FAQs of China Company Incorporation

FAQ about Foreign Investment Enterprise (FIE)/Wholly Foreign-owned Enterprise (WFOE)

1. In what forms is Foreign Investment Enterprise incorporated?

   In the form of Wholly Foreign-owned Enterprise , Sino-Foreign Equity Joint Venture, or Sino-Foreign Co-operative Joint Venture.

2. What is notable in registering the company name of Foreign Investment Enterprise ?

   The following points should be noted in registering the company name of Foreign Investment Enterprise:

   • Company name shall not be identical to the name of other registered company in the same industry or unstated industry, except for those with investment relations
   • It shall not be identical to the original name of the enterprise renamed less than one year ago
   • It shall not be identical to the name of the enterprise deregistered or whose business license was revoked less than three years ago
   • It shall be subject to the approval of relevant authority for the use of words, such as "Country", "China", "Guangdong", "International" and others
   • It shall not include Chinese phonetic alphabet or pinyin (i.e. Bopomofo) or Hindu-Arabic numerals

3. What are the requirements for the time limit of capital subscription of Foreign Investment Enterprise?

   According to the following two ways:

   • The capital to be subscribed in lump sum as contemplated in the Articles of Association shall be paid up within six months from the date of issue of Business License
   • The capital to be subscribed by installment as contemplated in the Articles of Association shall be paid up within three months from the date of issue of Business License, with the first installment not to be less than 20% of the amount of capital subscription

4. In what forms is Foreign Investment Enterprise subscribing capital?

   In the form of cash, or property, plant, machinery equipment or other materials, industrial property right, know-how, right to the use of a site and others.

5. Does the import/export right of Foreign Investment Enterprise need separate application?

   No, it needs only filing and registration with relevant authority before conducting import/export business.

6. What process should be involved in Foreign Investment Enterprise Incorporation generally?

   Subject to the following sequence in application for Foreign Investment Enterprise Incorporation (if fire protection, health, environmental protection and other pre-approval and examination conditions are involved, these certificates should be obtained first):

   • Approval of local Department of Foreign Trade & Economic Cooperation
   • Application for Business License to Administration for Industry and Commerce
   • Ordering Official Company Seal with Public Security Bureau
   • Processing Certificate of Institutional Code
   • Opening bank account
   • Processing National or Local Tax Registration Certificate
   • Financial Registration Certificate
   • Foreign Exchange Registration Certificate
   • Customs Registration Certificate
   • Processing recruiting formality and expatriating employment formality

7. What should be included in the "credit certificate" issued by the bank?

   Included are:

   • The bank shall certify when the company opens account and note: good operation, normal dealings and no bad record since opening, or
   • The bank shall certify the company has deposit balance being equal or higher than the amount of authorized capital
   • The bank shall certify how many digits there are in the deposit amount of company (the number of digits must be equal to the number of digits in the amount of authorized capital)
   • Translation text shall be submitted under the seal of relevant translation company, if the bank reference letter is in a foreign language

8. What documents should be notarially certified in Foreign Investment Enterprise Incorporation?

   Documents to be notarially certified includes:

   • Foreign investor enterprise's business registration certificate
   • ID card or passport shall be notarially certified, if the foreign investor is personal
   • The foregoing certificates shall be subject to notarization by local solicitors first and certification by local Chinese consulate/embassy later; while the certificates of enterprises in Hong Kong and Macau regions shall be subject to notarization by Chinese authorized public notary

9. Who will act as the corporate representative of Foreign Investment Enterprise?

   In general, the chairman can act as corporate representative, and can also appoint another Chinese citizen to this role.

10. What documents should be submitted for Foreign Investment Enterprise to alter operating period?

    The following documents to be submitted 

    • Application for Modifications (Filing) of Registration Items of Foreign Investment Enterprise executed by the corporate representative
    • Resolution of Board of Directors
    • Approval of examining and approving organ and its copy
    • Supplemental contract, articles of association approved by the examining and approving organ (Wholly Foreign-owned Enterprise need not submit the contract)
    • Each investor's copies of Business Opening Certificate or personal ID certificate
    • Copies of Power of Attorney about Application for Enterprise (Company)Registration and the attorney's ID certificate
    • The original and copy of the company's Business License

11. Can Foreign Investment Enterprise increase total investment or authorized capital in the course of operation?

    Yes, but it needs to supply the resolutions of Board of Directors and the report on the verification of capital and other information.

12. What are the requirements for deregistration of Foreign Investment Enterprise?

    Requirements are as follows:

    • The operating period contained in the Business Contract and the Articles of Association expires or other causes for dissolution contained therein occur, or the enterprise is declared or ordered to wind up because of amalgamation, division or dissolution
    • Dissolution by resolution of Board of Directors
    • Liquidating group is set up by the enterprise
    • Liquidation Announcement is published in newspapers at least three times
    • The liquidating group shall make Liquidation Report which shall be subject to the confirmation of Board of Directors, shareholders, relevant competent authority

13. What are the requirements for setting up branch company?

    Requirements are as follows:

    • It has a name that meets the specification
    • Its business office is other than its head office
    • It has fixed business office or meets the condition for production and operation
    • It has corresponding governing body and principal
    • The scope of business of branch company shall not exceed that of parent company
    • Establishment of branch company of Foreign Investment Enterprise shall be subject to approval of relevant department
    • The capital in cash of parent company shall be duly prepared in full for branch company establishment, if the Wholly Foreign-owned Enterprise has sole shareholder

14. Can incorporated Foreign Investment Enterprise reinvest in China?

    If the enterprise has its authorized capital fully paid up, begins to generate profit and has no record of illegal operation, then it can reinvest in China, and the reinvested capital shall be entitled to tax rebate preference.

15. Can newly incorporated Foreign Investment Enterprise whose scope of business includes both production and trade, be entitled to tax preference?

    If its productive operating income exceeds 50% of total business income, the enterprise can file an application, after examination and approval by competent tax authority, to be entitled to treatment of exemption and abatement of taxes of this year.

16. Can Foreign Investment Enterprise incorporated in bonded area apply for distributorship? Can it set up a branch company beyond the said area?

    Foreign Investment Enterprise incorporated in bonded area can apply for distributorship, and after obtaining approval, the enterprise can process customs formalities and foreign exchange verification and writing-off and other formalities, and can also sell the goods inside or outside the said area. After obtaining approval of competent department, it can also set up an operative branch company outside the said area.

17. Can Foreign Investment Enterprise incorporated inside bonded area alter its registered address to operate outside the said area?

    Foreign Investment Enterprise incorporated in bonded area shall adjust the original scope of business accordingly in order to apply for change of registered address to the original organ for approval. After the original organ for approval, asks for opinions and obtains consent of the chief of commercial department outside the said area, which intends to alter registered address, the enterprise can move out of the said area.

18. What's the minimum amount of authorized capital for Foreign Investment Enterprise Incorporation?

    The minimum amount of authorized capital for wholesaling and retailing is RMB500,000; and just for retailing is RMB300,000.

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about Foreign Investment Enterprise Annual License Renewal

1. What does the Joint Annual License Renewal of Foreign Investment Enterprise refer to?

   Annual License Renewal refers to legal inspection carried out lawfully by governmental department to all Foreign Investment Enterprises, where Foreign Investment Enterprise should complete the Report on Joint Annual License Renewal, balance sheet, profit and loss statement, and other related information.

2. What departments are involved in the Joint Annual License Renewal of Foreign Investment Enterprise?

   Annual License Renewal involves Administration for Industry and Commerce, National Tax Bureau, Local Tax Bureau, Customs, Administration of Foreign Exchange, Financial Bureau and Bureau of Foreign Trade & Economic Cooperation.

3. When will the Joint Annual License Renewal of Foreign Investment Enterprise take place?

   From 1 January to 31 May every year.

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FAQ about Foreign Representative Office

1. What is the requirement for office premises of Foreign Representative Office?

   The office premises of Foreign Representative Office shall be generally located in office building or commercial and residential complex. Foreign Representative Office established in Shanghai must rent space in foreign office building designated by the Public Security Bureau.

2. What information shall be submitted for setting up Foreign Representative Office?

   The following information shall be submitted:

   • Application Form for the Establishment of Resident Representative Office of Foreign Investment Enterprises executed by the corporate representative of parent company
   • Registration certificate of Foreign Enterprise
   • Bank reference letter
   • Copy of ID card of the chief representative/resident representative
   • Lease agreement or certificate of title to house property
   • Documents certified by local Chinese consulate or embassy

3. How long is the operating period of Foreign Representative Office?

   Generally 1 year, permitted to apply for extension within 60 days prior to expiration of the operating period.

4. How long is the term of residence of Foreign Representative Office?

   Generally 3 years, permitted to apply for extension within 60 days prior to expiration of the term of residence.

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FAQ about Sino-Foreign Equity Joint Venture

1. What is the requirement for foreign investment ratio in Sino-Foreign Equity Joint Venture?

   The foreign investment shall invest for at least 25% of the authorized capital in Sino-Foreign Equity Joint Venture.

2. Can Sino-Foreign Equity Joint Venture be transformed into Wholly Foreign-owned Enterprise?

   Yes. After being unanimously resolved by the meeting of Board of Directors, the proposal of transformation shall be submitted to the original organ for approval pertinent regulations.

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FAQ about in "Processing & Assembly" Enterprise

1. My Company is a "Processing & Assembly" Enterprise, and now is planning to transform into "Wholly Foreign-owned Enterprise"; we have the following questions:
   1.How can we transform rapidly without affecting normal production?
   2.Do we need to issue an invoice and how can we transfer the equipment purchased in China to Wholly Foreign-owned Enterprise?
   3.How do we transact when "Processing & Assembly" Enterprise is assigning the equipment in custody?
    

   1. "Processing & Assembly" Enterprise generally will not transform into Wholly Foreign-owned Enterprise, since doing this will cause the plant to stop production. Generally, the procedure is to set up Wholly Foreign-owned Enterprise first and deregister "Processing & Assembly" Enterprise later.
   2.The equipment purchased in China can be freely transferred, but the transfer shall be invoiced for value-added tax as if it was sales.
   3.The equipment in custody of customs to be assigned can be shipped to Hong Kong first and enter by means of importation of old electromechanical equipment or make good the tariff and value-added tax later, and be transferred to Foreign Investment Enterprise at last.

2. What are the differences between "Processing" Enterprise and "Foreign Investment Enterprise" in terms of taxation and import/export?

   In terms of import/export:

   • "Processing" Enterprise shall export all its goods after processing, so the enterprise can only earn the processing charge, and it can be free of value-added tax insofar as it meets the requirement.
     The scope of business of Foreign Investment Enterprise includes domestic and export sales, and Foreign Investment Enterprise being in productive industry shall calculate tax payable as per the "Exemption, Credit and Tax Rebate" method. In addition, productive enterprise is entitled to the profits tax preference of "exemption for the first two years and half rate reduction for the subsequent three years" from the profit-making year.

   In terms of import/export:

   • The raw materials and finished products of "Processing" Enterprise are bonded goods, and China practices deposit account system for goods in processing trade, so basic procedures of clearance include contract filing>goods importation>processing> re-export >settlement by cancellation after verification. The imported equipment of "Processing" Enterprise is free of tariff and value-added tax in import. "Processing" Enterprise doesn't have the power of import/export operation, so it's importation/exportation of goods shall be performed by commercial agency company.
     "Foreign Investment Enterprise" can import self-purpose machinery equipment, material assets and materials for processing and production, and the enterprise falling into the "encouraged" category is entitled to reduction and exemption of tariff and VAT payable on imported equipment and other tax preference policies. Foreign Investment Enterprise is empowered to manage import/export.

   Finally, processing materials supplied by customers is only a manner of bonded trade, so productive enterprises and Foreign Investment Enterprises in China can all be engaged in the trade of processing with customer's materials. See details in "Processing & Assembly" Company Incorporation.

3. How to deal with the equipment when the "Processing" Enterprise, whose equipment are partially purchased in China and partially from abroad, wants to transform into Wholly Foreign-owned Enterprise?

   The imported equipment still in custody shall be returned to Hong Kong, and then imported by the way of importing old equipment, or making good tariff and VAT; the home equipment shall generally be treated as secondhand goods to be sold.

4. We want to establish Wholly Foreign-owned Enterprise in the trade of "not encouraged" category in Dongguan. Can we import equipment free of tariff if we declare that our products are totally for export sales?

   Foreign Investment Enterprise whose products are 100% for export, and falling in the "encouraged" category, is entitled to exemption of tariff and import VAT payable on imported equipment, but this preference is subject to the manner of "Collection First and Refund Later", that is, subject to tariff and VAT payable on imported equipment first and to refund by installment within five years later.

5. How can this Company pay import tariff and VAT if either domestic or export sales of this Company account for half of total sales, and its raw materials are totally imported?

   The raw materials used for domestic sales shall be taxed, and the raw materials used for export sales shall be free of tax. However, accounts for domestic and export sales must be kept separately.

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FAQ about "CEPA"

1. How to define the origin of the products entitled to zero-tariff?

   The rules for defining origin are as follows:

   • The origin of goods procured completely in Hong Kong and Macau shall be defined as Hong Kong and Macau
   • The origin of goods procured partially in Hong Kong and Macau can be defined as Hong Kong and Macau only if the goods are substantially processed in Hong Kong and Macau

2. How to obtain the Certificate of Service Supplier

   The company has been incorporated under the Company Ordinance of Hong Kong SAR and other related ordinances, and has obtained the valid Business Registration Certificate
   The company is engaged in substantial commercial pursuit in Hong Kong. The yardstick is:

   • Nature and scope of business: The nature and scope of services supplied in Hong Kong shall include the nature and scope of services intended to be supplied in mainland China
   • Service life: It has been registered or incorporated in Hong Kong and engaged in substantial commercial pursuit for 3 years or more
   • Profits tax: It shall pay profits tax pursuant to law during the operating period in Hong Kong
   • Business office: It has or rents business office in Hong Kong, which shall match its scope and scale of business
   • Employment of staff: Amongst the staff hired in Hong Kong, residents with unrestricted residence in Hong Kong shall account for more than 50% of total staff

3. Can the procedure of processing and increment of value separately conducted in mainland China and Hong Kong or Macau be calculated in aggregate?

   No, they cannot be calculated in aggregate.

4. Should the final procedure of the products entitled to zero-tariff be completed in Hong Kong or Macau?

   The products not entirely produced in Hong Kong or Macau, or entitled to zero-tariff, can be required to complete their final procedure of manufacturing or processing inside Hong Kong or Macau, only if the products meet the rule of "ad valorem percentage criterion".

5. Can the goods entitled to zero-tariff in Hong Kong be shipped in transit?

   No, they must be shipped from Hong Kong directly to mainland ports.

6. Can the goods entitled to zero-tariff in Macau be shipped in transit by Hong Kong?

   Macau goods are shipped by Hong Kong only for geographic reason or transporting need, but they are not traded or consumed in Hong Kong, nor processed in any way in Hong Kong, except loaded and uploaded or kept in good condition by necessary efforts.

7. Can the materials imported by way of processing trade be entitled to zero-tariff preference?

   No, the goods cannot be entitled to zero-tariff even if they meet the origin criteria of goods in Hong Kong or Macau.

8. Are there any import quota and import license limitation imposed on the products entitled to zero-tariff?

   Mainland China does not impose tariff quota on imported goods of Hong Kong or Macau origin.

9. Are zero-tariff products still subject to VAT?

   Zero-tariff products are still subject to import VAT

10. What's "ad valorem percentage criterion"? How many kinds of products in "CEPA" meet the increment percentage criterion?

    The "ad valorem percentage criterion" contained in "CEPA" means the value of raw materials, component parts, value of labor power procured completely in Hong Kong or Macau and the value of product development expenditure in aggregate shall account for 30% or more of the exported end-products free on board (FOB), and the final procedure of manufacturing or processing shall be completed in Hong Kong or Macau. There is no separate requirement in "CEPA" for meeting "ad valorem percentage criterion", but a combination of this criterion with other criteria in use.

11. How does one calculate the "ad valorem percentage criterion"?

    "ad valorem percentage criterion" is calculated specifically in the formula below:
    

1. How long will it take to set up a branch company after Foreign Investment Enterprise Incorporation?

   Hong Kong or Macau invested enterprises can open up branch companies at any time after normal operation, other than enterprises in cargo agent trade which require a definite time limit for setting up a branch company.

2. Can subsidiaries incorporated in Hong Kong by foreign companies be entitled to the treatment contained in "CEPA" in order to enter mainland markets?

   Subsidiary falling in the definition of Hong Kong service supplier stated in "CEPA" can be entitled to the preference stated in "CEPA".

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FAQ about Operation

1. Does Foreign Investment Enterprise need evaluation by relevant department for its financial contribution by means of equipment?

   Yes, it needs approval by examining and approving body, the value of contributed equipment shall be assessed by Commodity Inspection and Testing Bureau, and tariff should be paid as per the assessed value.

2. How can Foreign Investment Enterprise process Export Tax Refund?

   Foreign Investment Enterprise that produces and exports goods within the scope of business, in compliance with the Administrative Measures on Tax Rebates (Exemptions) for Exported Goods and the Notice on Certain Issues of Tax Affairs in Foreign Investment Enterprise, can use relevant supporting documents to apply for "Exemption, Credit and Tax Rebate" formalities to competent tax authority per month.

3. Can the profits distributed to foreign investor from Foreign Investment Enterprise be remitted abroad?

   Yes. The share of profits attributable to foreign investor can be remitted out of China by virtue of duty paid proof.

4. Shall foreign investor pay tax for its share of dividends from Foreign Investment Enterprise?

   No. Because the dividends distributable to foreign investor belong to profits after tax, foreign investor shall not pay profit tax further.

5. What preference does foreign investor enjoy if it reinvests its share of profits distributed from Foreign Investment Enterprise?

   Foreign investor who reinvests its earned profits into export-oriented enterprise or technologically advanced enterprise within China, for an operating period not less than five years, after application to and approval of tax authority, shall be entitled to refund of entire corporate profits tax paid on its reinvestment. Foreign investor who reinvests in general industrial enterprise shall be entitled to refund of 40% corporate profits tax paid on its reinvestment.

6. Can Foreign Investment Enterprise raise loan with bank in China?

   Yes. Foreign Investment Enterprise can apply for loan in foreign currency or RMB to bank in China according to the needs of business activities.

7. Can Foreign Investment Enterprise open account in foreign bank in mainland China?

   Foreign Investment Enterprise, by virtue of business license, can open account in foreign currency and RMB deposit account with banks or other financial institutions permitted to operate foreign exchange by national foreign exchange administration.

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FAQ about Human Resources & Welfare

1. Can foreign employees with Foreign Investment Enterprise process entry-exit visa more than once?

   Yes. Foreign employees can process employment permit with labor bureau first and apply for conduct to entry and exit administration under public security bureau.

2. Can foreign employee’s salary income be remitted abroad?

   Foreign employee's salary income, after Individual Income Tax is paid according to tax law, can be remitted abroad.

3. Can enterprise recruit employees on its own? How can industrial dispute be settled if it occurs?

   Enterprise can recruit employees on its own. If industrial dispute occurs, and cannot be settled by negotiation of both sides, the dispute can be submitted to coordination and arbitration by local labor bureau or personnel bureau.

4. By what means can Foreign Investment Enterprise recruit employees?

   Major means:

   • To entrust human resources agency
   • To post recruitment advertisement at media
   • To participate in recruitment seminars
   • To entrust professionals to recruit on its behalf, Conpak can provide this professional service

5. What are the requirements for employee's standard working hours?

   Employee's standard working hours are:

   • Not more than 8 hours per day
   • Not more than 40 hours per week
   • Not more than 36 OT hours in aggregate per month

6. What are statutory holidays for employees every year?

   Enterprises should comply with the requirements of the Labor Law of the PRC, take leave system and statutory holidays, with pay during statutory holidays and period of leave as usual.

   • Statutory holidays include: 3 days for Spring Festival, 3 days for National Day, 1 day for New Year's Day, 3 days for May Day, totaling 10 days
   • Wedding leave: Wedding employee can enjoy wedding leave of 3 days. Late wedding employee can enjoy another 10 days (male above 25 years old, and female above 23 years old)
   • Maternity leave: Pregnant female employee can enjoy maternity leave of 90 days, late pregnant employee can enjoy another 15 days (giving first birth after 24 years old), and pregnant employee holding Certificate of Preferential Treatment to Only Child can enjoy another 35 days. During maternity leave, husband is given parental leave of 10 days
   • Bereavement leave: Employee whose linear relative (parent, spouse, child) is deceased can be given bereavement leave within 3 days

7. What insurance should enterprise purchase for its employees?

   Enterprise should purchase for its employees with a total of five kinds of insurances, including: Endowment Insurance, Medical Insurance, Unemployment Insurance, Industrial Injury Insurance, and Maternity Insurance. Foreign and Hong Kong or Macau employees need not be insured for that.

8. What are the requirements and certificates for foreign nationals to work in China?

   Foreign employees should process employment permit formalities with labor and social security department within 15 days after entry.
   In addition, foreign employees shall meet the following requirements for employment:

   • 18 years old or above
   • Without criminal record
   • Holding valid passport or other international travel document

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