Foreign Investment Enterprise

Along with the implementation of the Measures on the Administration of Foreign Investment in Commercial Fields (hereinafter referred to as "Measures"), the former regional restrictions on foreign investors are abolished. Moreover, business scopes are able to be expanded, and the requirement for registered capital is largely reduced. Since flexible modes of business operations care allowed under the Measures, foreign investors can set up joint venture, cooperative or wholly owned enterprises; or they can franchise others to open stores. Moreover, they can be engaged in one or more selling operations simultaneously, and more importantly, they are entitled to import-export power automatically conditional on the approval. Therefore, the implementation of the Measures is favored by overseas investors.

Form of Incorporation

Wholly owned, joint venture, or cooperative

Requirements for Registered Capital (Capital should match with the Scale of Operation)

• Commodity commercial wholesaling, or trading requires a registered capital of RMB500,000
• Commodity retailing requires a registered capital of RMB300,000
• Other services require a registered capital of RMB100,000

Scope of Business

Foreign investment enterprises engaged in retailing business

• Commodity retailing
• Self-supported commodity importation
• Purchase of domestic products for exportation
• Other related supporting business

Foreign investment enterprises engaged in wholesaling or trading business

• Commodity wholesaling or trading
• Commission agency
• Commodity Importation/Exportation
• Other related supporting business
• Franchising others to open stores
• They can be engaged in one or more selling operations with the commodity lines to be noted in the contracts or the articles of association concerning the scope of business.

Required documents for Incorporation

• The contract for use of trademark or trade name, contract for transfer of technology, management contract, service contract or other legal documents signed by the foreign investment enterprise shall be submitted all together accompanying with the Contract
• Feasibility study report
• Application for foreign investment corporation signed by the proposed legal representative
• Notice of name checking
• Investor's qualification certificate of entity, or natural person's ID card
• Directors, supervisors and mangers' appointment documents and ID cards
• Legal representative's appointment document and ID card
• Certificate on assessment of capital
• The certificate for right of use and the contract for lease of house of the proposed store to be opened
• Import/export product catalog
• Lease contract or certificate of title
• Minutes of meeting
• Documents or certificates for earlier setup examination and approval

Required Time for Incorporation

• About 45 – 90 workdays

Taxes Involved in Operation of Foreign Investment Enterprises

Value Added Tax

• General Value Added Tax Payers pay VAT at 17%
• Small-scale Value Added Tax Payers pay VAT at 4%
• General Value Added Tax Payers refer to commercial enterprises with annual sales value exceeding RMB1,800,000  and with established financial system, while commercial enterprises, other than the foregoing, are small-scale Value Added Tax Payers. Those qualified as general Value Added Tax Payers can credit the Input Tax paid on purchase of goods against the output tax paid on sales. Those empowered to import/export are entitled to free export and refund. However, small-scale Value Added Tax Payers cannot credit the tax paid on purchase, while they are entitled to free export but no refund.

Income Tax

• The income tax rate for foreign investment enterprises shall be 25%. Since income tax preferences are only applicable to foreign investment productive industry, foreign investment enterprises are not entitled to tax preferences, except those set up in special areas (such as Shenzhen, Pudong of Shanghai, Xiamen and Hainan) can pay corporate income tax at 15%.

Staff Social Security (Social Security)

• The enterprise will make a certain social security contribution for its employee at a percentage of the employee's monthly salary, of which the base and proportion are calculated differently due to different living standards in different regions. Below is a comparison of the contribution calculated as staff social security among some cities, with comprehensive difference:

If you would like further information concerning Foreign Investment Enterprise ("FIE") Incorporation, please contact our professionals and we will provide you with free advisory.