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Aug 13th 2019 at 6:39 AM

Foreign-invested commercial enterprises, often called FICE, are fast becoming an easy way for foreign investors to enter China's Mainland market. Previously, foreign companies could only form trading companies independently whenever they registered inside the country's Free Trade Zones. However, as part of China's WTO dedication to let foreign-invested enterprises exercise trading and distribution rights, beginning with December 11, 2004, foreign investors have been allowed to setup FICE inside country to conduct wholesale, retail, and also other permitted businesses. Definition of FICE A FICE describes a business with foreign investment that engages inside following business activities: Commission agency: Sales of merchandise just as one agent, broker, auctioneer or sales of others' goods being a wholesaler via a number of fees with a contractual basis; and also the related ancillary services thereof. Wholesale: Sales of products to retailers, consumers from industry, trade, and organizations, in order to other wholesalers; and also the related ancillary services thereof.

Retail: Sales of merchandise to the people or groups in fixed places or through television, telephone, catalog shopping, Internet, or vending machines; as well as the related ancillary services thereof. Franchising: Authorization from the using its trademark, trade name, and operational mode through the signing of contracts to have remuneration or franchise fees. Given that the spotlight is really for the growth in the China consumer market right now, our experience is that inside the last few years we're to see a substantial influx of foreign investors investing China by establishing a company in hong kong, comments Cory Lam, the senior business development associate at Dezan Shira & Associates. This is particularly apparent throughout the Yangtze River Delta region where many companies are looking to bring their high-end Western brands on the growing retail markets of Shanghai, Hangzhou, and Suzhou. FICE: Pros and Cons Establishing a FICE is one from the most effective ways for the foreign company to distribute its products in China.

The benefits and drawbacks of a China FICE are listed below. Pros Can sell in RMB to local Chinese customers and issue fapiaos Ability to benefit from VAT rebates if exports are done over the FICE Can take control in the supply chain and expand the range of suppliers in China by ordering in RMB Can establish and operate branch offices anywhere within China Can be 100 % of a foreign entity Can hire directly Has no annual turnover or minimum asset requirements FICE also can execute a wide variety of activities, including wholesale, retail, and franchising trade activities in China. Cons Requires registered capital to ascertain usually no less than RMB500,000 to become General VAT Taxpayer Can take several months to create (typically 4-6 months) Export and VAT issues might be complex Need to obtain permission from several bodies The legal minimum capital underneath the law is RMB100,000 to get a company with multiple shareholders or RMB30,000 to get a single-shareholder company. However, since the registered capital must reflect the needs with the business, it will always be far higher than the minimum requirement. Depending around the type of operation, the conventional minimum capital required for approval is between RMB500,000 and RMB1 million. FICE: Tax Treatment The major taxes which sign up for a FICE can be a value-added tax (VAT) and corporate income tax (CIT). Other taxes, like business tax, consumption taxes, tariffs, property taxes, stamp duties, or vehicle and vessel usage license taxes, may also be payable according to different situations. Corporate Income Tax The taxable salary of an enterprise could be the net income after deducting the relevant business costs, including administration, marketing, and financial expenses, taxes on sales and depreciation. The standard CIT rate for any China FICE is 25 percent, exactly like for Chinese-owned companies since 2008. Value-Added Tax All enterprises and people engaged in the sale of merchandise, provision of processing, repairs and replacement services, or importation of goods within China shall pay VAT. Under that structure, there's 2 varieties of VAT payers: VAT general taxpayers VAT small-scale taxpayers For the VAT general taxpayers, the tax minute rates are generally 17 percent for some products. The tax payable will probably be into your market of output tax for your current period after deducting the input tax for that current period. The formula for computing taxes payable can be as follows: Tax Payable = Output Tax for the Current Period Input Tax for the Current Period For VAT small-scale taxpayers, the tax payable is: Tax Payable = Sales Amount x Applicable Tax Rate of 3 percent Most clients are not aware of that VAT registration will become a big part with the set up process, comments Lam. For FICEs, it can be important to receive the VAT general taxpayer status since without they can not deduct the VAT In through the VAT Out, which will have a big impact around the margins.

Gangfeng Group is an international investment agent, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, required research, and financial review services to multinationals purchasing emerging Asia. Since its establishment, the firm is growing into among Asia's most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore, and Vietnam at the same time as liaison offices in Italy along with the United States.

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