Shanghai is one of the 4 municipals under the direct control and supervision of the central government (others being Beijing, Chongqing and Tianjin). Covering 6,340 sq kilometres and tagged as the "commercial and financial gateway to China", Shanghai offers good infrastructure, regulation and communication. In addition, it is home to many international financial institutions, law firms and accounting firms.
Local currency is the Chinese Yuan or Renmi Bi (RMB).
THE CHINESE ENTITIES
There are essentially three ways to set up an entity in the People's Republic of China ("PRC"); Representative Office ("RO"), Wholly Foreign Owned Enterprise ("WFOE") or Joint Venture ("JV").
An RO is typically set up in the PRC by a foreign company who wish to gain preliminary market entry and experience. It is also suitable for companies who wish to set up an entity for market research, survey & product introduction, quality control, promotion & liaison, technical exchange and the like. An RO is not entitled to conduct any business in the PRC and is taxed on its expenses.
A WFOE (commonly referred to as "woofie") is the more popular method to set up in the PRC. This allows the client to invoice and collect RMB in the PRC. Depending on the whether the client's industry is categorised as "Allowed", "Restricted" or "Prohibited" in the PRC, Sovereign will be able to walk the client through the registration process and provide valuable insight.
A WFOE must be set up for a specific purpose in the PRC and the required registered capital will depend on the government's policy for the industry and the client's budgetary requirements. The more common types of WFOEs will be in the following sectors, namely consulting, IT company, trading & franchise, manufacturing & processing, freight forwarding & trucking, convention & conference, interior & graphic design, real estate & property development, F&B management & outlet operations, hotel, advertising and equipment trading & rental.
Where the client's industry is a "Restricted" one and 100% foreign ownership is not permitted, the client may be required to set up a JV with local PRC partners. In addition, the client may consider a JV with a local partner where the local partner's expertise or customer network is required for the success of the client's intended business in the PRC. Depending on the terms of the JV, the partners in the JV share profits, losses and risks in the agreed proportions. Each party to the JV may make their contribution in cash, kind or intellectual property rights.
Corporate tax is at 25% nationwide. Contrary to popular belief, net profits generated by WFOEs and JVs may be repatriated to the investor in their home country, with careful drafting and set up. Sovereign will be able to assist the client with that.
Last reviewed: Wednesday, May 26, 2010
Whilst every effort has been made to ensure that the details contained herein are correct and up-to-date, it does not constitute legal or other professional advice. We do not accept any responsibility, legal or otherwise, for any error or omission.