Wholly Foreign-owned Enterprise

In China, low labor costs and immeasurable business opportunities are attracting numerous overseas investors who are looking to increase favor in the China market, where a number of preferential polices are being issued by the Government. Creation of wholly foreign-owned enterprises will not only enable the investors to increase marketing decision and response speeds, but also provide the greatest security for the investors to protect their scientific research confidentiality and keep centralized management intact.

Features

• Being a corporate enterprise, with entire capital contributed by the foreign investor
• Being an independent economic entity, bearing legal liability independently

Period of Registered Capital Contribution

Foreign investors contribute by installment towards the registered capital, where the first installment shall be paid in an amount  at not less than 20% of the statutory capital within 90 days from the date of issue of the business license, and the last installment shall be paid up within 2 years.

Required Documents for Incorporation

• Feasibility study report
• The application for foreign investment company incorporation signed by the proposed legal representative
• Articles of association
• Enterprise Name Approval in Advance Notice
• The investor's entity qualification certificate or the natural person's ID card
• The appointment letters and ID cards of directors, supervisors and managers
• The legal representative's appointment letter and ID card
• Certificate of assessment of capital
• Lease contract or certificate of property rights
• Documents or certificates for earlier setup examination and approval

Below listed certificates or formalities shall be processed after issuance of business license

• Engraving the common seal
• Organization code certificate
• Foreign exchange certificate
• Basic bank account
• Finance registration certificate
• Tax registration certificate
• Customs registration certificate
• Commodity inspection certificate
• Statistics certificate
• Labor handbook

Taxes Involved in the Operation of Wholly Foreign-owned Enterprise

Corporate Income Tax

• Corporate Income tax rate is generally 25%
• The productive enterprise with an operating period of more than 10 years shall be entitled to the preference of "exemption for the first two years and half rate reduction for the subsequent three years", commencing from the first profitable year. The foreign productive enterprise, after the preference of "exemption for the first two years and half rate reduction for the subsequent three years" expires, shall be entitled to one half of corporate income tax payable on its annual products export value accounting to 70% or more of its annual sales value; and those identified as technologically advanced enterprises shall be entitled to one half of the corporate income tax payable for another 3 years
• Preferences for Reinvestment
  The foreign investor of an enterprise with foreign investment who reinvests its profits from the enterprise directly into the enterprise to increase the registered capital, or as capital investment to set up other enterprise with foreign investments, with an operating period of more than 5 years, shall be entitled to a refund of 40% of the income tax paid on the reinvested portion, conditional on the approval of application and/or approval of tax authority. Those reinvesting in the "two types of enterprises" (i.e. export-oriented enterprise or technologically advanced enterprise) shall be entitled to a full refund of the corporate income tax paid on its reinvestment
• The enterprise paying corporate income tax by means of approved collection shall offset 40% of its investment in the purchase of home equipment against the increment of the corporate income tax payable in purchase of equipment of current year in excess of that of previous year

Tariff, and Value-added Tax on Importation

• The self-purpose equipment imported within the aggregate investment, together with the technology and parts and components and spare parts imported by contract, categorized as "encouraged" of transfer of technology in the Catalogue for the Guidance of Foreign Investment Industries (Guidance Catalogue) shall be exempt from tariff and value-added tax on importation, except for the goods set out in the List of Import Commodities by Foreign Investment Projects Not to Be Exempt from Tax.
• The imported equipment required by the production of export-oriented products, categorized as "encouraged" in the Guidance Catalogue, shall be entitled to first taxation, and then refund, of tariff and value-added tax
• The foreign capital investment enterprise, foreign investment research & development center, technologically advanced and export-oriented enterprise with foreign investment, categorized as "encouraged", which are already established, shall be entitled to free import duty and value-added tax as provided by the Country on the productive self-purpose equipment and supporting technology, fittings and spare parts to be imported within their originally approved scope of production and business, which cannot be produced at all or in a manner of satisfactory to the demands in mainland China , in the process of their technological transformation
• The self-purpose equipment imported by the foreign government loans and international financial institution loans programs, and the non-priced import equipment supplied by the processing trade foreign merchant, except for goods set out in the List of Import Commodities by Foreign Investment Projects Not to Be Exempt from Tax, shall be exempt from tariff and value-added tax

Value-added Tax, and Consumption Tax

• The foreign investment productive enterprise being a general taxpayer shall be entitled to "Exemption, Credit and Tax Rebate" of taxation or "Collection First and Refund Later" on the self-managed export, or export on consignment, of its self-produced goods, where
• "Exemption" from taxation means exemption from the value-added tax on exportation and sales of the enterprise;
• "Credit" tax means the enterprise can credit its value-added tax on the purchase of domestic raw materials against its value-added tax payable on domestic sales of goods;
• "Tax Rebate" of tax means the refund of the remainder, after crediting, of the value-added tax creditable on purchase in excess of the value-added tax payable on domestic sales, in the current month.
• "Collection First and Refund Later" means the exported goods shall be subject to taxation at the rate of taxation first and refund of tax, at the rate of refund on exported goods.
• The foreign capital investment enterprise shall be exempt from tariff and value-added tax on importation and consumption tax payable on the goods imported by the trade method of processing materials supplied by customers, and processing imported materials, and exempt from the value-added tax on production and consumption tax on the exported goods produced by it
• The foreign capital investment enterprise categorized as "encouraged" shall be entitled to full refund of the value-added tax payable on the home equipment, falling within the scope of the Exemption Catalogue, and purchased within its aggregate investment

Individual Income Tax

• Foreign nationals are entitled to a monthly exemption of RMB4,800 , with the remainder subject to individual income tax at 5-45%
• Foreign nationals are exempt from individual income tax payable on the interests from saving deposits with financial institutions

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:

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