China company formation

China presents one of the world's greatest sourcing opportunities. Combining the advantages from the surrounding areas, such as R&D capabilities from Taiwan and Japan, and China's WTO compliance policy, China is emerging as the manufacturing base for the world.

Representative Office (RO)

A representative office is just a subsidiary of a foreign company in China. If you are looking for a company which needs a local presence to manage services, coordinate outsourcing business activities or research the developing Chinese market, then a representative office is a useful and inexpensive vehicle for establishing a presence in China. The main purposes of a representative office are conducting market research, monitoring purchasing activities, marketing and sales administration for sales conducted between China and your parent company, etc. Representative offices cannot issue bills for services or sales to their clients in China. But no initial capital requirement is required to establish a Representative Office. However, you can act like a liaison office in matters relating to ordering, shipping, collecting money, etc.

Joint Venture

A Joint Venture is where a foreign firm goes into business with local Chinese partners. A Joint Venture is usually established to exploit the market knowledge, preferential market treatment, and manufacturing capabilities of the Chinese side together with the technology, manufacturing know-how and marketing experience of the foreign partner.

Wholly Foreign-Owned Enterprise (WFOE)

These are 100% foreign owned companies, originally developed for the specific purpose of encouraging foreign investment in manufacturing for export in Special Economic Zones (SEZ's) in China, and prohibited from selling to the Chinese domestic market. Since a recent change in regulations, from 1 December 2004, WFOE's can now trade within China, and can sell wholly foreign manufactured goods in China. The capital requirements for such companies have also been dramatically reduced.

Tax implications

The tax duty of a WFOE includes :
Foreign and local staff's Individual Income Tax (IIT) Business Tax (BT)
Income Tax (IT), etc.
As a WFOE may have different tax incentives from local government, different tax rates apply to different companies. However, one should bear in mind that tax in China can be categorized into either federal tax or local tax (local government). In most cases, tax incentives can only be received from local tax authorities.