Sinoinvest Consulting is happy to announce that it has become a partner with Citibank China and will be offering to its clients both personal and business offshore accounts. Offshore business accounts will be available for clients with companies registered out of China (Hong Kong, BVI, Seychelles etc.). Details will be posted later on our blog and through our newsletter.
Hong Kong was the world’s fourth-largest Foreign Direct Investment (FDI) recipient in 2009, according to the World Investment Report 2010 (WIR) released by the United Nations Conference on Trade and Development (UNCTAD) on July 23. This marks the first time that Hong Kong has attained fourth place in the global rankings and represents a jump from its ninth position in 2008.
For the 12th consecutive year, Hong Kong continues to be the second-largest FDI recipient in Asia, after mainland China.
Although the global financial and economic crisis drove global FDI inflows down by 37% in 2009 compared with 2008, the impact on Asia was less profound. The US$48.4 billion FDI inflows to Hong Kong, for example, represented a 19% decrease. Hong Kong’s share of FDI inflows into Asia held up at about 21% in 2009, similar to 2008.
Looking ahead, the WIR 2010 provided a glimpse of the global economic recovery picture, highlighting Asia’s rapid recovery in FDI flows compared with the more gradual improvement in global numbers. For example, in the first quarter of 2010, FDI inflows to Hong Kong, amounted to US$20 billion, representing a significant increase of 72% compared with the same quarter last year.
On February 20, 2010, the State Administration of Taxation issued the Provisional Measures for Tax Collection and Administration for Foreign-Enterprise Representative Office (“Provisional Measures”). The Provisional Measures bring significant changes to the existing taxation rules and may have significant implications for the tax liabilities of representative offices (“Rep Offices”).
The Provisional Measures, which apply to representative offices established in China by foreign enterprises, including enterprises in Hong Kong, Macau and Taiwan (i.e. essentially all Rep Offices), are the first regulations clarifying taxation issues relating to foreign representative offices after the Corporate Income Tax Law (“CIT Law”) took effect in 2008. The Provisional Measures bring significant changes to the existing taxation rules related to Rep Offices. The Provisional Measures bring the Corporate Income Tax (“CIT”) of Rep Offices in line with the CIT Law applicable to other enterprises, and clarify that Rep Offices are subject to business tax and value-added tax (“VAT”) on their relevant taxable incomes.
Released on February 20, 2010, the Provisional Measures apply retroactively from January 1, 2010.
Below is a summary of the significant issues in the Provisional Measures
(1) Previous Tax Exemptions Revoked as of January 1, 2010
As of January 1, 2010, the provisional measures invalidate previous tax circulars governing various tax exemptions for representative offices. The tax authorities are prohibited from accepting new CIT exemption applications, whist being required to review and clean up the existing tax exemptions granted to Rep Offices.
The Rep Offices’ income eligible for preferential taxation treatments under a Sino-foreign double taxation agreement (“DTA”) may continue to enjoy such preferential treatments. However, from October 1, 2009, as a prerequisite for enjoying the DTA treatments, the qualified non-tax-resident taxpayers are required to seek approval from or to file for record with a competent tax authority before enjoying such DTA treatments. The application shall be conducted in accordance with the Administrative Measures of Enjoying Tax Treaty Treatments by Non-Tax-Residents (Trial) (GuoShuiFa [2009] 124).
(2) Tax Registration and Filing Requirements
Rep Offices are required to perform tax registration within 30 days after the business registration certificate is issued. When there are any changes to the registration or where the Rep Office is to be closed, the Rep Office shall amend the tax registration or deregister it after liquidation and settlement of all the outstanding tax liabilities.
(3) Accounting and Record-keeping
The Provisional Measures require all Rep Offices to keep accurate accounting books and records according to laws and regulations and to determine the taxable income according to the principle commensurate with the functions and risks the Rep Office actually undertakes. On meeting the statutory requirements of accounting book and record-keeping, Rep Offices are permitted to use actual taxable income to file the CIT returns. If the actual taxable income is used, the Rep Office shall file quarterly the CIT and business tax returns within 15 days of the end of each quarter. Filing of VAT returns is required to be done in accordance with the rules set out in the Provisional Regulations on Value-Added Tax and the implementing regulations.
(4) Taxation of Representative Offices
CIT on the profits of a Rep Office is at the statutory rate of 25% on its taxable profit, and the Rep Office is also liable to pay business tax or VAT. The Rep Office is required to pay CIT and business tax to the appropriate tax authorities within 15 days after the end of each quarter, while it has a duty to report and settle VAT with its tax authorities by the due date according to the revised VAT provisional regulations and its implementation rules.
The Provisional Measures provide that a Rep Office is chargeable to taxes on an actual basis if the Rep Office keeps proper books and records, and can accurately account for the taxable income commensurate with its functions performed and the risks assumed. The normal transfer pricing principles will extend to Rep Offices. However, if a Rep Office does not have proper financial records that accurately reflect revenue, costs or expenses, then the tax authority is empowered to assess the Rep Office’s taxation profits by using a deemed profit rate of no less than 15% of its deemed income, which is either the total revenue (if such figure is available from the records of the Rep Office) or a figure derived using a formula based on the cost-plus method.
Conclusion
Given the impact of the Provisional Measures with the recent developments relating to the administration of Rep Offices (i.e. the limitation on the number of representatives and the restriction on the scope of activities), clients are strongly urged to consider whether a Rep Office is still the most efficient platform for entering the PRC market.
Due to its financial and business center status, as well as its proximity to mainland China, Hong Kong is usually at the top of the list for our clients looking to set up an offshore company with the main purpose to trade with China. While Hong Kong clearly has its advantages, there are however three other alternatives worth considering: the British Virgin Islands, Marshall Islands and Seychelles.
The advantages shared by these three, as compared to Hong Kong are the following:
-Low incorporation and yearly maintenance fee.
-No profit return filling requirements.
-No filling or annual audit of financial statements.
-Better privacy as to the scrutiny from the Chinese government.
-Better protection of company shareholders/directors which cannot be checked from the public record.
-Clear distinction between the onshore/local companies and the offshore ones (International Business Corporations or IBCs).
-Possibility to issue bearer shares, or shares with or without par value (Please note however that most banks currently do not accept to open bank accounts for companies with bearer shares).
The British Virgin Islands are one of the oldest and better established offshore jurisdictions. While concerns exist as to subsequent tax treaties BVI has entered in recent years, it is still a very suitable jurisdiction for setting up an offshore trading company.
Seychelles is a younger offshore jurisdiction, the International Business Act dating only from 1994. It is an increasingly popular jurisdiction worldwide, and is gaining acceptance in China as well.
The Marshall Islands are much less known than the BVI or even Seychelles. This jurisdiction has the lowest fees for both registration and annual maintenance. Most of the functions of the Marshall Islands IBC are similar to the BVI or Seychelles ones.
Offshore companies registered in the BVI, Marshall Islands or Seychelles can also easily open a bank account in Hong Kong. Sinoinvest Consulting provides a remote account opening service for a one-time USD400 fee; you can also contact any Hong Kong bank and travel to Hong Kong to set up your account provided you have all the paperwork in place.
The BVI, Seychelles are Marshall Islands are true offshore jurisdictions, while Hong Kong companies do not have a separate regime for companies operated from within or from outside Hong Kong, but only specifies that non-Hong Kong sourced income is not liable for tax with the Hong Kong government. However, even when that is the case, one needs to apply for exemption from the tax authorities, and in case you operate your bank account in Hong Kong, you might be required to justify that the operations of the company are not related to Hong Kong. To avoid all this hassle, if your company will be mainly used to buy or sell to/from China, selecting one of these three jurisdictions will make a better business sense in the long term.
In order to carry out the year-end closing of our accounting records, instant services for “new business registration” and “updating of change of business particulars” will be suspended on 1 April 2010 (Thursday). The Business Registration Office will resume normal services in the morning of the working day, i.e. 7 April 2010 (Wednesday), immediately after the public holidays during 2 April 2010 (Friday) to 6 April 2010 (Tuesday).
As our computer system needs to adjust for the new financial year, the relevant business registration certificates for the “new business registration” applications received on 1 April 2010 (Thursday) will be issued in the morning of 9 April 2010 (Friday). Any inconvenience caused is much regretted.
Business Registration Office
(From the IRD government website)
Before starting to set up a WFOE in China, the client has to rent an office or a plant (for manufacturing company) in advance. The office could be located in any normal office building in China which could run business. But a virtual address is not allowed for the registration.
Originals (2) of lease agreement (minimum 12 months), and copy of title deed of registered office will be needed during the registration and one thing for clients to remind is that please make sure in the lease contract that the office could be registered a WFOE and otherwise the Landlord should refund the rental. One office room is only allowed to register one company and an already taken office is not available.Registered address and operation location should be the same and if the office address is changed to other districts, all the licenses with business address have to be updated.
The minimum registered capital for a WFOE registration will be different according to the different industry, for a company engaging in services, consulting and technology development, it needs RMB100,000.For a company mainly engaging in trading, wholesale or retail,RMB500,000 is required. For a manufacturing company which is engaging in production operation, the minimum registered capital requires RMB 500,000. In most of cities the above is available such as in Shanghai, Hangzhou, Shenzhen, ect. Generally speaking, all of the registered capital can be paid in one time (within 6 months after the date of the issuance of the Company’s business license) and can also be paid for many times in two years (In the first 3 months, 20% of the registered capital is mandatory).
Different clients have different needs and requirements for setting up a WFOE in China depending on the industry, company size and business scope, therefore choosing a professional agency for assistance is very important. Sinoinvest Consulting could provide you overall services for a WFOE registration in China.
The most popular type of running business in China for foreigners is to form a wholly foreign owned enterprise (WFOE).However, obtaining a business license of WFOE is not a little case even for the local Chinese registers. It requires lots of paperwork and a long and complex procedure. Therefore, with the help of a local professional consulting company to take care of the application process is obviously necessary.
It will take two to three months to complete the formation in practice, even though the law says that the process should take no longer than two weeks. Why is it so time consuming? Filling out all the paperwork, preparing long lists of documents such as certificates of incorporation, bank reference letter, leasing contract of office address, ect will take time to begin with. Then, there likely will be obstacles which require correct “guanxi” to be in place. “guanxi” could make whole steps go faster and more smoothly.
For yourself, you just focus on providing all correct information including names, investment amounts, ownership percentage, ect. Pay more careful with the spelling of numbers and foreign names as most Chinese write in a different form of English letters with the local English speakers which may cause trouble getting them right.
As for opening bank in China, they use stamps rather than signatures. Each company has a company stamp, special financial stamp and the legal person has a personal stamp. All banking matters as well as signing contract require you to stamp on the papers. This means that stamps need to be kept in a especially careful way.
Upon the successful registration,you will get all licenses which are packed with red or green covers including business license, enterprise code license, foreign exchange certificate, tax certificate, financial certificate, ect and then you could start your business in China.
With the advanced technology and economic globalization, forming offshore companies has become a popular trend .Here I listed several tips for a successful offshore company registration.
Find your own reasons to go for an offshore company:
Main steps involved during a successful offshore company registration:
Upon the registration of your offshore company, you will receive a certification of incorporation which is the legal proof of existence of this company.
More than 308,000 companies have been registered in Delaware including 60% of Fortune 500 companies and 50% of the corporations which were listed on the NYSE. Read below you will understand the reasons why Delaware is recognized as the best choice for a US company formation.
The incorporation and maintenance costs are lower than other jurisdictions in the world. Compared to other jurisdictions, Delaware company formation needs an easy procedure, the incorporation process often takes a very short time and anyone no matter what country he or she comes from could form a company in Delaware and no need to come to visit there in person.
What’s more, as long as it doesn’t conduct any business, a Delaware company is not subject to income tax and also the State of Delaware will not impose sales taxes.
A Delaware company formation helps to protect assets and the Delaware LLC could enjoy a high level of privacy, the company officer’s private information will not be disclosed on the public record. Both Delaware LLC and Delaware Corporation are required to file an Annual Report (corporation) or pay an annual franchise tax (LLC) to remain in good standing but the electronic filing systems are available to reduce the administrative burden.
With flexible business entity statutes, well-developed case law, Delaware offers an unparalleled environment in which to organize business entities.
