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Having gone through the process somewhat myself there's 3 ways you do business in China from a structure point of view (IANAL, see the China Law Blog for more a

by poutine 17y ago

Having gone through the process somewhat myself there's 3 ways you do business in China from a structure point of view (IANAL, see the China Law Blog for more accurate and up to date info): - Wholly Foreign Owned Enterprise: This is a Chinese LLC with foreign shareholders. All management and IP reside within the Chinese entity (or are licensed to). Management operates under Chinese laws and there are restrictions on how many Z Visas they'll give you to bring in foreign workers. - Registered Office: This is just basically an outpost within China. It is quite limited in what it can do, notably it may not bill Chinese companies for services or products offered. Thus you can't sell anything from it. Interestingly here they tax you in China based on your Chinese expenses (since you have no revenue). - Joint Venture: This is when you team up with a Chinese company and create a new company that has local management and IP which then engages the Chinese market. As you can see your options for doing business within China are pretty restricted and pretty much always puts you at the mercy of the Chinese.

jhancock 17y ago
Good summary. When I first started in China, this was also the deal but the laws and processes for forming and managing these entities was uneven. One positive change is that the rules on these entities have become much more clear. I wouldn't say you are at the "mercy of the Chinese" as you put it because in any country you operate a business, you submit yourself to the country's rules. For now, for many types of companies, the rules are clear enough to operate effectively. Getting your profits out of China is another story. I encourage many foreigners wanting to make money in China to be sure they understand that much of their gains will stay in China. If you're comfortable with that, ok. If not, think hard.
- darien 17y ago
  How exactly do they prevent capital outflows, aggressive taxing?
  - jhancock 17y ago
    They prevent cash outflow by ensuring your business accounts are with local Chinese banks and your transactions must pass through those banks. A company has a quota (usually annual) for how much can be sent out of China and the banks have records of your company's quota usage. There are deals to be made. If you're bringing in $X million USD to invest in China, you may be able to get the government to set your quota to that of your original investment or higher. This is negotiable to some extent. But the overall purpose is to lock in some or all of your gains so your choices are aligned to investing in China (real estate, stock market, other China companies, etc). Similar system for personal gains. If your a foreigner working in China your supposed to be paid by the local company which means through their local bank accounts which can only pay to your local bank account (usually only to the same bank). If I recall correct, your default quota per year is $50K USD (or is that RMB? I never hit either limit). So if your making $200K a year in China and are not blowing all that on housing and having a grand time, your limited to only being able to send $50K a year out. Some get around this (as well as taxes) by paying their foreign employees through an international entity and then the employee bring in the cash he needs on a regular basis. But this practice is deteriorating as China is becoming better at policing payroll of foreigners working in China.

by poutine 17y ago

jhancock 17y ago

Good summary. When I first started in China, this was also the deal but the laws and processes for forming and managing these entities was uneven. One positive change is that the rules on these entities have become much more clear. I wouldn't say you are at the "mercy of the Chinese" as you put it because in any country you operate a business, you submit yourself to the country's rules. For now, for many types of companies, the rules are clear enough to operate effectively. Getting your profits out of China is another story. I encourage many foreigners wanting to make money in China to be sure they understand that much of their gains will stay in China. If you're comfortable with that, ok. If not, think hard.

darien 17y ago
How exactly do they prevent capital outflows, aggressive taxing?
- jhancock 17y ago
  They prevent cash outflow by ensuring your business accounts are with local Chinese banks and your transactions must pass through those banks. A company has a quota (usually annual) for how much can be sent out of China and the banks have records of your company's quota usage. There are deals to be made. If you're bringing in $X million USD to invest in China, you may be able to get the government to set your quota to that of your original investment or higher. This is negotiable to some extent. But the overall purpose is to lock in some or all of your gains so your choices are aligned to investing in China (real estate, stock market, other China companies, etc). Similar system for personal gains. If your a foreigner working in China your supposed to be paid by the local company which means through their local bank accounts which can only pay to your local bank account (usually only to the same bank). If I recall correct, your default quota per year is $50K USD (or is that RMB? I never hit either limit). So if your making $200K a year in China and are not blowing all that on housing and having a grand time, your limited to only being able to send $50K a year out. Some get around this (as well as taxes) by paying their foreign employees through an international entity and then the employee bring in the cash he needs on a regular basis. But this practice is deteriorating as China is becoming better at policing payroll of foreigners working in China.