Forming Companies

• Pros & Cons
• Setup Key Points
• Documents Required
• Tax Implications
• Setup Cost
• Maintenance Cost

 Pros & Cons

• Least capital injection required. As RO is not a legal entity, actually no minimum share capital is required.
• Can handle market research, sourcing, project investigation for mother company, who in turn to execute trading function.
• Can hire local staff.

• Limitation in activity. No trading or invoicing is allowed.
• Local staff should be hired via government admitted agents.
• Although not profit center, cost expenses still attract tax liability.

 Setup Key Points

• Takes around 1 month to apply.
• A Chief Representative (CR) is to be appointed
• Company should be able to present bank reference letter;
• An office premise rental agreement (or ownership document) which is valid for foreign investor use. The term should be at least 12 months long.

 Documents Required

• Certificate of Incorporation
• Members Register
• Directors Register
• Last filed return to Company Registry
• Last filed return to Tax Department
• Company / business profile and reason of setting up RO
• Minutes of Board Meeting to setup RO
• Minutes of Board Meeting to authorize Chief Representative
• Bank reference letter

• Passport copy
• Photos
• Resume

• One to Foreign Economic Relations & Trade Commission
• Another one to Administrative Council of Industry & Commerce

 Tax Implications

• Chief Representative and local staff's Individual Income Tax (IIT)
• Business Tax base on monthly operational expenses (BT)
• Income Tax base on annual operational expenses (IT)

IIT above depends on salary amount while BT & IT roughly amounts to 10% of annual operational expenses.

• Business Tax	=	Deemed Turnover x 5%
  Total Expenses	=	Deemed Turnover x 85%
  Deemed Turnover	=	Total Expenses / 85%
  Business Tax	=	(Total Expenses / 85%) x 5%
  Income Tax	=	Deemed Profit x 25%
  Deemed Profit	=	Deemed Turnover x 10%
  Deemed Turnover	=	Total Expenses / 85%
  Income Tax	=	(Total Expenses / 85%) x 10% x 25%
  Business Tax + Income Tax	=	(Total Expenses / 85%) x (5% + 10% x 25%)
  Business Tax + Income Tax	=	(Total Expenses / 85%) x 7.5%

• Business Tax + Income Tax = Total Expenses x 9.2%

 Setup Cost

 Maintenance Cost

License renewal
RO license has to be applied again once permit is expired. Maximum 3 years approval will be granted and depends on rental lease terms.

• Tax filing has to be done on monthly and annual basis.
• Moreover, there are statutory audit on the expenses account and foreign currency bank account.
• Service fee for monthly accounting and tax filing starts from Rmb 2,500 while annual audit starts from Rmb 5,000.