CHINA COMPANY FORMATION
There are a myriad of regulations when setting up a China company, and getting the structure right in the beginning will save a foreign investor a great deal of money, time and opportunity cost going forward. Setting up in China is not something you do by calling your lawyer or accountant. You need a complete plan on where to go, what type of company to set-up, how you plan to buy, how you plan to sell and how you will minimize your potential tax liabilities and financial risk. Why is China entry so much more difficult than it appears? Some of the difficulties include:
(1) Onerous tax requirements. There is a 17% sales tax on gross sales, and although there are partial “claim backs”, these are “claim backs”, and the tax must first be paid. In addition, there is a 25% income tax. How much you pay or do not pay, may be the difference between success and failure.
(2) A company cannot move from one county to another. If it does, it must re-incorporate. So getting the location right for what you plan to do must not be just pot luck. Once you are there, moving may not be practical or easy.
(3) Staff requirements are always critical. Rent may be lower in the ‘hinterland’, but can you get the right manpower to go there? How do you balance operating/ overhead costs and manpower requirements from county to county or city to city?
(4) Environmental and safety regulations are complex, and vary from place to place. What you can and cannot do, and where you can or cannot do it, is something you need to learn early. Don’t get caught setting up in an area where you cannot do what you want to do, without running into huge and unplanned extra costs.
(5) Some areas carry local taxes on turnover, others do not. Some areas require water purification, others do not. You need to know the local conditions – because if you don’t , it will cost you, and it could cost you dearly.
(6) Labour law in China complicates every set-up. Getting the right advice on how this works and on how you should handle recruitment, is something you need to know before you invest and not after.
(7) Changing shareholders, directors or the legal representative is far from simple, and a structure which avoids this is very beneficial.