Professional Documents
Culture Documents
February 2006
This memorandum is for informational purposes only and is not intended as legal advice. For more
information on the matters discussed in this memorandum, please contact us.
TABLE OF CONTENTS
• Representative Offices
• Equity Joint Ventures
• Cooperative Joint Ventures
• Wholly Foreign-Owned Enterprises
A. Representative Offices
Representative offices can also oversee other joint ventures and operations, and
establish contacts with business partners and customers, which are very important for
doing business in China.
Step 2: Submit all the required documents by the agent to the provincial Foreign
Trade and Economic Cooperation Department.
B. Joint Ventures
There are generally two types of joint venture in China: the equity joint venture
and the cooperative joint venture.
The profit and risk sharing of equity joint ventures is proportionate to the equity
of each partner. The success of a joint venture relies very much on the local and
Equity joint ventures are usually structured as a limited liability company with the
foreign partner contributing a minimum of 25% of the registered capital.
Equity joint ventures require the approval of the Ministry of Commerce or its local
counterparts and are governed by the Sino-Foreign Equity Joint Venture Law and
related regulations.
Step 3: Arrange for the signing of a joint venture contract upon the
approval of the feasibility study report. Then, forward the articles of
association and other legal documents to the Foreign Investment
Administration authority of appropriate level.
Step 4: Apply for an approval certificate by the Chinese partner from the
Foreign Investment Administration authority of appropriate level.
Step 5: Apply business license, official seal and enterprise code, etc.
Unlike equity joint ventures, the profit and risk sharing of cooperative joint
ventures are divided according to the contract terms, rather than the investment
shares.
The cooperative joint venture may be established as a non-legal person entity and
there is no need to establish a new corporation in China.
The procedures for setting up a cooperative joint venture are similar to those for
setting up an equity joint venture.
1. Corporate Tax
Individuals who have resided in China for less than one year are required to pay
personal income tax on income derived from China. Individuals, who have
resided in China for one year or more, are taxed on income from all sources.
Income is taxed progressively from 5% to 45%. There are nine tax brackets
starting from the income range of RMB0-500 to the maximum of over
RMB100,000.
B. Indirect Taxes
1. Value-Added Tax
2. Business Tax
Business tax is a turnover tax charged on the revenue generated from the
provision of taxable services. It is applicable to enterprises engaged in the
provision of taxable services, the transfer of intangible assets, or the sale of real
estate within China. As indicated in the table below, there are nine applicable
rates ranging from 3% to 20%.
3. Consumption Tax
The corporate tax rate is 15% for foreign invested enterprises engaged in certain
designated business approved by the State Council. Losses can be carried forward for
five years to offset taxable income.
Foreign invested enterprises are eligible to a 40% refund of the corporate income
tax on the re-invested amount.
Items that are eligible for individual income tax concession include housing, food
or travel allowance, dividends and bonuses received from foreign invested enterprises.
Foreign invested enterprises are required to pay corporate income tax on income
from all sources according to China's tax law. To avoid double taxation, China's tax law
allows foreign invested enterprises to deduct the portion of income tax paid outside
China from their total income tax payable. However, the deductible amount may not
exceed a limit calculated in accordance with the tax law.
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This memorandum is for informational purposes only and is not intended as legal advice. For more
information on the matters discussed in this memorandum, please contact us.
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