Business Basics--China WFOE Guangzhou city

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There are two common methods for an investor to do business in China. Those being a representative office (RO), a wholly owned foreign enterprise (WOFE or WFOE) . RO: A RO is not a legal entity and is not allowed to directly participate in revenue generating business activities (for example, conclusion of contracts, buy and sell directly, issuance of invoice, etc.). ROs cannot directly employ local nationals, are allowed a limited number of representatives, and require annual license renewal. There are no minimum capitalization requirements. Currency controls are less restrictive. However, the establishing U.S. entity must have been in existence for two years. A RO is required to use the actual or deeming method to determine taxable income and pay China corporate income tax. (A RO may have income taxes without actual income.) WOFE: A WOFE is a legal entity subject to China’s minimum capitalization rules. WOFEs are subject to restrictive currency controls, but they allow 100% foreign ownership and control, which may be beneficial for IP (intellectual property) protection. WOFEs require 10% of after-tax profits to be held in company reserve (until the cumulative reserve reaches 50% of the registered capital). Tax: Generally, income tax estimates are due quarterly. The estimates are due by the 15th of the month following each quarter that the estimate applies, and an annual reconciliation return is due May 31st of the following calendar year. Business tax is due monthly on the 15th of the following month. Value-added tax (VAT) is due monthly on the 15th of the following month. I say “generally” because the local tax authority may provide alternative compliance requirements. Hong Kong DADA Enterprise Service Website: Tel: 86-20-28071837, Skype: joe.dada5 Email: dada5_hongkong@hotmail.com