Sino-Foreign Equity Joint Venture

Sino-Foreign Equity Joint Venture is also called equity joint venture. It is a corporation jointly invested and incorporated by foreign companies, other economic organizations or persons and Chinese companies or other economic organizations, which is featured by joint contribution, joint operation of all parties to the joint venture, and sharing of risk, profits and losses in proportion to their respective contributions towards the registered capital.

Although the demands from overseas investors for creation of enterprises with foreign investment in the form of joint ventures are diminishing, some special industries are still relying on this mode of joint venture incorporation.

Forms of Investment and Terms

• Fully paid at one time: All parties to the joint venture shall pay up the capital within 6 months from the date of acquiring the business license
• By installments: All parties to the joint venture shall pay 15% of their respective subscription in the first installment within 3 months from the business license being granted, and pay up the remainder within the period as required; otherwise, it shall be deemed to be automatically winding up

Ratio of Investments

The Law on Enterprises with Foreign Investment requires the foreign investor to contribute not less than 25% of the registered capital of the joint venture, but without a top limit.

Required documents for Incorporation

• Business registration documents of all parties to the joint venture
• The foreign partner's bank reference letter
• Real estate rights certificate or office lease contract
• The curriculum vitae and ID card of the legal representative
• The ID cards of individual shareholders and directors
• The feasibility study report of the proposed incorporation
• The contract and articles of association of the joint venture

Advantages for Sino-Foreign Equity Joint Venture

• Shared resources and complementation of advantages, given full play of the network and the famous brand already established by the Chinese enterprise, as well as smooth entry into the Chinese market
• Joint venture enables the foreign investor to utilize the geographic advantage of the Chinese enterprise for reasonable and lawful reduction of various fiscal charges and large reduction of operating cost
• Entitled to foreign investor preferences

Tax Preferences

Value-added Tax

• The foreign joint venture, being a general taxpayer, is entitled to the tax "Exemption, Credit and Tax Rebate" policies on the exported goods produced by itself, where:
  1.  
  2. "Tax Rebate" shall be the rebate of the remaining tax after crediting
• General goods shall be sold in 100% domestic sales
• The foreign joint venture productive enterprise, being a small-scale taxpayer, is entitled to VAT exemption but no refund on its export products
• Home equipment purchased in the aggregate investment, if falling within the tax-free catalog, shall be entitled to full refund of the value-added tax on the purchase of the home equipment

Tax Preferences

• The especial support and encouraged development industry or project shall be levied at the corporate profits tax rate of 15%
• The Resident Corporation doesn't need to levy the corporation profit tax for the bonus stock profit by invest at other resident corporation.
• National debt accrual doesn't need to levy the corporation profit tax.
• The profit of invest in agriculture, forest, herd and fish culture doesn't need to levy the corporation profit tax, and also in second years and allowed a 50% reduction in the third to fifth years
• The Technology transfer profit within RMB5,000,000 doesn't need to levy the corporation profit tax, the profit beyond RMB5,000,000 levy the halve corporation profit tax.
• The Especial Support High-Technology Advanced Corporation enrolled in Special Economic Zones (Shenzhen, Zhuhai, Shantou, Xiamen and Hainan Especial Economic Zone) and New Pudong District in Shanghai after 1 January 2008 doesn't need to levy the corporation profit tax since the first annual gets income taxable year till the second taxable year. From the third year to fifth year shall be levied the halve corporation profit tax rate of 25%.

If you would like further information concerning Sino-Foreign Equity Joint Venture Incorporation, please contact our professionals and we will provide you with free advisory.