Today just to conclude the panorama on “doing business in China” it is necessary to point out the following important points.
It is evident that when doing business in this country any business entity has to use the local currency. The so called RMB is not yet a freely convertible currency, and China is still a foreign exchange control country.
Only foreign exchange under capital account items are under PRC laws and regulations, and the legal entities, including FIEs, are free to deal with their foreign exchange under current account items.
In fact, foreign investors seldom have the problem in converting its post tax profit into foreign currencies and repatriating out of China, provided that the required documents are furnished and in order, however limitation are imposed and foreign enterprises doing business here should take into consideration different corporate structures to better manage this delicate aspect. Maybe considering a triangulation among different legal entities operating in China and off-shore to realize a better tax planning, and repatriate more easily profits generated in China Mainland (transfer pricing, Off-shore Holding companies).
Businesses in China should also be aware that in China the
basic tax system comprehend: i)
Central tax: customs duty, consumption tax, value added tax (‘VAT’) levied by customs.
Then we have Local tax: business tax (‘BT’), individual income tax (‘IIT’), tax for use of state-owned urban land, land value added tax, real estate tax, etc.
Sharing tax: VAT, enterprises’ income tax (‘EIT’), income tax for foreign invested enterprises and foreign enterprises, resource tax.
The Main taxes applicable to FIEs are as follows:
• EIT (Enterprise Income Tax):
ü 15%: applicable to ‘encouraged hi-tech enterprises’
ü 20%: applicable to small-scale enterprises earning a ‘small profit’
ü 25%: applicable to all enterprises other than those mentioned above
• BT (business Tax):
ü BT rate generally ranging from 3% to 5%
ü BT rate for entertainment industry could be as high as 20%
ü VAT: VAT ranging from 13% to 17%
Preferential tax treatment for FIEs
• The tax treatment for both FIEs and domestic enterprises (DE) has become consistent, and most nationwide preferential tax treatments will not be available or continued anymore. Even the Urban Maintenance and Construction Tax, and Education Surtax have applied to FIEs and foreign individuals since 1 December 2010.
• Local governments in certain districts may still provide FIEs with local tax preferential treatment.
Another aspect which is necessary to consider is work force.
Generally FIEs are entitled to recruit their employees freely, except representative offices which must recruit the local Chinese staff through government-approved labor agencies.
The enterprise may not lay off an employee at will or without due cause. If the enterprise (employer) decides to terminate the employment contract with an employee, it shall give the employee severance pay. (It is the Ministry of Labor and Social Security which decides policies regarding the work force in China:
http://english.gov.cn/2005-10/02/content_74185.htm
)
FIEs are required to participate in unemployment, medical and work-related injury program and social insurance schemes pursuant to relevant national regulations and to pay social insurance premiums in full and on time in accordance with local standards. The new Social Insurance Law of PRC, which has established a standard social insurance system – including basic retirement plan, basic medical, work-related injury, unemployment and child-bearing insurance – entered into force on 1 July 2011.
In addition, FIEs shall reserve housing accumulation funds on behalf of their Chinese employees, and shall use such funds according to local regulations.
Just to conclude this part we it is necessary to spend a few words on the protection of intellectual property. China has acceded to most of the more important international intellectual property protection and the legal framework within China now provides for comprehensive protection of intellectual property rights. (Reference must be to the In S.I.P.O.
http://english.sipo.gov.cn/
)
China’s membership in International IPR related organizations includes:
– Berne Convention (copyright) since 1992;
China signed up to the Berne Convention in 1992. Copyright legislation is based on China’s Copyright Law as emended, and the Copyright Implementing regulations (2002).
– Madrid Protocol (trademark) since 1995;
China’s membership of the Madrid Protocol provides a unitary method of reciprocal trademark registration.
– Paris Convention (priority rights) since 1985;
The most important provision of this long-standing intellectual property treaty, dating from 1883 and now administrated by WIPO, is the establishment of a “priority right” for patent, design and trademark applicants in respective signatory States. The system allows applicants in one country to gain protection for their IPRs in another country.
– Patent Cooperation Treaty (patents) since 1994;
China has been a signatory to the Patent Cooperation Treaty since 1994. This means that foreign patent-holders can assess the possibility of obtaining a patent (but not a design patent) before embarking on the ‘national phase’ of the application within China – at the end of which, if the patent is granted, they will have the same protection as any other patentee in China.
– WTO/TRIPS (IPR in general) since 2001.
China adhered to the WIPO (World Intellectual Property Organization) in 1980, and it is a signatories of the TRIPS (Agreement on Trade-Related Aspects of Intellectual Property Rights).
It is worth to remind that the main scope of the S.I.P.O. (State Intellectual Property Office which is directly affiliated to the State Council) basically is to organizing and coordinating IPR protection work nationwide and improving the construction of IPR protection system; establishing the collaboration mechanism of IP law enforcement with related departments to launch relative administrative law-enforcement work; launching the work of publicizing IP-related information; and implementing the Compendium on China National IP Strategy with related departments. (Visit:
http://english.sipo.gov.cn/about/basicfacts/200904/t20090415_451001.html
)
– Cristiano Rizzi