Doing business in China


A) Entities with personality jur í independent Dica

The most common foreign investment vehicle with legal personality are Limited Liability Companies (“LLC”).

On January 1, 2020, the Foreign Investment Law of the People’s Republic of China (“Foreign Investment Law) came into force, which simultaneously repeals the current legal framework of foreign investment and unifies the legal regime of foreign investment of the People’s Republic of China. applying both to wholly foreign capital companies (“WFOEs”) and to those in which foreign investment is made through a collaboration with a local entity (Equity Joint Ventures or “EJVs”).

Therefore, LLCs would include those companies that are owned by one or more foreign investors, as well as those made up of one or more foreign investors and one or more Chinese investors.

The main characteristics of an LLC are:

  • No minimum share capital, although it will depend on the type of business and local practices.
  • Contribution of capital in cash, in-kind, or with intellectual property rights, land use rights, or other non-monetary assets whose value can be evaluated in financial terms and whose ownership can be transferred following the law. Licenses are generally not accepted for foreign investors.
  • The governing body of a WFOE or EJV is the Board of Shareholders.
  • Shareholders exercise their voting rights at Shareholders’ Meetings in proportion to their respective contributions or by agreement between them as specified in the LLC’s bylaws.
  • The liability of the shareholders is limited to their respective capital contributions.
  • The benefit can be assigned following capital contributions or by agreement between shareholders if any.

B) Entities without legal personality 

Foreign investment vehicles without legal personality are Representative Offices (OR) and branches.

Common features:

  • Limiting the scope of your business and activities.
  • The ultimate responsibility for the obligations and responsibilities arising from activities in China is the head office.
  • The ROs do not have the capital or a Board of Directors. Relations with employees are organized through a specialized company. The activities of the ROs are limited to intermediation and market studies.

Branches are limited to a small number of industries and activities, mainly banking and insurance.


The following guidelines constitute the general formalities for the incorporation of companies which can vary significantly depending on the type of company and other practical aspects.

  • Self-declaration of the name of the company (if applicable) and commercial registration before the Administration for Market Regulation (“AMR”) to obtain the Activity License;
  • Registration/approval of foreign investment by the Minister of Commerce (“MOC”) to obtain the Registration Receipt or Certificate of Approval;
  • Registration with other government authorities to obtain the necessary certificates for daily traffic and
  • Other authorizations and licenses after the constitution.


A) Control of Foreign Investment: Control of Foreign Investment: The last negative list for foreign investment was published on June 30, 2019, which specifies restricted and prohibited foreign investment industries. Also, another catalog is applied in the Free Trade Zones, which establishes special administrative measures for foreign investment access to said zones. There are a total of eighteen Free Trade Zones (Shanghai, Tianjin, Fujian, Guangdong, Liaoning, Zhejiang, Henan, Hubei, Chongqing, Sichuan, Shanxi, Hainan, Shandong, Jiangsu, Guangxi, Hebei, Yunnan, and Heilongjiang).


Since the application of the Foreign Investment Law, foreign investment that does not appear on the negative list will receive national treatment, which means that it will receive the same treatment as a national investment.

B) Currency Control: The Chinese government imposes controls on incoming and outgoing capital flows. The registry of direct investment in foreign currency will be reviewed and managed by the banks and the State Administration of Foreign Exchange indirectly regulates said registry through the banks. Recent changes to capital controls include a restriction on the repatriation of profits and the transfers of outgoing investments.


A) Direct Taxation

Corporation Tax (“IS”)

Nature: Direct tax levied on the world income of Chinese companies, derived from production and economic activities, from Chinese and foreign sources.

Residence: A company will be resident in China if it is established in China or the effective management of the entity is in China.

Tax base: Total income less exempt and not subject income, allowable deductions, and negative tax bases that have not been offset in the last 5 years.

The tax base is calculated under the accrual principle.

Tax rate: statutory tax rate of 25% on taxable income generated worldwide. Reduced IS rates of 15% and 20% for new technology companies and small companies with low incomes, respectively.

Dividends and capital gains: Dividends paid by PRC companies to other PRC companies are exempt from IS.

Dividends paid abroad will be subject to a 10% withholding rate, without prejudice to the various agreements signed by China. This retention may benefit from a special deferral regime in the event of reinvestment in China, following its corresponding requirements in this regard.

Capital gains will be taxed at the rate of 25% of the IS for companies resident in China and 10% in the case of non-resident companies.

Special Regime: In general, tax consolidation is not allowed in China. Companies must submit their tax results separately, except in the case of headquarters and their local branches.

Formal obligations: The quarterly declarations of the IS will be presented according to accounting before the 15th day of the following month of each quarter.

The annual declaration of the IS will be carried out adjusting the accounting results following the Tax Law of the RPC before May 31 of the year following the fiscal year.

Personal Income Tax (“IRPF”)

Nature: Chinese residents are responsible for personal income tax for their worldwide income, while non-residents are only taxed on income from China.

Residence :

  • As of January 1, 2019, a natural person will be considered a tax resident in China when: (a) the individual is domiciled in China, or (b) the individual is not domiciled in China (“non-domiciled individual”), but remains in China for more than 183 days within a calendar year.

Tax rate: Earnings from work are subject to a progressive rate whose maximum is 45%.

Income from investments (such as dividends, interest, and capital gains) may be taxed at a fixed rate of 20%.

Eight income in kind could be exempt from personal income tax if certain requirements are met for foreigners who obtain income from work (“BIKs”), including accommodation expenses, food benefits, laundry expenses, relocation expenses, travel subsidies. , academic fees for minors and cost of round trip flights for visits to the place of origin. BIKs can be valid until December 31, 2021.

Otherwise, foreign persons, who are tax residents in China, can leave the BIK and choose to apply the additional special deductions (“Deductions”), including tuition fees for minors, education expenses, medical expenses for illnesses Serious, interest on home loans, rental expenses and eldercare.

BIKs and deductions cannot be applied simultaneously. The foreign individual will be able to choose between BIK or deduction, and such method cannot be changed during the fiscal year (that is, from January 1 to December 31).

Formalities: Personal income tax on monthly earned income will be withheld by the Chinese employer within 15 days of the end of the pay month.

If the income from China is paid in part or in full by a foreign company, which is a related party to the Chinese employer, the non-domiciled individual can choose to volunteer for himself (or herself) or entrust an employer in Chinese the presentation of personal income tax withholding.

If the non-domiciled individual does not trust the presentation of income tax withholding, the Chinese employer must inform the tax authorities, within 15 days of the end of the month of payment, about the individual’s employment contract, the income paid by the foreign company, and the individual’s contract information, etc.

The presentation of annual income tax will be made by tax residents during the period from March 1 to June 30 of the following year. The annual presentation of personal income tax is not required for non-residents.

B) Indirect taxation

Value Added Tax (“VAT”)

Nature and types of tax: It is an indirect tax levied on sales and imports of goods and services, intangible assets, or fixed assets located within the PRC. VAT taxpayers are classified as general taxpayers or small taxpayers, being subject to different tax calculation rules.

Different VAT rates apply depending on the nature of economic activities. The following VAT rates are effective as of April 1, 2019:

  • 13% for the sale of goods, processing and repair services, rental services of movable assets;
  • 9% for agricultural goods, transportation, basic postal telecommunications services, construction, rental of real estate assets, sales of real estate assets, and transfer of the usufruct of land, among others;
  • 6% for the rest of the services.

General taxpayers have the right to deduct input tax on purchases and to issue special VAT invoices. Small taxpayers, subject to a reduced rate of 3%, may request the competent tax authority to issue special VAT invoices on their behalf, but may not claim the tax credit.

Formal obligations: The frequency of VAT returns is determined by the competent tax authority. Most companies file quarterly or monthly VAT returns.


Local tax surcharges

Local tax surcharges apply to VAT debts and consumption taxes.

The tax base is the total debt for VAT and consumption tax. The rates are determined by the local tax authorities.

The tax return is consistent with the deadlines for filing VAT and excise tax returns.

Documented Legal Acts (“AJD”)

The Tax on Documented Legal Acts applies to individuals and legal entities that issue or receive specific legal documents under the laws of the PRC.

Depending on the scope of the documents, the AJD rate may be a percentage.

Customs taxes

Customs taxes on imports and exports of goods, as well as on incoming items are calculated on the customs value.

Taxpayers are the recipients of imported goods, shippers of exported goods, and owners of incoming items.

Imported goods will also be taxed by VAT on imports and by consumption tax on imports, which are calculated on the customs value plus customs taxes.

The royalties related to imported goods and fulfilling certain conditions can be taxed under customs taxes.

Other taxes

Other taxes that we find in China are, for example, the consumption tax, on the increase in the value of land, documentary tax, tax on the occupation of agricultural areas, property tax, and land use tax.


The maximum contribution to Social Security and the rates are determined by the provincial governments. Consequently, contributions to Social Security may vary from province to province.

maximum contribution to Social Security

The maximum rates and contributions to Social Security in Beijing and Shanghai are as follows:

Maximum contribution:

  • 3,565 RMB in 2019 in Beijing.
  • 4,633 RMB in 2019 in Shanghai.



  • Paid by employee: 10.2% + 3 RMB.
  • Paid by the employer: 30.8% -32.5% (depending on different categories of occupational hazards).


  • Employee paid: 10.5%
  • Paid by the employer: 32.2% -32.9% (depending on different categories of occupational hazards).

Social Security Treaties: Exceptions for certain Social Security contributions may apply to foreign investors and workers coming from countries with which China has signed Social Security treaties.


Local labor contractual requirements:

Written employment contracts will be signed wherever the employment relationship is established in China. The duration of employment contracts is classified as follows:

  • Determined duration;
  • Timeless; and
  • Completion of a specific task.

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