Q: What kind of options do I have when opening a new company in China?
A: Foreign investors can either form legal entities in China. Legal entities that can be set up by foreign investors include wholly foreign-owned enterprises (WFOEs), equity joint ventures (EJVs), co-operative joint ventures (CJVs) and joint stock companies. Joint venture is allowed to carry out manufacturing and sales operation in China. It is permitted to sell products through its own sales network. In accordance with state policies and the Foreign Investment Catalogue, WFOEs are excluded in certain industries. Some regulations concerning foreign entities vary by geographical location, as some areas are under Chinese government's encouragement policy.
Deciding what is the most appropriate form of investment in China, is greatly influenced by factors such as the investor’s particular business goals and needs, existing and predicted regulatory limitations, tax considerations, etc. Therefore most investors tend to consult an experienced and industry specified consultant or law firm prior to committing any determination.
Q: What kind of options do I have when opening an office of my Intl' existing company in China?
A: Foreign investors with an international existing company can operate in the Chinese market through non-legal entities, which include representative offices (ROs) and branches, as well as certain CJVs. Representative offices are normally set up to carry out liaison work of its parent office overseas. Special tax rules are applied to representative offices. Another type of investment vehicle is the partnership enterprise.
Deciding what is the most appropriate form of investment in China, is greatly influenced by factors such as the investor’s particular business characteristics and goals, existing and predicted regulatory limitations, tax considerations, amount invested, etc. Therefore most investors tend to consult an experienced and industry specified consultant or law firm prior to committing any determination.
Q: What is The Catalogue for the Guidance of Foreign Investment Industries?
A: The Catalogue for the Guidance of Foreign Investment Industries is a significant policy measure to execute the requirement of the National Congress of CPC, and to guide foreign investment direction. It defines investments by three major categories: Encouraged, Restricted and Prohibited Foreign Investment Industries. Thus, the Catalogue plays an important role in China's macro control, standardize domestic development and bilateral trade, facilitate industrial structure, and determine the quality and level of foreign capital utilization.
A: The majority of foreign legal entities in China may hire Chinese employees. However, under the Labor Law, all enterprises that wish to hire employees must sign labor contracts with each individual labor. As foreign investors are the number one target of legal and financial control mechanisms in China, they have to be in compliance with all the laws and regulations. A new Labor Contract Law of the People’s Republic of China came into effect on January 1, 2008. The aim of the new law is to improve the employment relationship, clarify rights and obligations of employers and provide more stability and security for the employees in the PRC.
A: Resident companies and individuals are taxed on worldwide profits/income (with a credit for foreign tax) on the national, provincial and municipal levels. Most Chinese-source income of non-residents is taxed. VAT applies to most transactions in goods and the business tax to most services. On 1 January 2008 the new Enterprise Income Tax Law, unifying the income tax treatment of domestic and foreign enterprises, came into effect. Further rules, circulars and guidance on specific taxpayers are constantly implemented. Some regulations concerning foreign entities vary by geographical location, as Chinese government's encouragement policy applies to some areas.
Below are some standard taxes: - Corporate tax standard rate: 25% - Individual tax rate: Progressive rates up to 45% (starting with 5% on monthly income of above 4,800 RMB). - VAT standard rate: 17% (13% and 0% lower rates). - Withholding taxes: Dividends 0%; interest and royalties 10% (Rates may be reduced by tax treaty, as there are more then 75 tax treaties). - Incentives: Special economic zones; export, high-tech, clean-tech and infrastructure projects.
Q: How should I choose a location for opening a business entity in China?
A: As living costs, office space rent standards, minimum wage and average salaries, academic expertise, means of transportations and tax incentives vary between Chinese cities, municipalities and provinces – foreign investors are advised to do some market research and compare those parameters prior to choosing a location for their business in China.
Generally, first tier cities are well facilitated and therefore suitable for the service industry, yet are pricy. Second and third tier cities, especially in mainland China, are mainly suitable for high-end production and sales centers, as they are cheaper yet have qualified employees and good infrastructures. Manufacturing and processing facilities are suitable for Special Economic Zones (SEZ's). Incentives and special benefits at such zones vary by favored industries, and located all around China. Further information on various SEZ's can be found in the different municipalities and provinces governmental websites.
Q: How can I locate a trustworthy Chinese manufacturer / exporter?
A: There are several good online search engines for locating Chinese manufacturers, yet most are in Chinese and do not offer any reliability documents. Moreover, not every Chinese manufacturer is eligible to export or import goods. Many are working with a Chinese trading company, and do not always inform the foreign counterpart of a third party involvement.
Therefore, after contacting the manufacturer, you may want to try the following evaluation techniques: - Ask for the company's business and legal representative certifications directly. - Ask for the company's trading certification (companies established after 2004 may have manufacturing certification that includes trading approval). - Make sure that the company is legally registered through local governmental entities: Hong Kong based companies should be traceable through the HK Company Registration Office; Mainland China trading companies can be verified by the China International Electronic Commerce supported by CIECC (at the bottom Chinese homepage: 服务支持, by locations); Manufacturers should be listed at the local Administration for Industry and Commerce, yet its employees usually do not communicate well in English.
Q: How can I identify a trustworthy Chinese distributor?
A: Distributors are usually hard to identify in China, and once a potential distributor is located – it is hard to confirm its reliability without spending money on professional due diligence. Agreeing upon your desirable terms of commitment with Chinese distributor is also not simple.
Most business related search engines do not specify which companies function as distributors. Therefore visiting International exhibition in China is a great opportunity to personally identify outstanding distributors. Another helpful way to locate a potential distributor is through the Chinese industrial organization of your scope of business. Such organizations have great influence on the local market and gladly assist in match-making, in many cases by a reasonably payable service package.
Q: How should I prepare myself for a business meeting in China?
A: The Chinese business culture is very different from the Israeli business culture. Here are some tips that may assist in your meeting preparations and the meeting itself: - Do not expect to get clear and mediate answers from your Chinese counterparts. Focus on your immediate goals and leave some issues for future negotiation. Be ready to insist on your important issues and compromise on insignificant issues. - Chinese tend to come for a meeting with more personals than what's actually needed. You might feel more comfortable doing the same. Make sure you understand who the decision makers are, yet give attention to people that were appointed to deal with you. - Token offering is a costume. Tokens do not have to be expensive at early stages, yet should be symbolic and well wrapped. Avoid red pens and clocks/watches. - Get your introduction materials translated to simplified Chinese. Try to keep in simple, use graphic images and catchy slogans. - Prepare to present your solutions in simple English. Fell free to repeat your main ideas. - Make sure an interpreter will be present at the meeting, and feel free to suggest bringing your own professional interpreter (Chinese origin is recommended). Prepare your interpreter by sending materials in both languages, and by having a preparatory talk in which you will be able to state your main targets for the meeting. - Give your name card at the introduction stage. Hold your name card with both hands, and make sure your Chinese title is facing up. - The terms "give face" (= gei mainzi) and "loose face" (= diu mainzi) are commonly used in China, emphasizing the importance of one's respect. Such respect can be given by compliments, offering expensive gifts or meaningful tokens etc. Avoid raising your voice, expressing anger through body language or facial gestures, especially when in public. - Start your meeting with a polite conversation stating the similarities both parties have and your appreciation for China. Some ideas: both the Jewish people and the Chinese are well known for their business making skills, Karl Marks was a Jew, David Ben Gurion emphasized the importance of China already in the early 50's, the Chinese assisted hundreds of thousands of Jewish people escape from Europe during world war 2 and offered a refugee in Shanghai. - It is customary to spend the evenings with your Chinese counterparts; dinning, drinking and karaoke singing are among the most common forms of business entertainment.
Q: What are major things I should think about when signing a contract in China?
A: Since the Chinese law is often hard to enforce, try to sign a contract that applies in a third country that both parties agree upon. Make sure you know who you are signing the contract with and try to exchange personal details. Have an experienced lawyer involved in the contract signing as early as possible.
A: Since political, business, academic and professional circles in China are linked to each other by “Guanxi” (often translated as connections or contacts), getting familiar with the right post-holders at the right time in order to promote one’s interests is a necessity. Getting familiar with your industry's organs in China is a great tool for extending your business contacts. Industrial organizations have great influence on the local market and are usually in strong ties with the authorities. International and National events and exhibitions can widen your market exposure. Dinners and gatherings are often held in such events, and are good places to meet with decision makers, potential partners and business rivals. The Chinese online commerce and marketing is expending rapidly – you might also consider translating your website to Chinese and be mentioned in industry specialized portals and forums.
Q: What governmental support can I receive while cooperating with Chinese partners?
A: A unique governmental support is given to cooperating Israeli and Chinese companies, under the general bilateral agreement that was first signed in 1995 between the Israeli Ministry of Finance and the Chinese Ministry of Finance (a third agreement was signed in May 2010). Medium and long-term credit transactions can be financed in the framework of this agreement, yet the procedure requires the involvement of both counterparts and an approval of both governments. More information on the new Financial Protocol can be found here. Israelis who wish to learn more about these financing support schemes should contact ASHRA. In 2008, a bilateral framework providing financial support for collaborative industrial R&D ventures between Israeli & Chinese companies from Jiangsu province was signed. The bi-lateral framework is jointly implemented by Jiangsu Science and Technology Department in Jiangsu province and MATIMOP, Israeli Industry Centre for R&D, on behalf of the Office of the Chief Scientist (OCS) in Israel. Israelis who wish to learn more about this financing support scheme should contact MATIMOP.