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Investment Tips in China

Updated:2017-4-3 10:46:34    Source:www.tannet-group.comViews:379

Investment tips or guides are provided by Tannet Investment Consulting Department on any country and any industry, for the people who are interested in investing in china, the following are some useful tips for the offshore investors.

1.Some data from Citilinkia’s Database
Along foreign invested companies registered in China reach  .
GDP: Since the introduction of economic reforms, China’s economy has grown substantially faster then during the pre-reform period, and, for the most part, has avoided major economic disruptions. From 1979 to 2014, China’s annual real GDP averaged nearly 10%. The global economic slowdown, which began in 2008, affected the Chinese economy( especially the export sector), China’s real GDP growth fell from 14.2% in 2007 to 9.6% in 2008, and slowed to 9.2% in 2009. From 2009 to 2011, China’s real GDP growth averaged 9.6%, China economy has slowed in recent years-real GDP growth fell from 10.4% in 2010 to 7.8% in 2012, to 7.3% in 2014. The IMF reported that China’s real GDP growth slows to 6.8% in 2015 and to 6.3 in 2016.

PPP: Public-Private Partnerships (“PPP”) are becoming a common model for infrastructure development in China. It enables cooperation between the government and enterprises, utilizing social capital for projects including water conservancy, transportation, environmental protection, etc. On 25 May 2015, China’s National Development and Reform Commission (“NDRC”) announced 1,043 PPP projects with a potential investment approaching RMB two trillion (over £200 billion)

FDI: There are so far more than 500,000 foreign companies,in 2013 new born foreign entities registration could be 36.3 thousands, down 2.84%, In 2015, China saw another year of steady growth in foreign direct investment (FDI). In fact, non-financial FDI (i.e. excluding banking, security and insurance data) into China reached an all-time high of USD 126.3 billion, up from USD 118.7 billion the previous year or an increase of 6.4 percent. It indicates that despite a slowing economy, opportunity exists for foreign investors in key sectors of the economy. Notably, inbound foreign investment activity appears to reinforce the emergence of a two-track economy in China, where services, advanced manufacturing and consumer markets exhibit growth opportunities, while basic manufacturing and heavy industry deal with complex restructuring and clean-up imperatives.

2. How about investment environment in China?
Since 1979, the Law on Chinese-Foreign Equity Joint Ventures was introduced in the country, to utilize foreign investments as important for opening up to the outside world.

Over the past 35 years, the Chinese macro economic environment provided realistic guarantees and broad prospects for foreign investments. The national economy in the early period, increased by double digits growth rates, until now still keep more than 6.7% annual grow recording 74.4 trillion GDP grow in 2016.

Local facilities have been upgraded. Infrastructure construction, such as transportation, telecommunications, water, electricity and gas supply have been renovated.
Along with favorable production management conditions, the soft environment for easy access to investment requirements has been amended. One-stop services for examinations and approvals have been introduced in many local government organizations: offices of different functional departments are working together to speed up procedures. Regulations were reinforced to adapt to a more comfortable legal environment. Since China's access to the WTO, commitments to the WTO entry, opening up of industries had become more important.

3. Prepare to invest in China
If your company is ready for investing in the country, you must know the regional market situation and learn about investment policies implemented by the Chinese government. Officials have divided its industrial projects for investments into four categories classified as encouraged, permitted, restricted and prohibited, which are indicated in the Industry Category Guide for Foreign Investors. The scale of the investment is worth noting. For large investment projects of USD 30 million or above, the approval authority rests on the central government (State Council ministries); for projects under USD 30 million, in the unrestricted category or quota free, or license free, the approval authority goes to local government departments.

4. Familiar yourself with the relevant responsible authorities
The State Development and Reform Commission and the Ministry of Commerce are responsible for the review and approval of projects with total investment of USD 30 million or above or other projects that require special approvals.

However, local development offices and commercial departments of the Provinces, Autonomous Regions, Municipalities are responsible for reviews and approvals of the following projects: Projects with total investment under USD 30 million and in the unrestricted category; Projects under USD 30 million, but in the restricted category which must be filed with the State Council ministries or upper level offices; Projects involving quota issues or license matters must go through applications to the departments of the Ministry of Commerce for consent.
Projects with USD 30 million or above in the encouraged category, but with no future side effects, which have to be filed in the State Council ministries.

5. Learn about procedures for a project setup
For joint ventures with equity or contractual partners
Project Proposal Feasibility Study Contract Articles of Association Certificate of approval Business License How many steps?

First step: Prepare and apply for a project proposal
On the knowledge of both partners' business area and financial status, the Chinese side is supposed to produce a project proposal to be submitted to the State or local development and reform department, or the technological renovation department for examination and approval. If approved, the Chinese side shall register the joint venture to protect the company’s name and trademark.

Second step: Prepare and apply for feasibility study
Once the first step is completed, you and your Chinese partner must work jointly on a feasibility study, which involves markets, capital, planned site, craftsmanship, technology, facilities, environment protections, raw material sales and purchases, economic yielding, proportion of local currency and foreign currency injection, and infrastructure to be submitted to the State or local Development and Reform department, or the Technological Renovation department for examination and approval. Both you and your Chinese partner can discuss and sign a contract and other legal documents such as articles of associations.

Third step: Obtain certificate of approval
After the feasibility study is approved, you can submit the signed contract and articles of associations to the Ministry of Commerce or local trade and economic bureaus for examination and approval. Once approval is granted, a certificate for the joint venture is issued.

Fourth step: Apply for business license
Starting from the date of receiving the certificate of approval, you and your Chinese partner shall apply to the industrial and commercial department for registration to get a business license. The date of the license is the date of the establishment of the joint venture.
* For wholly-foreign-owned enterprises
If you or your company wishes to set up a branch or a subsidiary or a totally new company in the country, which is 100% owned by yourself or by your company, you can entrust a qualified agency to fulfill all procedures for the application and approval of a foreign enterprise in the nation. Procedures are simple: Fill out application form for setting up a foreign enterprise; Submit articles of association and relevant legal documents to local trade and economic department. Observed by the rules on Foreign Invested Enterprises, the local authority office would grant (or not grant) an approval. If granted, the local authority will issue a certificate. The registration and license go through procedures with the certificate. When a business license is received, you must go through relevant registrations, such as opening up a bank account for Chinese and foreign currencies, tax registrations, customs registrations, foreign currency registrations, business inspections and recruitment procedures.

6. How many investment forms are available in China?
What investment forms are available in China? Which form is suitable for you or your company? If you read carefully, you can make the right choice. The absorption of foreign capital are divided into direct investments, foreign Government Loans, UN organizations and other sources. Direct investment forms, which are popularly operating in the country, include Chinese-foreign equity joint ventures, Chinese-foreign contractual joint ventures, wholly foreign-owned enterprises, joint exploitation, foreign-funded share holding companies, joint development, compensation trade and processing and assembling.

7. Try to enjoy maximum privileges and preferences
If you or your company decides to invest in China, then learn as much as you can about preferential policies available in the country.
China has provided many preferential policies to stimulate overseas investments, such as infrastructure facilities, apart from preferential terms; you can expand your business scope to promote economic development in the central and western regions of the country. Geographical policies have been introduced that apply to different regions. Tax and Tariff preferences are issues companies should be most concerned with.

8. Where to invest?
China is launching more free trade zones, including several in the inland areas for the first time, a move that is expected to accelerate the country’s opening up and boost the Belt and Road Initiative.

Along with China's opening door policies that were adopted in 1979, there are many opening zones with different orientations and functions were extended down to various regions which include special economic zones (Shenzhen, Zhuhai, Xianmen, Shantou and New Area of Pudong in Shanghai), national economic & technological development zones (ETDZ), national free trade zones (FTZ), national hitech industrial development zones (HIDZ), national Taiwanese investment zones (TIZ), national border & economic cooperation zones (BECZ), national export processing zones (EPZ), national tourist and holiday resort (THR). You or your company can conduct research and lock into a particular zone.

So far, there are 11 new free trade zones nationwide, including Pingtan and Xiamen in Fujian province, Qianhai and Nansha in Guangdong province, Pudong free trade zone in Shanghai, the inland FTZs will be opened in Henan, Sichuan,Shaanxi, Xinjiang and Hebei Provinces.

The three most attractive ones are Shenzhen Special Ecomonic Zone, Shanghai Pudong New Area, Xiongan New Area in Hebei Province, which are all situated in the eastern China area. It is easier for the investors to find out the industrial chain value in the eastern China and more encouraging preferential policies in the western China.

9. How to start up?
As for starting up our businesses, we need some market study, policy study, feasibility study ,due diligence at the very early stage, and then business plan, financial analysis, budget report, co-operation and contract, and any other legal documents prepared at the second stage, finally we choose a location in a certain city, format a legal entity, hire a local operator and manager, recruit a work team, and put business into practices.

10. How to make profit?
Tannet’s consultation will challenge profit making for our clients when they are carrying out offshore investment. We make a 3L5D market and marketing plan ready for the investor to shore up their overseas market, which is value-orientated.

11. Tax matters & Tax-Filing
For foreign invested companies, taxes may include the corporate income tax, personal income tax, turnover taxes (value-added tax, consumption tax and business tax), land tax, stamp duty, vehicle and vessel tax, and urban real estate tax.; for imports and exports, tariffs and import-stage value-added taxes may be involved.

Tax on Income
1. Corporate income tax ("CIT") - standard tax rate is 25%, but the tax rate could be reduced to 15% for qualified enterprises which are engaged in industries encouraged by the China government (e.g. New/high Tech Enterprises and certain integrated circuits production enterprises).  Tax holiday is also offered to enterprises engaged in encouraged industries.  Other CIT incentives are also available for tax resident enterprises in China.
2. Withholding income tax on payments to non-residents - a concessionary rate of 10% is currently applicable to interest, rental, royalty and other passive income.
3. Individual income tax ("IIT") - progressive rates range from 3% to 45%.

Tax on transaction
1.Value-added tax- applies to the sale of goods, except real estate properties, and the provision of labour services in relation to the processing of goods and repair and replacement services within China.  The standard tax rate is 17% with certain necessities taxed at 13%.
2.Consumption tax- applies to 14 categories of consumable goods, including tobacco, alcoholic drinks, cosmetics, jewelry, fireworks, gasoline, diesel oil, tires, motorcycles, automobiles, golf equipment, yacht, luxury watch, disposable chopsticks and wooden floorboard.  The tax is computed based on sales price and/or sales volume.
3.Business tax- applies to the provision of services (excluding processing services and repair and replacement services), the transfer of intangible properties and the sale of real estate properties in China.  Tax rates range from 3% to 20%.

Monthly tax filing is a must, which is quite different from some other countries.

12. Any legal aspects to comply with?
To improve the legal environment and to create a unified, consistent, pragmatic and feasible investment environment, the legal system is geared to open, just and transparent principles. Since 1979, the legal framework has been structured to constitute a sophisticated legal system.

 

 

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