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Introduction
Business Matching
Setting Up In China
Closer Economic Partnership Arrangement (CEPA)
Using Offshore Companies For Investing In China
Introduction
With over 1.3 billion people, the People's Republic
of China "China" is the world's fourth
largest country and the world's fastest-growing
economy. Developing effective and profitable operations
in China is undoubtedly the greatest single opportunity
for companies today. Since 1978, when China opened
its doors to the outside world, China has enjoyed
tremendous annual economic growth. It is now the
second largest economy in the world and the world's
single biggest recipient of foreign direct investments
among developing countries. China's accession
to the World Trade Organization is widely expected
to trigger a further wave of inward investment
from foreign companies as the terms of entry to
new sectors of the China economy are progressively
liberalized.
China is a dynamic market and international
investors and buyers can find a wide range of
quality products at very competitive prices. China
is a major producer of textiles, apparel and footwear;
raw materials, metals and chemicals; toys and
handicrafts; and foodstuffs, among others.
Besides the obvious potential for selling consumer
goods, China has a requirement for a wide range
of agricultural and industrial raw materials,
high tech components, capital goods and services.
Due to the rapid development of the Chinese economy,
it offers sellers ample opportunity to place goods
in this fast growing economy. Many top brand names
from across the world can now be found in the
local high street of most major Chinese cities.
For manufacturers, China has the ability to provide
a skilled work force and in some areas, so-called
Special Economic Zones offer special incentives
for specific production sectors. Through our extensive
network of contacts in China, we are able to assist
clients in finding the most tax advantageous and
cost effective solution for their business.
CMS is able to assist its clients in the complete
registration process of their business entities,
our other services include:
Obtaining a detailed credit report on a Chinese
company
Introducing possible joint-venture partners
Market research and feasibility study
Attending to corporate and personal tax registration
Assistance in finding office space
Staff Recruitment
Opening of bank accounts in local and foreign
currencies
Book keeping and arranging for audit of accounts
We will be happy to provide a quotation upon receiving
further details regarding the activities of the
proposed company such as estimated turnover, number
of staff to be employed, location of company and
proposed size of factory.
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Business
Matching
Business Matching is an innovative service
to assist you in finding and meeting potential
business partners in China and Hong Kong. We will
help you find who is interested in your products
or services; who is looking for partners and joint
ventures; who is looking sell their existing business;
who has technology and license to offer; or who
is providing just the products, services, components
and materials you need.
We will help you identify potential partners
from our database of over 250,000 business contacts,
covering Hong Kong and the whole Chinese Mainland.
For further information please contact us.
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Setting
Up In China
Establishing a presence in China is still a challenging
experience for unwary organizations, however,
with our experience and expertise we can smooth
the way for prospective market entrants. China
has three recognised forms of business organisations
available to foreign investors who wish to register
their companies, these are a Joint Venture, Wholly
Foreign-Owned Enterprise and Representative Office.
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Joint Venture ("JV")
A Joint Venture is a business arrangement in which
the participants create a new business entity
or official contractual relationship and share
investment and operation expenses, management
responsibilities, and profits and losses.
The Chinese authorities encourage foreign investors
to use this form of company in order to obtain
exposure to advanced technology and new management
skills. In return, foreign investors can enjoy
low labour costs, low production costs and a potentially
large Chinese market share. Joint Ventures are
sometimes the only way to register in China if
a certain business activity is still controlled
by the government. e.g. Restaurants, Bars, Building
and Construction, Car Production, Cosmetics etc.
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Wholly Foreign-Owned Enterprise
("WFOE")
A wholly foreign-owned enterprise is a business
entity formed in China entirely with foreign capital,
it is totally under foreign control and does not
have any formal Chinese ownership participation.
For a foreign company to be able to issue receipts
and export goods from China, it must be able to
legally registered as a local company or a WFOE.
A WFOE is set up as limited liability entity and
represents separate legal persons and taxed according
to local legislation.
WFOE’s can generally control their own governance
through the articles of association and the normal
minimum paid up share capital starts from 1 million
RMB (approximately US$140,000), however, some
provinces offer lower capital requirements in
order to attract more foreign investment. Many
foreign investors find this type of company attractive
because of the full control and 100 percent ownership.
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Representative
Office ("Rep. Office")
The simplest and most cost effective method of
establishing a useful business presence in China
is the Rep Office. The choice for an initial Rep
office will normally be determined by basic market
and product research in China. The high profile
cities of Shanghai, Beijing, Guangzhou, and Shenzhen
are the most likely choices for the Rep office.
It should be noted that more than one Rep office
can be established in China by a foreign entity.
A Rep. Office is an entity involved in business
activities, which do not result in direct profits
being made by the office. They are not allowed
to operate as partnerships or sole proprietorships
in China as they are not recognized as legal persons.
However, they are allowed and encouraged to conduct "indirect operational activities" such
as liaison for business purposes, introduction
of products, market research and technology exchange.
These activities should be preparatory and supplementary
activities, market research on the local market,
providing business information and supplying sales
for the headquarters. The foreign enterprise applying
for the Rep. Office must be legally registered
in its country of origin for at least 12 months.
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Closer Economic
Partnership Arrangement (CEPA)
What is CEPA?
• A free trade agreement between Hong
Kong and mainland China effective from 1 January
2004
• Significant China market liberalization (for
goods and services)
• Preferential access to China market from Hong
Kong
• Offers better deal than China WTO commitments
• Strengthens Hong Kong as a platform for China
business
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What does it mean?
• Zero tariffs on 90% of Hong Kong exports
to China
• Faster/ easier market access for 18 service
sectors
• Lower entry thresholds for smaller players
(capital/trading history requirements)
• 100% ownership of many China ventures
• Makes Hong Kong the simplest and most profitable
route into/out of China
• Manufacturers in China are able to use Hong
Kong services
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Who qualifies ?
• Company must be incorporated in Hong
Kong and conducting business in Hong Kong for
past 3-5 years
• Company must be liable for Hong Kong profits
tax
• Employ 50% of staff locally in Hong Kong
• Any nationality or size of company can be eligible
• Goods must qualify as “made in Hong Kong?/p>
• Not necessary for company to be based in Hong
Kong
• To qualify, goods must be substantially transformed
in Hong Kong
?30% of value must be added in Hong Kong (includes
R & D, design costs)
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How can overseas companies
take advantage?
• Partner with, invest in, or buy into
a CEPA-qualified firm in Hong Kong
• Manufacturers or traders of goods
• Partner with, or outsource to, a Hong Kong
manufacturer (no need to be based in Hong Kong)
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Using Offshore
Companies For Investing In China
When structuring your investment into
China you have a choice of using your existing
company or establishing a specific holding company
to apply for the China business registration on
your parent's behalf. Over the years, investors
have utilized a wide variety of offshore jurisdictions
to structure investments into China, including
British Virgin Islands (BVI), Seychelles, Mauritius,
Bahamas, amongst others.
Why use an offshore company?
Here are a few reasons why it may be
preferable to use an offshore company:
1) Keeps your China venture risk one-step removed
from your parent company.
2) In some applications, the parent company original
documentation may be required to be presented
to the Chinese authorities. If this documentation
is valuable, it makes sense to minimise any loss
by using separate, holding company documentation
as an alternative.
3) Ease of application. As Holding company corporate
documentation must be translated into Chinese
for application purposes, it makes sense to use
a jurisdiction whose documentation exists in bi-lingual
format (i.e. Hong Kong) rather than spend money
on expensive translations.
4) Tax benefits. It may be possible to structure
an investment whereby profits are held by an Offshore
holding entity, tax free, prior to further repatriation
to the parent company. This may be useful if wishing
to utilise such monies for re-investment elsewhere
at a minimal tax exposure.
5) Management and Administration. It can be easier
to service your China venture's financing and
administration from a Holding company closer to
China's time zones.
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Which jurisdiction?
Due to Hong Kong sharing the same time
zone as mainland China and it's access to the
international banking, the territory is the favored
location for establishing accounts in respect
of inward investment into China. While previously
a fairly straightforward process; banks in Hong
Kong now impose a lengthy and detailed application
procedure for ALL offshore companies wishing to
establish accounts, this is in response to new
Anti-Money Laundering and Anti-Terrorism regulations.
However, as Hong Kong companies are more reputable
and transparent, the requirements to establish
an account are more relaxed.
We have also experienced (especially in Shanghai)
a reluctance by the Chinese licensing authorities
to allow business registrations for BVI and other
offshore jurisdictions for periods in excess of
one year, a situation unlikely to ever apply to
a Hong Kong registered company.
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Banking
Non-Hong Kong residents can be directors
of Hong Kong companies, and can easily establish
accounts for their company in Hong Kong, although
it may normally require a personal visit by the
directors to the bank to do so. The most commonly
used local banks are Hong Kong & Shanghai
Banking Corporation (HSBC), Standard Chartered
and Bank of East Asia although most international
banks will permit accounts to be opened for local
companies. To service your China entity, funds
would normally be channeled into China from this
account, which may in turn have been fed by the
parent.
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