Entry modes for trade and investment in the PRC [ 中文 ]

Ultimate Controller in the Foreign Investment Enterprise

 

The PRC Ministry of Commerce, in a decree issued under [2107] No. 2, announced the amendment to the "Provisional Administrative Measures of Record Filing concerning the Establishment of Foreign Investment Enterprises (FIE) and Changes to the investors of the Foreign Investment Enterprise (FIE)" (the Provisional Record Filing Measures). The amendment took effect on 30th July 2017.

 

The Provisional Record Filing Meaures require that the FIE should disclose the ultimate controller either at the time of establishing the FIE or change in the investors of the FIE.

 

• The official Chinese texts of the Provisional Record Filing Measures are available at the link to the MOC website [read].
• The illustrative example of ownership structure appended to the amendment [read]

 

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Entry modes for trade and investment in the PRC with varying degree of permanence in descending order

The Legal forms they can take:

• Wholly owned subsidiary
• Joint venture company
• Free trade zone trading company
• Contracted manufacturing with guaranteed profits
• Processing trades
• Branch
• Representative office
• Licensing and franchise
• Resident agent
• Cross border trading

Classification as direct and indirect investment

	Foreign direct investment		Indirect foreign investment
1	Wholly foreign owned enterprises	1	Landed property
2	Sino-foreign equity joint venture enterprises	2	Contracted manufacturing with guaranteed profits
3	Sino-foreign cooperative joint venture enterprises	3	Outward processing arrangement
4	Trading company in free trade zones	4	Construction projects
5	Built, transfer, and operate (BOT) project	5	Representative offices

 

Other alternative forms of investment

PRC Domestic Company

1. Limited company 
2. Partnership 
3. Sole Proprietorship 

PRC Company

PRC companies are incorporated under the PRC Company Law.

Non-resident foreign investors are allowed to hold majority of equity in a company incorporated under the PRC Company Law. In that case, the PRC Company is entitled to have the tax incentives available to those Foreign Investment Enterprises.

If the non-resident foreign investors only have less than 25% in the equity interest, the Company is considered to be a domestic company (內資企業).In that case, no tax incentives are available to the domestic company in the same way as that enjoyed by foreign investment enterprises.

Specifically Hong Kong residents are allowed to incorporate PRC Companies in Guangzhou City. These companies are classified as domestic companies.

 

Partnership

Hong Kong residents are allowed to become a member of the partnership formed under the PRC Partnership Law

 

Sole proprietorship

Hong Kong residents are allowed to do business in Guangdong province in the name of a sole proprietor under the PRC Law.

 

Analysis on the use of different entry vehicles

The following is a comparison between different modes of operation in terms of capital commitment, legal status, ability to sell in domestic market, and income tax liabilities.

	Capital requirement	Legal person status	Being able to issue VAT invoice	Income tax liabilities
Resident agent	No	No	No	No
Licensing	No	No	No	Yes
Representative office / branch	No	No	No	Yes
Construction projects	No *	No	No	Yes
Outward processing arrangement	No *	No	No	Exempt
Contracted Manufacturing	No *	No	Yes	Yes
Foreign investment enterprises	Yes	Yes	Yes	Yes

* In certain cases, the foreign party provides machinery and equipment free for use inside the PRC.