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Setting up a Company

China.org.cn, April 21, 2015
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3. FAQs

How should foreign-invested enterprises pay taxes?

A foreign-funded business-starting investment enterprise (hereafter referred as FBIE) shall make tax declaration in accordance with the tax laws of the state. As to a non-legal-person organization, in accordance with the law, it may request all the investing parties to file returns for enterprise income taxes on their own, or file an application by itself, after the application has been approved, it shall, in accordance with the law, calculate and pay the enterprise income tax in a consolidated way.

The concrete regulatory measures concerning the levy of enterprise income tax upon the non-legal-person FBIEs shall be promulgated separately by the State Administration of Taxation.

It's an international practice that non-legal-person partnership FBIEs enjoys low income taxation rate, and non-legal-person FBIEs have the same request in China. Though not explicitly written in the Provisions Concerning the Administration of Foreign-funded Business-starting Investment Enterprises, it retains that the tax authorities will formulate the specific corporate income tax collection management measures of non-legal-person FBIEs.

Can foreign investors withdraw investment during the operation?

Indispensable investors shall not withdraw from the FBIE during the period of its continuous existence. A necessary withdrawal under a special circumstance shall be upon the consent of the investor whose investment amount exceeds 50% of the total amount, and the relevant rights and interests shall be assigned to the new investor who satisfies the conditions as provided in Article 7 of Provisions Concerning the Administration of Foreign-funded Business-starting Investment Enterprises. The contract and the articles of association of this enterprise shall be modified and shall be reported to the authority for approval.

The transference of other investors' subscribed amount of capital or invested amount of capital shall be done in compliance with the contract of the FBIE and the assignee shall meet the requirements as provided in Article 6. All investors shall make relevant modifications in the contract and the articles of association of the FBIE and report to the examination and approval organ for archival purposes.

When a non-legal-person organization files an application to the registration authority for modifying its registration, the archival evidential documents issued by the above-mentioned examination and approval organ may replace relevant documents for examination and approval.

Having made investments according to the proceedings of business-starting investments and upon relevant capital verification report, the investors of the FBIE shall file an application to the original registration organ for handling the archival procedures for their investments. The registration organ shall fill up the number of its actual amount of capital behind the item of “Capital Amount” on its Business License.

Where an FBIE makes no investment or fails to make the total investment, it shall be subject to penalties imposed by the registration organ in accordance with the existing regulations.

The investors of an FBIE shall make investments and relevant modifications in accordance with the existing regulations.

What procedures should foreign investors follow to set up FBIE?

(1) The investors shall submit the establishment application and relevant documents to the administrative departments in charge of foreign trade and economic cooperation at the provincial level of the place where the FBIE is to be established.

(2) The administrative departments in charge of foreign trade and economic cooperation at the provincial level shall complete the original examination and report to the Ministry of Foreign Trade and Economic Cooperation (hereinafter referred to as the MOFTEC) within 15 days as of the acceptance of the above-mentioned materials.

(3) The MOFTEC shall, with the consent of the Ministry of Science & Technology,make a written decision on approval or disapproval within 45 days as of the acceptance of all the above-mentioned materials. And it shall issue a Certificate of Approval for Foreign-invested Enterprises to the approved enterprises.

(4) With the approved of establishing an FBIE, the applicant shall file an application for registration at the State Administration of Industry and Commerce or at local bureaus with its authorization by presenting the Certificate of Approval for Foreign-invested Enterprise within one month as of the acceptance of the Certificate of Approval for Foreign-invested Enterprise.

What is investment and reinvestment?

Foreign direct investment refers to the activity where residents in one country set up a business in another country, or residents of one country acquire major stake and managing shares of an enterprise in another country, with general benchmark of the purchase being at least of 10 percent.

Foreign direct investment does not include the following activities: licensing, subcontract and security portfolio investment, because they do not involve large amount of equity capital, or a significant shift in terms of foreign management control.

Reinvestment refers to any increase in a foreign investor's shares to the existing investment, including reinvestments on profits and inflows of new capital.

Foreign investors can be either an individual, or a company; its investment can be either wholly foreign-funded, or from a foreign and domestic joint venture.

 

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