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Strategy, Business - 5 min read

With the development of Free Trade Zones in China, more and more foreign entities are entering the country and finding markets among the population of nearly 1.4 billion. Opportunity abounds for companies that are a good fit for Chinese markets and that can skillfully navigate international business rules and regulations. 

This post is written for Australian companies that are considering starting business operations in China. We’ll look at four of the most important considerations: tax, business structure, opportunities, and etiquette.

 

Business Taxes in China

Australian companies operating in China must learn all about Chinese taxation. Many of the taxes are similar to what you’re accustomed to here. Tax legislation and policies are developed by two bodies: the Ministry of Finance and the State Administration of Taxation. Additionally, each locality has a state tax bureau, and local governments also collect taxes.

As you research the specifics for your company, be sure to look into how the following taxes will affect your business in China:

  • Value Added Tax (VAT)
  • Consumption Tax (CT)
  • Customs Duties on Imports and Exports
  • Enterprise Income Tax (EIT)
  • Individual Income Tax (IIT)
  • Urban Land Use Tax
  • Real Estate Tax
  • Vehicle and Vessel Usage Tax
  • Stamp Duty
  • Land Appreciation Tax (LAT)
  • Contractual Tax (Deed Tax)
  • Resource Tax
  • City Maintenance and Construction Tax
  • Education Surcharge

 

Business Structures in China

The most common business structures in Australia are sole traders, companies, partnerships, and trusts. In China, most domestic businesses fall into two recognised structures: Limited Liability Companies and Companies Limited by Shares.

 

Limited Liability Company

For a Limited Liability Company (LLC) in China, you don’t have to have a minimum capital contribution, and the capital can come from cash, in kind or intellectual property rights. Land use rights and other non-monetary assets are also acceptable as registered capital.

 

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Company Limited by Shares

Companies limited by shares have no less than two and no more than 200 promoters, and a majority of the promoters must live in China. Its registered capital is the total share capital subscribed for by all of its promoters. Establishment of a company limited by shares is subject to approval by China’s Securities Regulatory Commission. 

Foreign investors can register as Cooperative Joint Ventures (CJV), Equity Joint Ventures (EJV) or one of several other structures listed below.

 

Cooperative Joint Venture (CJV)

The parties in a Corporate Joint Venture (CJV) can choose whether to operate their enterprise as a LLC or as a partnership where at least one partner bears unlimited liability. A CJV that operates as an LLC needs a board of directors, and the profits of a CJV can be shared by participants as specified in the contract (not necessarily according to their capital contributions).

 

Equity Joint Venture (EJV)

  • Equity Joint Ventures (EJV) are usually LLCs used for long-term projects. With an EJV, the profits, risks and losses are shared by the parties to the venture in proportion to their contributions to the registered capital. Equity may not be transferred or withdrawn without government approval. Several other structures are available for foreign entities:Wholly Foreign-Owned Enterprise (WFOE)
  • Company Limited by Shares with Foreign Investment (CLSFI)
  • Build-Operate-Transfer Project (BOT)
  • Holding Company
  • Foreign Invested Partnership
  • Representative Office

Talk with an adviser about which structure will best suit your purposes and goals.

 

Chinese Opportunities for Australian Businesses

The Chinese middle class currently consists of about 300 million people. They have increasing disposable income, and in the age of the Internet, it’s easier and easier to reach out to these consumers. 

Conduct effective market research to find out if your company is producing products and services that can find a market in China.

 

Etiquette

In many ways, China’s culture and business practices differ from Australia’s. If you understand Chinese business etiquette and customs, you’ll have a much easier road during your expansion. 

For instance, it’s important to know that business in China relies on the development of personal relationships. You can work on establishing relationships by attending industry networking events, following up once you’ve been introduced to someone and getting in touch with industry associations as well as relevant government officials.

Gift giving is another Chinese custom associated with business relationships. Bring gifts to your hosts when you’re a business visitor, but don’t bring gifts that are too expensive. And avoid giving clocks or sharp items as business gifts. These items have negative connotations. Also, don’t wrap your gifts in black and white paper (these colours are associated with funerals). 

For more information about starting a business in China, or for advice about any other business topic, reach out to us at Altus Financial.

 

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