20
62、23 FOR US COMPANIESOverview of the US-China Bilateral RelationshipUS trade with China has grown enormously in recent decades and is crucial for both countries.The US imports more from China than from any other country,and China is one of the largest export markets for US goods.However,the bilateral
63、trade relationship has also experienced multiple ups and downs,especially in recent years with political differences and the pandemic.The US and Chinas trade and investment tiesChina is an important global market for the US.In 2022,China was the fourth largest US goods trading partner(after the Euro
64、pean Union,Canada,and Mexico)with total trade at US$690.6 billion,the fourth largest US export market at US$153.8 billion,and the largest source of US imports at US$536.8 billion.The total bilateral trade in 2022 increased by 5.2 percent compared to 2021.Total Goods Traded with China(in Millions)201
65、0456,864503,493536,136562,176592,132599,075578,015635,162658,795555,592557,227656,378690,59120112012 2013 2014 200182019 2020 2021 2022Source:US Census BureauThe two countries trade on a broad spectrum of sectors,including electronic devices,agriculture and food,medical devices,biotechnol
66、ogy,and energy.Top US exports include advanced technology products while imports include consumer goods and electronics.China also supplies key intermediary goods(e.g.,auto components and active pharmaceutical ingredients).In comparison,current levels of services exports remain low.In 2020,China acc
67、ounted for just six percent(US$40.4 billion)of all US services exports and three percent(US$15.6 billion)of US imports.FDI flows are also significant.In 2021,US investors held US$1.15 trillion in Chinese stocks and bonds while Chinese investors held US$1.4 trillion in US debt and US$720 billion in U
68、S equities,according to US government and private estimates.Net US FDI flows to China were US$9.3 billion and US$4.3 billion from China in 2020.The stock of US FDI in China was US$123.9 billion,while Chinas FDI stock in the US was US$54.9 billion.RELATED READINGUS-China Relations in the Biden-Era Ti
69、melineChina Briefing ArticleUpdates OngoingTimeline tracking key developments affecting US-China bilateral trade and business engagement under the Joe Biden administration.AVAILABLE HERE14AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESTrade war,trade deals,and their impact Trade bet
70、ween the two countries brings benefits to both markets.The US has profited immensely from access to Chinas market.Not only has the US household purchasing power been boosted by increased trade with China but exports to China supported millions of jobs in the US and vice versa.However,the bilateral t
71、rade relationship is not always amicable.While occasional business disputes emerge from time to time,the tension recently reached its peak during the Trump administration.In 2018,following an investigation under the Section 301 of the Trade Act of 1974(19 USC.2411),the US Trade Representative(USTR)i
72、mposed tariffs on an estimated US$250 billion worth of US imports from China.China then countered with tariffs on US$110 billion worth of US products.Most of these tariffs remain in effect.Since the imposition of the Section 301 tariffs,the USTR has granted a number of product-specific exclusions ba
73、sed on each partys requests.Most recently,the exclusions were extended for COVID-related products until the end of 2022.Once the exclusions expire,US importers will have to pay section 301 tariffs of up to 25 percent on these products.Amid the tensions,the US and China reached an agreement on a Phas
74、e One trade deal in 2020.The agreement,effective from February 14,2020,to December 31,2021,covered multiple sectors,including intellectual property,technology transfer,agriculture,financial services,and currency and foreign exchange.China committed to make substantial additional purchases of US good
75、s and services,while the US agreed to modify some of its Section 301 tariffs actions.The agreement also established a strong dispute resolution system.In the end,the Phase One deal was only a moderate success.According to the Peterson Institute for International Economics,China bought only 57 percen
76、t of the US exports it had committed to purchase,falling short of expectations.While it facilitated certain structural reforms to Chinas IP laws and provided greater market access to US exports,some limitations and shortcomings existed including a failure to make purchasing commitments.Since the dea
77、l ended in 2021,there has been no follow-up action.While in Washington D.C.mention of the trade war has fallen out of the discourse,President Biden has largely maintained the tariffs on Chinese goods at an estimated US$40 billion each year.Although these tariffs hit Chinese imports hard,US consumers
78、 and manufacturers also bear the cost burden.The Biden administration is under increasing pressure from US businesses to lower the tariffs as one way to ease inflation,however,US Trade Representative Katherine Tai has suggested that the tariffs would not decrease until China adopts more structural c
79、hanges.15AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESRecent developments2022 has added more complexities to the US-China bilateral trade relationship.In August 2022,President Biden signed the CHIPS and Science Act,intensifying the competition in technology.In a similar fashion,th
80、e US President signed an executive order in September to boost the domestic biotech industry which may limit the operations of Chinese biotech companies.Also in September,interest hikes in the US drove further RMB depreciation,breaching the 7:1 exchange rate at its peak.While raising dollar rates co
81、uld cause capital outflows from China,it could also make Chinese products more appealing.On a relatively positive front,top leaders of the two nations met in Indonesia in November 2022 at the G20 Summit,thawing an unusually long period of no interaction.Though politically the two countries both ackn
82、owledged the need to refrain from getting into a“new cold war,”tariffs seem to remain frozen in place.In the meeting between USTR,Katherine Tai,and Chinas Minister of Commerce,Wang Wengtao,the two sides had“candid,professional and constructive exchanges”on US-China economic and trade issues.Such int
83、eractions spurred more exchanges between the two countries.In November,a group of former Chinese officials and scholars visited New York,and Chinas National Development and Reform Commission(NDRC)also met with US business representatives,including ExxonMobil,Boeing,and Emerson Electric.In December,U
84、S regulators gained access to the audit documentation of public companies headquartered in mainland China and Hong Kong for the first time in history.This was a requirement to prevent the delisting of Chinese firms listed on the NYSE,but it marked a major step for bilateral cooperation in this area.
85、Many also have hope for the mandated review of Section 301,four years after its first implementation in 2018.The review period will run through January 17,2023 and will decide on whether and how the tariffs should continue,change,or be rescinded.Looking into the futureThe future of bilateral trade r
86、elations remains blurry and lacks a clear path forward.This uncertainty is further fueled by the political dynamic in the US.With a currently divided legislature,trade policies may be more difficult to predict,although being tough on China appears to be one of the few areas both US parties can agree
87、 on.The 2024 election may also completely change the narrative once again.Owing to COVID restrictions,geopolitical tension,and economic competition,interactions between the two powers have been severely limited with almost no engagement in recent months.However,there is little doubt that the US-Chin
88、a relationship will remain competitive at one level or another going forward.16AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESYet competition in some areas does not preclude cooperation in others.A strong interwoven relationship between the two largest economies still benefits many.
89、Though after years of a trade war and decoupling actions,the two countries will need to establish a new tone to future dialogues.This quote by Secretary of the Treasury Yellen summarizes the current sentiment of many both in Washington and board rooms,“I expect,certainly hope and expect that there w
90、ill continue to be very strong ties between China and the United States when it comes to mutually beneficial trade and investment”.While some industries may be more sensitive to geopolitics going forward,the two countries still have many opportunities to cooperate on transnational issuesclimate chan
91、ge,nuclear nonproliferation,and global health,among others and in business,particularly as China reopens to the world after dismantling its zero-Covid policy.The future at least,looks more optimistic now than it has in the previous five years.17AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US
92、COMPANIESKey Sectors for US Investment in 2023Foreign direct investment(FDI)has played a crucial role in Chinas economic development.From 2010 to 2020,US investors put nearly US$150 billion into China.Annual investment flows peaked in 2012 at US$15.4 billion.However,growing geopolitical tensions and
93、 the COVID-19 pandemic have amplified concerns over the future of investment flows between the two countries.Despite the challenges,we identify some key sectors that still have potential opportunities for US businesses.Energy/green energyChina is a global leader in the energy sector,especially in re
94、newables.In recent years,China has opened its energy sector to foreign investment as it seeks to balance energy security with a carbon neutral pledge.The country has lifted investment restrictions on coal,oil,gas,and power generation.Chinas pledge to two carbon goals also created many new opportunit
95、ies in renewables,clean production,waste management,sustainable infrastructure,and services that support green development.The US still carries some advantages when it comes to clean energy,especially in terms of advanced technology and new industrial trends.For example,Tesla is the worlds top elect
96、ric vehicle company and very popular among Chinese middle-and upper-class consumers.Chinas 2022 version of the encouraged catalogue for foreign investment lists around 100 items in the energy sector for foreign investment while energy techniques and equipment are major areas for investment.Consumer
97、productsThe average purchasing power parity(PPP)of the Chinese people has increased rapidly in recent years.The Chinese consumer taste favors discretionary spending categories such as fashion,accessories,consumer electronics,and electric vehicles(EV).Upper-and higher-income consumers chase aspiratio
98、nal goods,such as luxury goods,premium beauty and personal care products,and high-end cars.In recent years,more emphasis has been placed on product quality and user experience,with a changing attitude towards domestic brands.Despite the large consumption base,there is still room for growth.Chinas ho
99、usehold consumption is about 38 percent of its GDP,compared with 68 percent in the US.To boost consumption,China is promoting policies such as“consumption upgrading”and“dual circulation”.Chinas rebalancing to a more consumption-driven growth model should present opportunities for US companies in the
100、 e-commerce,logistics,and financial services sectors.According to Morgan Stanley Research,private consumption will reach US$9.7 trillion by 2030.Similarly,McKinseys data show that despite downward pressure on economic growth in China,inbound FDI in China has been running at historical highs,having h
101、it a record US$181 billion in 2021,a 21 percent increase compared with the previous year.This creates huge potential in this market for US companies to take advantage of.RELATED READINGChinas Livestream Industry:Market Growth,Regulation,Enabling Technology,and Business StrategiesChina Briefing Artic
102、leSeptember 1,2022We discuss why livestreaming is becoming an important brand and sales strategy for businesses in China.AVAILABLE HERE18AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESHealth and biotechAs the worlds second-largest healthcare market,China presents opportunities to US
103、 exporters in many healthcare and biotech sub-sectors.A variety of factors,including extended life expectancy,an aging population,and greater expectations about quality of life have driven the growth of Chinas healthcare market.Under the“Health China 2030”initiative announced in 2016,there has been
104、significant investment in local healthcare infrastructure,market reforms,and support for innovation.Medical devices remain the most dynamic and strategically important healthcare sales sector for foreign businesses.High-end and technology-heavy medical devices are primarily imported,while domestic p
105、roducts dominate the low to mid-market segments.The medical device market in China is expected to expand to US$38.4 billion by 2025,where imports may comprise over two-thirds of the market share.Within the market,diagnostics imaging and consumables constituted a large share.Additionally,prospects in
106、 the pharmaceutical and biotechnology sectors are significantly large too.The industry is predicted to grow to US$111.76 billion in 2025.Opportunities for foreign investors include establishing incubators to foster early-stage innovation,opening technology platforms to Chinese innovators,and investi
107、ng in R&D for commercialization.Some major acquisitions included Pfizers purchase of Cstone Pharmaceuticals(US$200 million)and GGV Capitals purchase of Shenzhen Hepalink Pharmaceutical Group(US$50 million).Food and agriculture China is a main importer of U.S agricultural and food products.While not
108、too common in the agricultural industry,FDI still exists and supports the sector in China.For example,in Jiangsu Province,FDI in actual use in the agricultural sector reached US$283 million in the first half of 2022.Since 2010,Jiangsu has introduced nearly 1,600 foreign-funded agricultural projects,
109、to a total of US$1.82 billion.The investment projects have also expanded from farming and breeding to processing,tourism and other sectors involving the primary,secondary and tertiary industries.The agriculture and food industry also received a critical amount of US investment,with US$1.4 billion in
110、 2021.This was driven by larger acquisitions such as PepsiCos purchase of Be&Cheery(US$750 million)and Sequoia Capitals purchase of Shijiazhuang Junlebao Dairy(US$171 million).Smaller greenfield investments include Beyond Meat,Yum China,Starbucks,and Popeye Restaurants.Additionally,Chinas Rural Revi
111、talization Strategy aims to promote more balanced economic and social development.Opportunities also exist for foreign companies in this strategy,especially in agricultural technology,food security,and environmental/waste management.19AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESS
112、ervice industry FDI in the service industry has grown enormously over the past 15 years.The share of services in Chinas total FDI increased from 24.7 percent in 2005 to more than 80 percent in 2021.This trend is in part due to Chinas huge service sector demand,particularly in the field of high-tech
113、and manufacturing services,such as in legal,consulting,insurance,and banking.China is also keen on attracting foreign investment in the sector.At a press conference in September 2022,officials from the National Development and Reform Commission(NDRC)mentioned plans to build a national unified market
114、 to improve the overall domestic business environment.This initiative will reduce market segmentation and regional protectionism,and create a more transparent business environment for sustainable development.For US companies,this means fewer market entry barriers.High-tech manufacturing High-tech in
115、 China is an industry that receives both domestic and international attention domestically,the crackdown has altered certain business behaviors;internationally,competition with the US,especially through the CHIPS and Science Act,have fueled tensions.For China,high-tech manufacturing is critical to i
116、ts strategic development in the near future.China has also hastened its pace in setting international standards in this field.Thus,despite the domestic and international challenges,opportunities still exist for US investors.From 2010 to 2021,the information and communications technology(ICT)sector r
117、eceived a total of US$25 billion US investment,which functioned as one the major sources of financing for Chinese technology startups.Facing growing uncertainties,particularly given geopolitical tensions,investors are suggested to remain agile and keep multifold strategies in place.RELATED READINGCh
118、inas Robotics Industry:Current Outlook and Market Scope for Foreign InvestorsChina Briefing ArticleSeptember 19,2022Chinas robotics industry requires collaboration with foreign sources of technology and expertise to achieve its high-tech innovation targets.AVAILABLE HERE20AN INTRODUCTION TO DOING BU
119、SINESS IN CHINA 2023 FOR US COMPANIESWhat are my options for investment?How do I establish a business?How do I make changes to my business?Establishing and Running a Business121AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIES1Foreign investment into the Peoples Republic of China(here
120、after“China”)can be made via one of several types of investment vehicles.Choosing the appropriate investment structure for your business depends on a number of factors,including its planned activities,industry,and investment size.In this section,we discuss:1 Representative office(RO);Wholly foreign-
121、owned enterprise(WFOE);Joint venture(JV);Foreign invested partnership(FIP);Global staffing solutions(GSS);Mergers and acquisitions(M&A);and Variable interest entity(VIE).We will also discuss the impact of the Foreign Investment Law(FIL)on choosing the investment structure.Representative office(RO)An
122、 RO is an attractive way for foreign investors to get a feel for the Chinese market as it is the easiest type of foreign investment structure to set up.Unlike more robust vehicles,such as the WFOE,an RO is an extension of the foreign company without independent legal personality.That is to say,it do
123、es not possess the capacity for civil rights and cannot independently assume civil liability.When an RO signs a contract,it is the foreign company that is bound by the agreement.Besides,there are only a limited number of activities an RO is permitted to be engaged in.ROs are generally forbidden from
124、 engaging in any profit-seeking activities and may only be used to facilitate the activities of the foreign company in China.These are:Market research,display,and publicity activities that relate to company products or services;and Liaison activities that relate to product sales or services and dome
125、stic procurement and investment.ROs acting in violation of their allowed activities will be fined,and their illegitimate income will be confiscated.In addition,as an RO is not a capitalized legal entity in China,it is limited in its hiring ability.An RO cannot directly hire Chinese employees.Instead
126、,it is required to employ local staff through a qualified labor dispatch agency.The agency acts as the employer for legal purposes,and sends employees to work at the RO for a fee.An RO may directly hire up to four foreign nationals as the representatives,and these do not need to go through the agenc
127、y.What are my options for investment?SABRINA ZHANGPartner Beijing OfficeDezan Shira&Associates“ROs areoften used by foreigncompanies to facilitateactivities in China,suchas communicating andliaising with China-based agents and distributors.”1 Under the FIL,the terms of the WFOE Law and the JV Law ar
128、e no longer binding.Nevertheless,we still use WFOE and JV to refer to relevant investment forms for consistency and easier communication.22AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESEven though an RO does not earn revenue,it is still subject to Chinese tax.ROs are taxed as a per
129、manent establishment in China,which usually amounts to a liability of approximately eight percent of the total expenses of the RO.RO is generally a good solution for companies that are procuring from China and want to keep staff on the ground for quality control,or for maintaining short communicatio
130、n lines with China-based suppliers,agents,and distributors.Wholly foreign-owned enterprise(WFOE)A WFOE is a limited liability company wholly owned by one or more foreign investor(s),which offers a very straightforward management structure.Unlike an RO,a WFOE can make profits and issue local invoices
131、 in RMB to its suppliers.A WFOE can employ local staff directly,without any obligations to employ the services of an employment agency.A WFOE can also expand to create subsidiaries in China.And compared to a JV,a WFOE has better autonomy and flexibility to execute the company policies intended by th
132、e investors without considering the Chinese partner.It is also believed to be better at protecting the companys intellectual property and technology.However,the setup procedure of a WFOE is more complicated.And WFOE is not feasible if the targeted sector is listed as“restrictive”in the Special Admin
133、istrative Measures on Access to Foreign Investment(“National Negative List”)or the Free Trade Zone Special Administrative Measures on Access to Foreign Investment(“FTZ Negative list”),where foreign investors need to have a Chinese equity partner to form the business.In other words,incorporating a WF
134、OE to engage in these sectors would not be permitted.Investors that try to do so will see their application denied.WFOEs that engage in these activities illegally after being incorporated face fines or even the cancellation of their business license.There are three distinct WFOE setups available:Ser
135、vice(or consulting)WFOE;Trading WFOE;and Manufacturing WFOE.While all three structures share the same legal identity,they differ significantly in terms of their setup procedures,costs,and the range of commercial activities in which they are allowed to engage.Trading WFOEs and manufacturing WFOEs mus
136、t derive the majority of their revenue from their namesake business,but can also provide associated services.Service WFOEs are additionally permitted to conduct trading activities related to their services.23AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESJoint venture(JV)A JV is for
137、med by one or more foreign investor(s),along with one or more Chinese party.Previously,Chinese individuals were explicitly excluded from being shareholders in a JV with few exceptions.However,under the FIL,which took effect January 1,2020,this limitation has been eliminated.Chinese individuals can j
138、ointly invest with foreign investors,which offers more flexibility in choosing business partners.There are mainly two reasons for foreign investors to choose a JV structure:The foreign investor wants to invest in a restricted industry sector,where the law permits foreign investment only via a JV wit
139、h a Chinese partner;and The foreign investor wants to make use of the sales channels and network of a Chinese partner who has local market knowledge and established contacts.Before the FIL was enacted,there were two types of JVs in China,and they differed primarily in terms of how profits and losses
140、 get distributed:Equity Joint Venture(EJV):Profits and losses are distributed between parties in proportion to their respective equity interests in the EJV;Generally,the foreign partner should hold at least 25 percent equity interest in the registered capital of the EJV;and An EJV should be a limite
141、d liability company.Cooperative Joint Venture(CJV):Profits and losses are distributed between parties in accordance with the specific provisions of the CJV contract;and A CJV can be operated either as a limited liability company or as a non-legal person.With the FIL coming into force,the newly estab
142、lished JVs will be subject to the provisions of the Company Law,which implies changes in many aspects,such as governing structure and operating rules.However,JVs established before January 1,2020 following the old EJV Law or CJV Law will have a five-year transitional period to arrange relevant trans
143、itions to be compliant with the new requirements.VISIT US ON LINKEDINRELATED READINGChina Joint Venture:7 Considerations to Reach a Successful JV AgreementChina Briefing ArticleAugust 5,2021A China joint venture is becoming the market-entry strategy of choice for many foreign investors since the COV
144、ID outbreak.We list some best practices.AVAILABLE HERE24AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESForeign invested partnership(FIP)An often-overlooked option is the FIP,which was introduced in 2010.As the name suggests,this entity requires two or more investors to conduct busin
145、ess together.The option would therefore not work for foreign investors looking to set up an entity over which they have 100 percent control.In addition,foreign investors cannot engage in sectors subject to equity limitations as provided in the negative lists via an FIP.An FIP can be newly establishe
146、d by foreign investors contributing to the partnership,or by acquiring the equity interests in an existing domestic partnership.A partnership is not a separate legal entity,but a contractual arrangement between two or more parties to do business together under a common name,and is registered as such
147、 with the government.Instead of having to stay within the boundaries of the Company Law,a partnership affords investors broad freedoms to make internal arrangements as they see fit.For example,the profit shares and voting rights need not be aligned with the investors capital contribution.While the P
148、artnership Enterprise Law says that,in principle,the unanimous approval of all other partners is needed when a partner sells their share in the partnership,investors are free to stipulate otherwise in the agreement.It can therefore be much easier to transfer ones participation in a venture this way.
149、In practice,FIPs sometimes are used by foreign private equity funds to manage money in China through limited partnerships.Foreign invested commercial enterprise(FICE)A FICE,which can be set up either as a WFOE or a JV,is a type of company for retail,franchising,or distribution operations.A WFOE or J
150、V can be established exclusively as a FICE,or can combine FICE activities with other business activities,such as manufacturing and services.Generally,a FICE is inexpensive to establish and can be of great assistance to foreign investors because it combines sourcing and quality control activities wit
151、h purchasing and export facilities,thus providing more control and a quicker reaction time compared to sourcing exclusively via an overseas headquarters.FICEs are also the ideal choice for foreign companies that need to source in China in order to resell to its domestic consumer market.Without a Chi
152、nese trading company,the alternative would be to buy from overseas,and have the goods shipped out of China before then reselling them back to China(which would mean additional logistical costs,customs duties,and value-added tax).VIVIAN MAOPartnerShanghai Office“Choosing aninvestment structuredepends
153、 largely onyour goals in China.For companies lookingto target the Chineseconsumer,the foreign investedcommercialenterprise(FICE)hasbecome the gold standardinvestment model.”25AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESGlobal staffing solutions(GSS)GSS is a market entry strategy
154、that alleviates the stress on businesses to establish a corporate entity and outsources the burden of keeping up with the day-to-day management of an employees payroll and the entitys tax compliance to a local firm.This frees up critical resources for the foreign firm to explore its options in a new
155、 or unfamiliar market.In simple terms,the way GSS works is that it enables businesses to place boots on the ground,without needing to physically set up a local establishment.The service works with the third-party service provider signing separate contracts with both the foreign company and the forei
156、gn employee.This means that while the normal day-to-day control and working employee relationship will exist between the overseas company and its outsourced hires,the local service provider in China will handle all the risk mitigation,compliance,payroll,and benefits on the ground.Under the GSS servi
157、ce,foreign companies can enjoy the benefits of having full-time staff working in overseas markets and remaining compliant with local laws,without the time and investment required to set up and operate an overseas establishment.It empowers foreign firms with the ability to look at alternatives within
158、 a specific sector and try out different strategies.Investors can use this in a new market to gain first-hand knowledge of the local business environment and culture to determine market suitability,plan against supply chain disruptions,and establish sustainable long-term strategy.Mergers and acquisi
159、tions(M&A)In addition to greenfield investment in which a company makes foreign direct investment by building operations from the ground up,investors can also expand their business presence in China by acquiring existing assets or buying a controlling stake in an existing company,i.e.,mergers and ac
160、quisitions(M&A).In general,acquiring an existing company can simplify a lot of the tedious details involved in entering a new market,such as the lengthy setup processes.Also,it can help a company acquire capabilities it cannot or does not want to develop internally.By becoming the controlling stakeh
161、older of the acquired company,the acquirer can obtain difficult-to-acquire licenses,such as the permit for running medical institutions,and also utilize the established experience and framework of the acquired company to better prepare for the market conditions they are about to face.More importantl
162、y,if an existing company holds a significant market share in the sector that the investor plans to enter,the extended time to market and competition for a greenfield investment may not be worthwhile.RELATED READINGPlanning for Uncertainty:Global Staffing Solutions to Facilitate Your China Market Ent
163、ryChina Briefing ArticleJuly 6,2020For many businesses,setting up their own company,is the only known or viable way to enter a new market.In this article,we introduce an alternative market entry mode,called Global Staffing Solutions.AVAILABLE HERE26AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR
164、 US COMPANIESHowever,the effectiveness of such an arrangement is largely dependent on the makeup of both the acquiring company and the acquired company.Companies have different work cultures,management styles,and operational procedures.It can be a difficult task to combine the best of both sides to
165、achieve the desired synergies.The acquiring company can only gain a quick and strong foothold in the target market when the two parties are compatible with each other.For this reason,it is imperative that thorough due diligence of both companies is done beforehand on the assets,contracts,credit and
166、debt,employment relationships,and management of both firms,to expose sensitive areas,disputes,and weaknesses so that the transaction is made on the basis of fair,transparent,and reasonable evaluations.Another factor to be noted is that the definition of foreign investment under the FIL includes a fo
167、reign investor acquiring shares and assets of a Chinese enterprise.Consequently,all FDI rules and regulations must be observed,including restrictions on investment,qualifications of investors,and scope of business.In addition,M&As in China are subject to antitrust review as required by the Anti-Mono
168、poly Law and a potential national security review if the transaction could raise national security concerns.Variable interest entity(VIE)VIE structures are adopted by many foreign investors to engage in sectors that are restricted or prohibited to foreign investment in China as provided in the negat
169、ive lists,such as telecommunication and education.Under this model,foreign investors retain final control over the China domestic operating entities through a series of contractual arrangements rather than direct shareholding.Consequently,there are risks that the investors control over the structure
170、 might be threatened by the intentional breach of the contractual arrangements.In addition,the governments attitude towards VIE structure remains vague.There is no clarification in the FIL whether it is legitimate and whether it falls within the scope of foreign investment.However,in a legislative d
171、raft released in 2020 regarding pre-school education,which was still a draft at the time of writing this guide,VIE structure is explicitly prohibited in the sector.VIE structure could be regarded as illegal in such sectors that are not yet open to foreign investment.On the other hand,the China Secur
172、ities Regulatory Commission(CSRC)the China security watchdog confirmed that qualified companies with VIE structures can still go public on foreign stock markets.Foreign investors interested in this structure are recommended to closely follow the regulatory trends.SIMON LAUBESenior AssociateInternati
173、onal Business AdvisoryShanghai Office“With global economic headwinds continuously affecting the business world,SMEs are suggested to reconsider M&A as a strategy that can help them survive and thrive in the post-pandemic era.”27AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESComparis
174、on of Different Investment OptionsInvestment optionsCommon purpose(s)ProsConsRO Market research Liaise with overseas headquarters Easiest foreign investment structure to set up Paves way for future investment Cannot invoice locally in RMB Must recruit staff from local agency;no more than four repres
175、entatives Heavily taxed if expenses are highWFOE Manufacturing Servicing Trading(if a FICE)Greater freedom in business activities than RO 100%ownership and management control Registered capital requirement(for select industries)Lengthy establishment processJV Entering industries that by law require
176、a local partner Leveraging a partners existing facilities,workforce,sales/distribution channels See common purposes Split profits Less management control than a WFOE Technology transfer/IP risks Inheriting partner liabilitiesFIP Investment vehicle Servicing Allows for domestic and foreign ownership
177、Easier setup Unlimited liability of the general partner Newness of structure(potential challenges with taxation or foreign currency exchange)GSS Market research Supply chain management Having full-time staff working in overseas markets and remaining compliant with local laws without the time and inv
178、estment required to set up and operate an overseas establishment Limited capabilities Temporary arrangement rather than a long-term strategy M&A Expanding business presence in a new market without establishing operations from the ground up Simplify the tedious details involved in a greenfield invest
179、ment Inherit the market share and established framework of the target company Help the investing company acquire capabilities it cannot or does not want to develop internally Subject to all FDI restrictions and rules Higher scrutiny from the authority Antitrust review and potential security review P
180、ost-merger integrations may require additional resourcesVIE Getting access to sectors that are restricted or prohibited to foreign investment See common purpose Breach risks of the contractual arrangement Vague attitude of the Chinese authority towards VIE structure28AN INTRODUCTION TO DOING BUSINES
181、S IN CHINA 2023 FOR US COMPANIESThe impact of the Foreign Investment LawOn March 15,2019,China passed a new Foreign Investment Law(FIL),a landmark legislation whose stated aim is twofold:improve the business environment for foreign investors and ensure that foreign invested enterprises participate i
182、n market competition on an equal basis.The FIL came into effect on January 1,2020 and thus became a new guiding document governing foreign investment in China.For foreign investors who maintain operations in China,or plan to enter the market,figuring out the impact of the FIL on their plans is a bus
183、iness-critical task.Among the incentive,management,and protection measures introduced,Article 31 and Article 42 of the FIL clarify issues related to the organizational form,governing structure,and operating rules for foreign investments.According to Article 31 of the FIL,the organizational form,gove
184、rning structure,and operating rules of FIEs shall be subject to the provisions of the Company Law,the Partnership Enterprise Law,and other applicable laws,in the same way as enterprises established by domestic investors are treated.According to Article 42 of the FIL,the Law on Wholly Foreign-owned E
185、nterprises(WFOE Law),the Law on Sino-foreign Cooperative Joint Ventures(CJV Law),the Law on Sino-foreign Equity Joint Ventures(EJV Law)shall be repealed simultaneously when the FIL came into force on January 1,2020.However,FIEs established before the FIL took effect-and in accordance with the three
186、laws on WFOE,CJV and EJV-may keep their original organizational forms for five years after January 1,2020.For foreign investors who are looking to establish new operations in China,the impact of the FIL is limited.Firstly,and most importantly,foreign investors planning to enter the market need to le
187、arn more about the investment structures that are available.As mentioned,previous investment structures,such as a CJV,will no longer exist since the FIL came into effect.Foreign investors need to set up their businesses in accordance with the provisions of the Company Law,the Partnership Enterprise
188、Law,and other applicable laws,similar to domestic investors.On the one hand,the unified treatment of foreign domestic investments will make the investment path less complicated in the long run.However,on the other hand,it also means that anything foreign investors have learned about investment struc
189、tures in China has become partly outdated.Foreign investors should pay close attention to relevant legislative updates and seek professional advice before making an investment following the implementation of the FIL.RELATED READINGThe New Foreign Investment Law in ChinaChina Briefing MagazineJuly 20
190、19China passed a new Foreign Investment Law in March 2019.The law establishes a new framework to govern foreign investment in China and addresses a number of common concerns among overseas businesses.Critics,however,have questioned the extent to which the law addresses these issues in practice,point
191、ing to the laws at times broad and vague language.This issue of China Briefing magazine offers a comprehensive analysis of Chinas new Foreign Investment Law.AVAILABLE HERE29AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESHow do I establish a business?When establishing a company in Ch
192、ina,it is highly advisable to seek professional assistance to guide you through the complex setup procedure and outline the roles and responsibilities of key positions in the company.This can be a critical factor in ensuring the success of the venture and avoiding time-consuming changes to the compa
193、ny later on down the line.In this section,we discuss:Pre-establishment considerations;Corporate establishment;Key positions in a foreign invested entity;Office premises requirements;Opening a bank account;and Intellectual property.Pre-establishment considerations Business scope The business scope is
194、 an enumeration of the commercial activities in which a business is authorized to operate in.It is administered by two state bodies-the Ministry of Commerce(MOFCOM)and the State Administration for Market Regulation(SAMR)1 -and is printed on its business license along with other registered informatio
195、n such as its name,registered capital,and legal representative.For foreign businesses,its imperative that the company operations must be reflected accurately in the business scope.Under the current laws and regulations,foreign investors are still restricted or prohibited to engage in certain sectors
196、,as stipulated in the National Negative List and the FTZ Negative List.In addition to the legal risk of disingenuously operating in an unregistered domain,not keeping the companys commercial operations within the range of activities set out in its registered business scope can also be detrimental to
197、 a companys ability to issue official invoices(fapiao)to its clients.While a company still can issue fapiao for occasional activities out of the business scope,regular discrepancies may trigger potential tax investigations.It is therefore critical that companies carefully plan their business scope p
198、rior to initial incorporation in China,or else risk having to undergo the onerous and time-consuming process of changing this later.Depending on the business scope,FIEs can be classified as being a manufacturing company,a service company,a trading company,regional headquarters,an R&D center,an inves
199、tment company,or several others.Often,the capital requirements will differ depending on the type of company that is being incorporated.FANNY ZHANGSenior ManagerBusiness Advisory ServicesBeijing Office“Setting your business up right from the start can save a lot of hassle in the long run.”1 In 2018,C
200、hina announced a sweeping restructuring of its government institutions,under which the the State Administration for Industry and Commerce(SAIC)was integrated into the State Administration for Market Regulation(SAMR).In practice,SAMR and its local branches might still be referred as AIC as the body i
201、n charge among business society.30AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESRegistered capitalRegistered capital is the fund all the shareholders contribute or promise to contribute to the company when they apply to the local Administration of Market Regulation(AMR)for incorpor
202、ation of the company.The amount of the registered capital depends on a range of factors,which include the region,the sector,the companys business scope,the planned scale of operations,etc.It will show in the companys business license,this information is available to the public to show the fund stren
203、gth or capacity of a company to some extent.The registered capital does not need to be paid completely up front.The previous system of paid-up capital has been replaced by a subscribed capital model,under which a schedule of contributions must be declared in the Article of Association and be registe
204、red with the local AMR in charge.The government will check whether the investors follow the capital injection plan.There is no minimum registered capital requirement for corporate establishment except few industries,such as banking,financing,insurance,etc.Despite this,in practice,the governing autho
205、rities will ensure that a companys registered capital is sufficient to support its business operations for at least one year,including its rent,labor costs,and office expenses.Moreover,the registered capital can affect the amount of offshore debt the FIE can borrow from other investors or foreign ba
206、nks,if the FIE chooses to follow the ratio between registered capital and total investment1 as shown in the following chart.The upper limits of the offshore debt is the gap between the total investment and the registered capital.Registered capital contributions can be made cash or in kind,as a lump
207、sum,or in installments.The companys payment schedule for contributions must be specified in its Articles of Association,and once paid,the amount cannot be freely wired out again.1 Offshore debt can also be decided by another method called“macroprudential management of foreign debt”method,the calcula
208、tion of which is more complicated.Investment to Capital RatiosTotal investment(US$)Minimum registered capital3 million or less7/10 of total investment3 million -4.2 millionUS$2.1 million4.2 million-10 million1/2 of total investment10 million-12.5 millionUS$5 million12.5 million-30 million2/5 of tota
209、l investment30 million-36 millionUS$12 million36 million or greater1/3 of total investment31AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESExpense and tax planningWhen setting up a company in China,one inevitably incurs costs prior to the company being formally incorporated.The ques
210、tion then arises what part of these costs may be deducted from the companys tax bill.This becomes especially relevant if the investment is a large project,such as setting up a factory and purchasing machinery,where the costs incurred prior to incorporation can be substantial.An FIE,being an independ
211、ent legal entity registered in China,is taxed on its income,and may therefore deduct expenses from Chinese tax.As pre-incorporation expenses by definition have been incurred prior to the FIE formally existing,only some of these expenses can be taken on by the FIE.Of all the expenses made before form
212、al incorporation,only the so-called pre-operation costs(开办费)may be allocated to the FIE and deducted.The key point in defining pre-operation costs is the time when they occurred.In practice,the starting point of this period is seen as either the establishment date on the business license,or the day
213、on which the investor gets the company name confirmation from the AMR.This is usually one month before the establishment date on the business license.The ending point of the pre-operation cost period is when the company issues its first invoice,or generates its first revenue.Most of the costs incurr
214、ed during this period,such as wages,training,printing,transport fees,registration fees,and purchases of items not considered fixed assets,may be deducted if relevant valid tax invoices can be provided.Up to 60 percent of advertising and business-related entertainment expenses(business dinners,gifts,
215、baijiu,etc.)may be allocated to the FIE during this period.It is often hard to predict what the establishment date of the company will be.This largely depends on how the incorporation process is conducted.However,the better the investor manages the incorporation from its side,the more clarity one ca
216、n hope to get.Before the company is incorporated,the foreign investor may open a temporary bank account in China.The investor may wire foreign currency into this account and spend these funds on pre-operation and other expenses.After the company has been established,it needs to open a capital accoun
217、t.The funds from the temporary account can then be wired to this account.In practice,the only cost incurred prior to the pre-operation cost period is office rent.Allocation to the FIE is accepted,as an office lease is a required step of the incorporation process.Enterprises,especially manufacturing
218、companies,which often have a long pre-operation period,should take careful consideration of when their pre-operation period ends.These companies in particular need to make sure costs incurred can be carried forward as a loss over the next few years.32AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 F
219、OR US COMPANIESLocationChoosing a location is one of the first decisions that companies must make when entering a new market.Location and a strategic site selection plan can have a major impact on the success of the business,affecting production,operation,and sales.Therefore,companies must take step
220、s to ensure they have the right information before committing their time and money.Some locations offer more preferential policies to foreign investment based on the local economic priorities,such as the Guangdong-Hong Kong-Macao Greater Bay Area(GBA),the Hainan Free Trade Port(FTP),Western China,an
221、d the pilot free trade zones(FTZs).By far,China has established 21 FTZs,which constitutes part of Chinas efforts to transform into a more innovative,service,and consumption-driven economy and the creation of sustainable and high-end manufacturing capacity to attract international businesses.However,
222、investors are not suggested to make decisions solely based on preferential policies.Rather,there are multiple considerations that companies must grapple with when choosing a location,including but not limited to real estate,infrastructure,supplier and customer market,cost,operating environment,legal
223、 and regulatory environment,and human resources.A Typical Location Search Service ProcessA Typical Location Search Service ProcessPHASE 1PHASE 2Screen for potential sitesbased on search metricsReport data metrics and analysis of property optionsIdentify location needsand set search metricsNegotiatio
224、nsDeep dive analysis on shortlisted sitesDue diligence on siteVisit sitesShortlist top locations33AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESHolding companyMany companies choose to establish holding companies,or“special purpose vehicles”,in jurisdictions,such as Hong Kong or Sin
225、gapore,to hold their Chinese entity.Holding companies allow for an additional layer of distance between the Chinese subsidiary and parent company,and can“ring-fence”the investment to an extent,protecting it from the potential risks and liabilities of the Chinese subsidiary.In the case that an invest
226、or wishes to sell their Chinese business,or introduce a third-party partner/shareholder into the structure,the administrative changes can also be done at the holding company level,rather than at the China level,where the regulatory environment is tougher and procedures are more time-consuming.Given
227、the comparatively sophisticated banking systems of Hong Kong and Singapore,establishing a holding company in either jurisdiction is a popular option for foreign companies wishing to hold their China-earned profits offshore.In this way,the profits can be re-invested into China if the need arises,or u
228、sed to further expand operations elsewhere in Asia.Subject to the parent countrys anti-avoidance tax rules,this method is often used as a tax deferral mechanism for foreign companies who do not want to remit their China profits immediately back to the home country.In addition,Hong Kong and Singapore
229、 holding companies present a number of tax advantages,including reduced withholding tax rates on the repatriation of profits and limiting tax exposure on capital gains.Note that the Foreign Account Tax Compliance Act(FATCA)has significantly disrupted theability of U.S.investors to open or maintain b
230、ank accounts through Hong Kong,threatening tocut off the cash flow to their mainland China subsidiaries.Although also a signatory to FATCA,Singapore appears to be less affected by these developments.Corporate establishmentEstablishing a foreign investment structure in China generally takes between t
231、hree and six months and involves the following government authorities:Ministry of Commerce(MOFCOM)and its local branches;State Administration for Market Regulation(SAMR)and its local branches;State Administration of Foreign Exchange(SAFE)and its local branches;State Taxation Administration(STA)and i
232、ts local branches;General Administration of Customs(GAC)and its local branches;and National Bureau of Statistics(NBS)and its local branches.The establishment process varies based on ones chosen investment structure and planned business scope.For example,manufacturing WFOEs require an environmental e
233、valuation report be completed,while trading WFOEs need to comply with the customs/commodity inspection requirements.34AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESBelow we take WFOE as an example to demonstrate the setup procedure.WFOE Setup Procedure*BASIC INFORMATION COLLECTION
234、FROM CLIENT(depends on client)INCORPORATION DOCUMENTS PREPARED BY CLIENTIncluding the proof on lawful use of the office premises(depends on client)ENVIRONMENT IMPACT ASSESSMENT*Including report assessment,on-site environmental impact assessment,and report approval from authorities in charge(3-6 mont
235、hs)AMR BUSINESS REGISTRATION*Including online incorporation information submission and pre-review,and on-site documentation submission to the authority in charge(7-10 working days)FOREIGN INVESTMENT INFORMATION REPORTING*(real time)COMPANY NOW LEGALLY EXISTSCARVE COMPANY CHOP,FINANCIAL CHOP,INVOICE(
236、“FAPIAO”)CHOP,AND LEGAL REPRESENTATIVE CHOP(1-2 working days)Pre-licensing(2-3 months)Post-licensing(2-3+months)*For manufacturing WFOE only.*In an effort to simplify company establishment procedures,the government has decided to cancel the foreign trade dealer/operator filing nationwide starting fr
237、om December 30,2022.The government also intends to integrate the customs registration with the AMR registration,but the reform hadnt been fully implemented in practice at the time of writing.*No separate reporting is needed in cities offering one-stop service such as Shanghai.The reporting can be co
238、nducted contemporaneously after the company name is filed for record.*For manufacturing and trading WFOE only.RMB BASIC ACCOUNT(2 weeks)TAX REGISTRATIONIncluding tax identification authentication of the legal representative or financial employee in charge,VAT taxpayer status set-up,invoice set-up,an
239、d on-site submission of documentations(3-5 working days)FOREIGN EXCHANGE REGISTRATION CERTIFICATE(around 2 weeks)FOREIGN CAPITAL ACCOUNT(5-7 working days)CUSTOMS REGISTRATION*(around 2 weeks)CAPITAL INJECTION(in accordance with Articles of Association)E-PORT REGISTRATION*(around 2 weeks)CAPITAL VERI
240、FICATION ASSISTANCE(2 weeks)SAFE IMPORT-EXPORT ENTERPRISE NAME FILING*(2-3 working days)35AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESKey positions in a foreign invested entityThe key positions in a foreign invested entity vary by the investment structure and size,with some overl
241、ap.ROs should designate a chief representative to sign documents on behalf of the company.In addition to a chief representative,an RO can also nominate three more general representatives.For WFOEs and JVs,key positions include shareholders,an executive director(or board of directors),supervisor(s),g
242、eneral manager,chief finance officer(CFO),and legal representative.Shareholders and executive director(or board of directors)For WFOEs,the board of shareholders represents the highest authority of the company,whose decisions regarding company operations are executed by the executive director or boar
243、d of directors.For JVs established before January 1,2020,i.e.the effective date of the FIL,the board of directors is the highest authority.But they will need to make relevant changes within the five-year transitional period.For JVs established after January 1,2020,the board of shareholders will be t
244、he highest authority of the entity.Supervisor(s)WFOEs must have at least one supervisor to oversee the execution of company duties by the director(s)and senior management personnel.For JVs,this used not to be a mandatory obligation before the FIL enacted.However,starting from January 1,2020,JVs are
245、also required to have supervisors following the rules stipulated in the Company Law.To ensure there are no conflicts of interest,a companys director(s)and/or senior management personnel(general manger,deputy general manager,and chief financial officer)cannot concurrently serve as supervisors.Where a
246、 company has a relatively small number of shareholders and is small in scale,one or two supervisors will suffice.For larger companies,a board of supervisors composed of no less than three members is required.General managerBoth WFOEs and JVs need a general manager who is responsible for day-to-day c
247、ompany operations.This position may be concurrently filled by the executive director or a member of the board of directors.For JVs,several deputy general managers can also be appointed;this group is collectively referred to as the management office.INES LIUManager International Business AdvisoryBeij
248、ing Office“The legal representative is the person who really carries responsibility for a company in China.You will need to appoint someone who is not just technically competent,but China competent.”36AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESChief financial officerChief financ
249、ial officer(CFO),or financial employee in charge,is a key personnel of a company that has primary responsibility for managing the companys finances,including financial planning,finance and accounting compliance,taxation,cash flow tracking,as well as financial reporting analysis.CFO is senior managem
250、ent by nature and typically reports to the general manager of the company.This position may be concurrently filled by a member of the board of directors.CFO is of special importance in China during the company setup stage,where the CFO needs to go through real name authentication and be the contact
251、person with the authority in charge.Legal representativeEvery business established in China,foreign or domestic,is required to designate a legal representative,i.e.the person responsible for performing the duties and powers on behalf of a company.The legal representative is,by definition of their ro
252、le,one of the most powerful people in a FIE.Yet this power comes with heavy responsibility,and if a single individual in a foreign invested entity is to be held accountable for company actions,that person is more likely than not the legal representative.For WFOEs and JVs established after January 1,
253、2020,the executive director,the chairman of the board of directors,or the general manager are all eligible to be legal representatives.Before that,only chairman of the board of directors can take the legal representative role of the JVs.Powers and responsibilities of a legal representativeThe Compan
254、y Law does not clearly define the powers of a legal representative.However,it is clear that a legal representative is authorized to perform all acts regarding the general administration of a company according to the companys aims and objectives.This may include:Acting(legally)to conserve the company
255、s assets;Executing powers of attorney on the companys behalf;Authorizing legal representation of and litigation by the company;and Executing any legal transactions that are within the nature and scope of that companys business.37AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESThe FIL
256、s impact on key positions in FIEsConsidering that WFOEs are generally limited liability companies,which are basically in line with the Company Law,the FIL has a limited impact on key positions in WFOE.For existing FIEs in the form of a CJV or EJV,they need to change their governing structure within
257、the five-year transitional period to the three-tier structure(the board of shareholders,the board of directors,and the general manager),in accordance with the Company Law.Below,we take EJV as an example.FILs Impact on Key Positions in EJVItemsUnder the EJV LawUnder the FILHighest authorityBoard of d
258、irectorsBoard of shareholders or the general meeting of shareholdersBoard of shareholdersNo board of shareholdersThe following matters must be be reviewed and approved by shareholders holding two-thirds or more of the voting rights on the shareholders meeting:Amendment to the article of associations
259、;Increase or reduction of registered capital;and Company merger,division,dissolution,or change of company structure.Board of directors The board of directors shall comprise no less than three members;Directors shall be appointed and removed by EJV parties;Where a Chinese national takes the position
260、of chairman,the position of the deputy chairman shall be held by the foreign party,or vice versa;and The tenure of a director shall be four years.Company can choose to appoint an executive director instead of establishing a board of directors;The board of directors shall comprise three to 13 members
261、 for limited liability companies,or five to 19 members for joint-stock companies;Directors who are not employee representatives shall be elected and replaced by the board of shareholders/shareholder;and The tenure of a director shall not exceed three years.SupervisorBoard of supervisors/supervisor i
262、s not obligatorily required Board of supervisors should comprise no less than three members;Limited liability companies with fewer shareholders may appoint one to two supervisors instead of establishing a board of supervisors;The tenure of supervisor is three years;and Directors and senior managemen
263、t personnel shall not hold the post of supervisor concurrently.Legal representativeChairmanChairman,executive director,or general manager Senior management personnelWhere Chinese party takes the position of general manager,the position of the vice-general manager shall be held by the foreign party,a
264、nd vice versaNo limitation38AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESOffice premises requirementsTo register a FIE in China,it is a prerequisite to own or lease office premises1(as the primary place of business)and register this with the local AMR in charge.Doing so requires t
265、hat the FIE possess all legal documents pertaining to the premises as required by the Chinese authorities,such as the Real Estate Ownership Certificate.If the office premises is leased from another individual or organization,the lease term of the original lease agreement should be no shorter than on
266、e year.Generally,the AMR does not accept“residential”purpose real estates to be used for business registrations.The purpose of the premises as indicated in the Real Estate Ownership Certificate,(i.e.,residential purpose,commercial purpose,or industrial purpose)must match the nature of the businesses
267、.For example,the premises for a FICE should be for commercial use,while the premises for a manufacturing company should be for industrial use.In most cases,only one business may be registered per office unit.Under limited conditions,one office unit can be used to register multiple businesses.Many ne
268、w entrants to the China market find success using serviced offices offered by a number of providers in major cities across China.For recent start-ups or foreign companies wanting to test the waters first,having to lease office space can be a burdensome commitment.Serviced offices offer an option in
269、which businesses can lease the required office space under flexible terms and at more accessible prices.Apart from simply being a cost-efficient way to meet the office space requirement,using a serviced office provider allows companies to use their on-demand services,such as IT packages,secretarial
270、support and meeting rooms.While these often-tiny work places can offer a solution,it is important to realize that not all of them are in compliance with the AMR standards.Investors who consider this option are suggested to confirm with the serviced office as well as the authority in charge whether t
271、he serviced office address can be used as premises for business registration.1 In some cases,virtual offices might be accepted as registered address,such as in some industrial parks.VIKTOR ROJKOVAssistant ManagerInternational Business AdvisoryShanghai Office“If a FICE intends to include retail activ
272、ities in its business scope,the company needs to be registered at an address suitable for the specific retail activities.The investor is advised to double-check the suitability of the premises before signing the lease agreement.”39AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESOpeni
273、ng a bank accountOnce obtaining a business license in China,the newly established FIE must choose a specific bank to open the bank account,without which the entity will not be able to carry out its daily operation.Account typesFIEs in China need to establish at minimum two bank accounts:an RMB basic
274、 account and a foreign currency capital contribution account.1.RMB basic accountAn FIE must have one(and only one)RMB basic account for daily business operations in China1.This account is the only account from which the company can withdraw RMB cash.The RMB basic account often acts as a designated a
275、ccount for making tax payments.2.Foreign currency capital contribution accountAn FIE must also have a foreign currency capital contribution account to receive capital injections from the foreign investor.Approval to open this account can be obtained from the SAFE.Additional general RMB accounts and
276、other types of foreign currency accounts can be opened for different purposes.For foreign currency accounts,these may include a settlement account for the collection of current items in a foreign currency,foreign debt special accounts,and temporary capital accounts.International and Chinese banksFor
277、eign investors can establish the above accounts in China through international banks with a local presence,the major banks being Bank of East Asia,Citibank,DBS Bank,Hang Seng Bank,HSBC and Standard Chartered;or through a Chinese bank,the largest being Industrial and Commercial Bank of China,Bank of
278、China,China Construction Bank,Agricultural Bank of China,and Bank of Communications.Foreign investors in China often prefer to establish an account with an international bank because of an existing business relationship.However,establishing accounts with a Chinese bank has a number of advantages,nam
279、ely:The application process for opening a bank account with an international bank in China will be more document-intensive and take longer compared to opening such an account at a Chinese bank;FOLLOW US ON TWITTERDezanShira1 China is piloting to remove the RMB basic account requirement in Lingang ar
280、ear,Shanghai FTZ.40AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIES There are substantially more Chinese commercial banks than foreign bank branches,which allows for more convenient and faster RMB remittance;Most Chinese companies have local bank accounts conducting transactions with
281、 them will be easier and faster if done from a Chinese bank instead of an international bank;and Bank account security.When opening a bank account in China,an FIE will need to specify what will act as the“signature”of the company.Usually the companys financial chop(seal)is required to do so,along wi
282、th either the legal representatives chop(or chief representatives chop for an RO)and a handwritten signature.Banks generally prefer using the legal representatives chop instead of a handwritten signature,as the latter is easier to forge and harder to verify.Many bank transactions can now be done onl
283、ine in English,including the approval of transactions and viewing account balances from abroad.It is possible and sometimes necessary to make tax payments online in in many cities by signing a three-party agreement with an authorized Chinese bank.For an entitys RMB basic account,it is possible to ap
284、ply for different levels of e-banking access and multiple security keys(in the form of a key-ring/USB dongle)one with access rights and another with approval rights.Another common security measure is a device that generates a new password for every check that is written.What are the latest requireme
285、nts for opening a bank account in China?Foreign investors might get the feeling that it will not be a straightforward process to become the banks new clients.This is because banks in China are subject to high scrutiny from the Peoples Bank of China(PBOC),resulting in the emphasis now given to the KY
286、C(know your client)policy.Under PBOC direction,Chinese banks have also become stricter about opening bank accounts since April 2020,especially for newly established companies no matter whether it is a domestic company or a foreign invested company.To validate the“real business”of the applicant,banks
287、 have now implemented an on-site visit procedure.This procedure includes a bank officer visiting the physical location(the office)of the applicants to verify that they have a physical location and staff.The photo of the location with the company nameplate and a business license will be taken for the
288、 banks internal compliance purposes.Based on this situation,the bank will require the individual who has submitted their passport as verification documentation on behalf of the company(the legal representative,that is)to be present at the time of the account opening,which is difficult to mange with
289、the ongoing COVID-19 pandemic and the travel restriction policies implemented in China.Investors are suggested to contact the bank or consult with professional services for solutions.41AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESMONICA LIManagerBusiness Advisory ServicesBeijing O
290、ffice“To protect their IPR,most FIEs adopt measures to proactively search the internet for violations,in addition to sending staff to corporate functions and trade fairs.”Intellectual property considerationsIntellectual property(IP)protection is a longstanding and critical concern for companies oper
291、ating in China,which has also been a key point of contention in the US-China trade war.China has already made strides in recent years to improve IP protection as the government seeks to spur domestic Chinese innovation and improve the business environment for investment,such as revising its IP laws
292、and establishing a new national IP appeals court.However,challenges remain,as counterfeiters and infringers are getting increasingly sophisticated.For example,infringers may take advantage of procedural loopholes and proactively seek to invalidate legitimate IP rights.Companies are thus suggested to
293、 develop a comprehensive strategy to identify and protect their IP in China.This includes enhancing internal controls and making the best use of external resources.In China,IP is defined as a proprietary right enjoyed by a holder with respect to their works,inventions,trademarks,geographical indicat
294、ions,trade secrets,layout design of integrated circuits,new varieties of plants,etc.Among others,copyrights on works,patent rights on inventions,utility models,and designs,and trademark rights,are the most common IP rights.China follows the principle of territoriality in IP protection,meaning IP rig
295、hts acquired under the laws of a country can only be valid and protected within the territory of that country unless an international convention or bilateral or multilateral agreement is in place.What that means is that enjoying IP rights in a foreign country will not automatically secure the IP rig
296、hts in China.A domestic IP registration/filing in China is necessary to effectively protect your IP in the country.Besides,China mainly applies a“first-to-file”rule for IP registration,which means that the first entity or individual who registers IP rights will hold those rights exclusively,irreleva
297、nt of the original user,with limited exceptions.Thus,the first and foremost strategy we can offer is to register/file your IP rights in China as early as possible.In addition to registration,businesses are also suggested to establish a thorough internal IP protection system,to adopt preventive measu
298、res to protect IP,and to confront IP infringements in business operations.This system can be set up with the help of external third-party professional services,especially for businesses that are new to China and have limited knowledge of Chinas trademark protection situation.For businesses engaging
299、in import-export,they are suggested to file their patent,copyright,or trademark,with the customs authorities.This is necessary because:It is a prerequisite for the customs to take active IP protection measures.It helps customs to find infringing goods.It can have a deterrent effect on the infringer.
300、42AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESMaking changes to a Chinese entity after establishment such as to its range of commercial activities or registered address can be challenging and onerous.In some cases,closing the entity all together and starting from scratch may be e
301、asier,or even mandatory.For these reasons,it is always better to start out with a clear and informed business plan,rather than attempt to make on-the-fly adjustments later on.In this section,we discuss:Company name;Business scope;Registered capital;Shareholder structure;RO to WFOE conversion;and Rel
302、ocation.Company nameThe procedure for changing the name of a company in China is quite complex.Because a companys name is displayed on several types of official documents(such as its business license and company chop),any changes to this information must be filed with each respective governing autho
303、rity.Step 1:After preparing several new company name options that are in line with the company name requirements imposed by the laws and regulations,the company should conduct a company name self-declaration on the platform maintained by the AMR,which can spotlight duplications,similarities,and othe
304、r prohibitive or restrictive situations at the same time.In some cities,the self-declaration might be integrated with the company name change registration.Under certain situations,the company may need to go through a company name pre-approval procedure instead,such as when the new company name conta
305、ins“China”,“national”,“international”,etc.Step 2:The company should prepare the documentation required for the company name change registration,which includes a board resolution1(or shareholder resolution)on the matter and an amended Articles of Association signed by the legal representative,among o
306、thers.Step 3:The company must file an application with the local AMR for company name change registration.Upon examination and approval,a new business license with updated information will be issued to the company.Step 4:FIEs are also required to submit a change report through the foreign investment
307、 reporting system,which might be integrated with the company name change registration in cities offering one-stop services.How do I make changes to my business?1 JVs that havnt adapt to the new governing structure based on the FIL need to pass a board resolution on the matter.RELATED READINGRestruct
308、uring Your China Business to Outperform in the New NormalChina Briefing MagazineNovember 2020In this issue of China Briefing magazine,we walk foreign investors through the different considerations when restructuring their China businesses.AVAILABLE HERE43AN INTRODUCTION TO DOING BUSINESS IN CHINA 20
309、23 FOR US COMPANIES Step 5:After the name change procedures has been successfully made with the AMR,the company must then go about updating other documents on which its name appears,including various types of chops(Financial Chop,Company Chop,Customs Declaration Chop,etc.),which must be newly carved
310、 and registered with the companys local public security bureau.Moreover,the company will have to make changes to all ongoing contracts with suppliers,clients and employees.Business scopeGenerally,when an enterprise intends to change its business scope,it must first come out with a board resolution(o
311、r shareholder resolution)and amend its Article of Association on this matter.After that,the company need to file the modified business scope with the local AMR within 30 days of the resolution being made,and submit a change report through the foreign investment reporting system(which might be integr
312、ated with the AMR registration in cities offering one-stop services).Upon registration with AMR being completed,the enterprise will get a new business license.Following this,other business certificates and bank information may need to be amended correspondingly.To be noted,if the new business scope
313、diverges significantly from the original business of the company,the company name should be changed as well,since this must generally reflect the main business of the company.Registered capitalIf companies plan to adjust their registered capital bases on financial,strategic,or regulatory considerati
314、ons,similar to other changes,it is a time-consuming process that involves working with multiple government authorities.Generally,increasing registered capital is easier than decreasing registered capital,the latter of which involves additional procedures.Step 1:The company should reach a board resol
315、ution(or shareholder resolution)on the matter and revise the Article of Association accordingly.Step 2:For decreasing registered capital,the company needs to inform the creditor within 10 days of the company resolution,or announcing the decrease on a designated newspaper for the 45 days within 30 da
316、ys of the company resolution.Step 3:The company should apply to the AMR for business license update within 30 days of the company resolution.Step 4:The company should make relevant updates in the bank regarding capital increase/decrease.Step 5:The company should apply to the SAFE to make relevant fo
317、reign exchange registration.44AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIES Step 6:FIEs are also required to submit a change report through the foreign investment reporting system,which might be integrated with the company name change registration in cities offering one-stop servi
318、ces.The bank will facilitate the capital increase afterwards.And other business certificates may need to be amended correspondingly.Shareholder structureA company typically decides to make changes to its shareholder structure upon the entrance of a new shareholder who is to receive an equity transfe
319、r from one or more existing shareholders.Alternatively,it may be necessary to revise the shareholder structure as the result of equity transfers between shareholders or the exit of a shareholder from the company.Though information on company shareholders is not explicitly listed on a Chinese busines
320、s license,in most cases,the company will still need to apply for a new business license,especially where the registered information listed on the business license needs to be changed as a consequence.Step 1:An equity transfer agreement should be signed between the transferor and the transferee.The t
321、ransfer agreement must be a valid agreement that is reached through due procedure stipulated in relevant laws and regulations.For example,when equity is transfered to someone other than the original shareholders,there must be proper documents to show the transfer agreement is agreed by the current s
322、hareholders.In addition,there must be proper documentation to show the qualification of the new shareholder.Step 2:The equity transferor or transferee(the taxpayer)shall file with the competent tax authorities and obtain a tax payment certificate for relevant taxes incurred or a tax exemption certif
323、icate.Step 3:The company must apply to the original AMR of registration for a change of company shareholders within 30 days of the change being made.Step 4:The company should submit a change report through the foreign investment reporting system,which might be integrated with the AMR registration in
324、 cities offering one-stop services.Step 5:The company must apply for a new business license if relevant information listed on the business license gets changed.Following this,other business certificates and bank information may need to be amended correspondingly.45AN INTRODUCTION TO DOING BUSINESS I
325、N CHINA 2023 FOR US COMPANIES“RO to WFOE conversion”Multinational companies operating in China through an RO occasionally encounter the need to convert their existing operations to a WFOE,as ROs are unable to engage in profit-making commercial activities.In fact,the act of“converting”an RO to a WFOE
326、 is a misnomer;rather,deregistering an RO and establishing a new WFOE are two separate procedures that must be done either in sequence or simultaneously.As an RO has no legal personality,the term“deregistration”is used instead of“liquidation”,though the two processes share many similarities.Step 1:P
327、rior to actual deregistration,the RO must apply to the local tax bureau in charge of tax audit and tax deregistration.To do so,the RO may first undergo an audit by a local Chinese certified tax agent(CTA)firm for taxes owing from the past three years.Once the audit is completed,the enterprise should
328、 submit to the tax bureau a board resolution affixed with the signature and seal of the chairman of the board of directors,as well as a cancellation application signed by the chief representative of the RO.Should any unpaid taxes or other irregularities be found by the tax authorities at any point d
329、uring this process,the RO may be required to submit additional documentation,pay penalties,or settle unpaid taxes with the authorities.Step 2:The RO should then deregister its foreign exchange registration in the local SAFE and custom registration in the local customs.In case it has not registered,t
330、he RO will still need to get corresponding official statements from the bureaus in charge as proof.Step 3:The enterprise can then proceed to deregister with its local AMR where its application will be processed within 10 workdays of of receipt by law.If successful,the enterprise will be issued a“Not
331、ice of Deregistration”and all the registration certificates will be cancelled,as well as the chief representatives work certificate.Announcement of the ROs deregistration must be listed in a media outlet designated by the AMR.The ROs business registration and office lease must be valid up until the
332、official notification of deregistration has been issued by the AMR.Step 4:The enterprise should close its bank account.Unissued checks and deposit slips will need to be returned to the bank and any funds remaining in the account should be transferred out.If the RO intends to transfer the account to
333、its parent company,it will be required to provide reasons for doing so and seek approval from the bank.In cases where the company is required to submit the company chops during AMR deregistration,the bank account is suggested to be closed before AMR deregistration,as company chops are needed in this process.Step 5:Notification of the ROs deregistration should then be filed with the public security