In the last 20 years, China has evolved faster than any other country in the world. Covering over 3.7 million square miles, China is the one of the fastest growing economy. Shanghai is the largest city of China, whereas Beijing is the capital. China’s strong government support for FDIs, Infrastructure development, cheap labor, new strong market reach etc. gives advantage for foreign investors to set up manufacturing plants in China. Its GDP growth rate over the past three decades has often bypassed 10%, and consistently exceeded by 7%.
Recently, China has become the manufacturing hub of the world. Its substantial part of the economy depends on international trade. China is the largest importer and exporter of goods in the world and is also among the largest manufacturing economies in the world. Thus, establishing a business in China would have the following benefits:
Favorable government policies
The Chinese government has been very proactive in enforcing entrepreneurial supportive measures for both local and international companies. Some of these measures include:
- lowering tax rates for foreign companies than the coastal regions;
- helping young people to incubate their ideas;
- supporting creativity and innovation; and
- giving its citizens business subsidies.
China’s business policies and regulations are changing rapidly, there will always be a new opportunity tomorrow. It is easier to operate a business within China’s internet finance and digital health sectors due to the following reasons:
- minimal regulation enables to experiment with ideas in a more flexible manner;
- favorable tariff policies for foreign companies ;
- business exposure of domestic firms; and
- increase in countries’ technological expertise.
Facilitative entrepreneurial environment
As a result of favorable government policies, it is very easy to find local business partners and investors in China. The youths are empowered and the business ecosystem is quite facilitative. Resources for growth are abundant both in rural and urban China. What’s more, cities such as Shanghai, Shenzhen, Beijing, and Hangzhou have the best tech infrastructures in the world, making business management effortless.
Regional Comprehensive Economic Partnership (RCEP)
China signed RCEP, which includes a larger group of nations, which considerably boosts the total Gross Domestic Product (GDP) of RCEP members. The RCEP is expected to;
- eliminate a range of tariffs on imports within 20 years;
- brings together countries like China and Japan, have often had prickly diplomatic relationships;
- create an integrated market with 16 member countries;
- make easier for products and services of each of the member countries to be available across this region.
- China is the largest trading partner for the ASEAN nations.
- It maintains healthy and highly diversified trade links with the European Union.
- China became the largest trading partner of the European Union for goods, with the total value of goods trade reaching nearly $700 billion.
Free Trade Agreements
China has signed several Free Trade Agreements with countries worldwide, which improves trade efficiency and reduces tariff barriers.
Simple Tax Regime
The State Taxation Administration (STA), a government institution, is the highest tax authority in China.
Individual Income Tax
Residents are generally subject to China individual income tax (IIT) on their worldwide income whereas Non-residents are generally taxed on their China-source income only. China’s Individual income tax is divided into nine categories:
- Employment income (i.e. wages and salaries).
- Remuneration for labor services.
- Author’s remuneration.
- Business income.
- Interest, dividends, and profit distribution.
- Rental income.
- Income from transfer of property.
- Incidental income.
For residents, the calculation of individual income tax on annual comprehensive income is based on progressive tax rates given as follows:
- Income from RMB 1 to RMB 3,000 is liable to tax at a rate of 0%;
- Income from RMB 3,001 to RMB 12,000 is liable to tax at a rate of 10%;
- Income from RMB 12,001 to RMB 25,000 is liable to tax at a rate of 20%;
- Income from RMB 25,001 to RMB 35,000 is liable to tax at a rate of 25%;
- Income from RMB 35,001 to RMB 55,000 is liable to tax at a rate of 30%;
- Income from RMB 55,001 to RMB 80,000 is liable to tax at a rate of 35%; and
- Income from RMB 80,001 and above is liable to tax at a rate of 45%;
Corporate Income Tax (“CIT”)
The standard corporate tax rate is 25%, but it could be reduced to 15% for qualified enterprises such as new/high tech enterprises and certain integrated circuits production enterprises, which are engaged in industries. The corporate tax in China is divided into categories listed below:
- small-scale enterprises at a rate of 5% of annual turnover;
- high-technology enterprises at a rate of 15% of annual turnover;
- technology-advanced service enterprises at a rate of 15% of annual turnover;
- companies engaged in encouraged industries in certain regions at a rate of 15% of annual turnover;
- key software production enterprises and IC design enterprises at a rate of 10% of annual turnover; and
- companies engaged in pollution prevention and control at a rate of 15% of annual turnover.
There are four kinds of business entities in China:
Wholly Foreign Owned Enterprises (WFOEs)
WFOEs are limited liability companies, where only international business enterprises or foreign individuals can hold shares and a Chinese partner is not mandatory.
Foreign-Invested Commercial Enterprise (FICE)
FICE is a foreign company, focusing only on the import and export of products, produced in China. These enterprises are established for the purpose of retailing, wholesaling, franchising, or trading business in China.
Representative Office (RO)
In China, ROs work for market research activities and for understanding the scope and depth of the Chinese Market for future investments and are not allowed to perform any business for profit-making. ROs cannot be authorized to sign contracts on behalf of the parent company, receive any revenues, issue official tax invoices, deal with a property, or import manufacturing equipment.
Joint Ventures Company
A Joint Venture is a collaboration of both domestic and international entities and is secured by both, foreign as well as Chinese partners. Joint Ventures Companies are mainly formed for the purpose of transfer of technology.
As a result of favorable government policies, it is very easy to find local business partners and investors in China. The youths are empowered and the business ecosystem is quite facilitative. Resources for growth are abundant both in rural and urban China. What’s more, cities such as Shanghai, Shenzhen, Beijing,
Author: Chandrawat & Partners
Topic: Doing Business in China
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