HIBC – Laws and Policies of Foreign Investment in China

(November 20, 2018)

As Chinas economy continues to grow, more and more people are looking towards this industrious country to take advantage of its investment prospects.Entrepreneurs and investors alike are crowding to park their wealth here and get in on the high growth opportunity. Hosting this event seemed to us like the perfect opportunity to help interested parties learn more about how to make this desire a reality.

Thank you to all the business professionals and aspiring entrepreneurs who took advantage of the valuable information provided by Anita Wang and her team of highly skilled legal consultants. Much was learned from the hour long presentation on legal policies foreigners must recognize prior to business set up in China, usiness cards were exchanged while new alliances were created during the networking session, and those questions that have been keeping you up at night were finally answered during the Q&A segment. Some key takeaways from this event include; best practices for setting up WFOE, labor laws and tax considerations. 

Our guest speaker, legal expert Anita Wang, is a Senior Partner Lawyer at P.C. Woo and Zhonglun W.D. LLP. She graduated with a Masters in Law and is a Certified Tax Agent practicing in Guang Dong Province. The insights she provided during this event were extremely relevant to anyone serious about setting up business in China. The following points are just a summary of the information received during the event. 

If you have any questions about how this information relates to your business; more detailed information can be received by reaching out to our supportive team here at HIBC. Our door is always open!

What type of business entity is usually best for foreign investment? Well… a WFOE of course! With the right guidance, WFOE setup can be easy as there is currently no capital requirement for setting up this type of business, except in  some special fields like banking or insurance industries relating with finance.  We suggest having a minimum of 100 – 150 thousand RMB available for your business endeavor to give yourself adequate room to operate, but you do not need to have these funds in your Chinese business bank account all at once. One common misunderstanding of the WFOE is that a Chinese partner is required for incorporation, which is untrue as a WFOE can be set up without a Chinese national. But maybe you do have a Chinese friend you know would make an excellent business partner… Great! The other common type of business structure that many foreigners also undertake and with a Chinese person is a Joint-Venture. Now that you have your business structure set up, it’s time to think about hiring the right people for the job. 

Another major area touched on by Anita was labor law, where she raised some interesting points one must acknowledge. A commonly overlooked requirement of a Chinese labor agreement is that an employer must provide social security insurance for all employees. Anita noted that if you want to end a labor arrangement, you are responsible for paying the employee a severance of [n+1 (n= years)]. For example, if an employee works for the company for 3 years, to legally terminate the employment contract, you must pay the employee a severance of 4 months wages (3+1). Anyways, the severance is up to 13 months wages (12+1).   So now you have your business structure in place AND you have a team behind you BUT are you operating within policies set in place by the government?

The final key point Anita discussed with the group was tax considerations. As she points out, the majority of businesses are taxed at an Enterprise Income Tax rate of 25%, unless operating as a Micro business enterprise or certifited Hi-tech enterprise. Other major taxes to consider are the Value Added tax and the Withholding tax. Failure to comply with appropriate tax obligations can result in some severe punishments, such as lifelong imprisonment and enormous fines.

 HIBC can help set up and operate your business legally to ensure proper tax obligations are met so that you can focus on what you do best, expanding your business and brand. 

The Q&A session was particularly constructive as attendees raised their concerns with Anita and Cassie (Founder of HIBC). The duo took turns filling the audience in on their areas of expertise, and often the whole group converged on a topic together. These are some of the questions that were answered during this productive session. 

1

Digant Lakhani (Manager at Kiran Gems) asked:  “When can we inform employees if we want let them go before their contract ends?”

HIBC: The employee can be fired anytime during probation, if they breach the rules of the contract such as: they are found to be doing another job that seriously impacts their formal work as a consequence or they commit a crime. Due diligence must be performed to make sure the employee cannot perform the job as specified. 

2

Pavel Drbalek  (Purchase Manager at Evrazio Center) asked: “Is it okay to register a WFOE with a virtual office?”

HIBC: If the virtual office space can provide a leasing certificate (known as Red Book), as proof that business is operating within governmental jurisdiction. At HIBC, we provide the leasing certificate to purchasers of our virtual office space, giving your business a legitimate registered address from which to operate from. 

3

Mathew (Founder at Pandora Parties) asked: “Can my business be registered in Qian Hai Free Trade Zone but my office location be in another area?”

HIBC: Yes, this is legal for companies registered in the Qian Hai Free Trade Zone as registration in this particular area provides special allowances. Setting up business in districts such as Luohu or Futian is perfectly legal despite the business being registered in Qian Hai. 

4

Pax (Office Manager at BM1 Trading) asked: “Why do you need a Fapiao?”

HIBC: A Fapiao is proof that a transaction took place and the tax has been paid. Unlike a regular receipt that anyone can write up, a fapiao contains the official seal of the government and registers that transaction within the tax system. 

5

Yogev (Vice-general manager at Yuan Quan Hui) : “Why have I been advised that I should first register my company in Hong Kong and then use that company as the investor company to open a WFOE in China?”

HIBC: Setting up a company in Hong Kong provides many benefits which include ease of startup, proximity to mainland China, a business-friendly tax system and the ability to easily receive payments from overseas. HIBC provides business setup services for both Hong Kong and mainland China. 

Remember that laws and policies in China are constantly changing, so be sure to stay up to date when new information is available or hire qualified professionals that will keep your business in compliance so that you can focus on what you do best. At HIBC, we strive to provide our customers with a work space tailored to fit their needs and provide the best possible resources to promote and grow their business. We are happy to provide our members with exclusive events that integrate with global business trends and client interests. We hope to see more of you entrepreneurs with exceptional motivation to succeed at one of our upcoming events. Stay posted for information regarding our upcoming events by following our official WeChat account.

At HIBC, we aim to create an inclusive ecosystem that acts as a catalyst for your business. With people from diverse backgrounds and sectors all under one roof, special ideas turn into special projects. We are proud to host unique events for our members that dive deep into the latest social, cultural, technological, and business developments. That way, our community constantly stays informed and at the front of the pack as well as becoming connected with new friends and partners that attend. We hold your start-up’s hand every step of the way and supply all the tools necessary for it to grow; from company setting up  tax accounting to IP rights to strategic partnerships.