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Doing business in China

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Doing business in China - Global Risks in Entity Management

Doing business in China - Global Risks in Entity Management

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    Doing business in China Doing business in China Presentation Transcript

    • Tom RacicotVice PresidentComputershare Governance ServicesSuzanne CallisterRegional Director, Corporate Services, Asia PacificTMF GroupElizabeth MinerSubsidiary Governance & ComplianceThermo Fisher ScientificMarch 21 & April 11, 2013Doing Business in ChinaGlobal Risks in Entity Management
    • Today’s Agenda› Welcome to Doing Business in China, India & Brazil webinars› Register at cgs.computershare.com› Introductions› Overview of Investment Vehicles in China› Benefits & Compliance Concerns in China› The Role of Technology in Managing Compliance Concerns› Questions & Comments2 Doing Business in China: Global Risks in Entity Management
    • Speaker ProfilesTom Racicot, Vice President, Computershare Governance Services (CGS)› Global head of sales for compliance suite of governance products (entity management,SEC filings and corporate board portals)› Governance engagements at hundreds of Fortune 500 & FTSE 250 co’sSuzanne Callister, Regional Director, Corporate Services APAC, TMF Group› Responsible for the corporate strategy in the area of bookkeeping, accounting, HR andpayroll and corporate secretarial› Suzanne is a Fellow of the Hong Kong Institute of Chartered Secretaries, a qualifiedmember of the Hong Kong Institute of Directors, STEP and IFA› Offices of TMF in Asia Pacific span from Mumbai to MelbourneElizabeth Miner, Subsidiary Governance & Compliance, Thermo Fisher› Oversight of governance team managing over 700 global subsidiaries› Oversees17 active China entities› CGS GEMS client for past 2 years3 Doing Business in China: Global Risks in Entity Management
    • Foreign Direct Investment Breakdown4 Doing Business in China: Global Risks in Entity Management
    • China Tops In FDI5 Doing Business in China: Global Risks in Entity Management
    • Recent Investments In China6 Doing Business in China: Global Risks in Entity Management
    • Industry Hubs In China –Hulan7 Doing Business in China: Global Risks in Entity Management
    • Industry Hubs In China –Shanghai, Beijing, Chengdu, Suzhou & Chongqing8 Doing Business in China: Global Risks in Entity Management
    • Industry Hubs In China –Qingdao, Guangzhou & Shenzhen9 Doing Business in China: Global Risks in Entity Management
    • Advantages› Quicker setup› Simpler management structure and objectives› Business decisions more flexibly and quickly› Shorter period for incorporation› Greater control over IP rights protectionDisadvantages› Lack of connections, established markets, andlocal knowledge› WFOEs cannot operate in some sensitive areassuch as securitiesInvestment Vehicles in China –Wholly Foreign Owned Enterprise (“WFOE”)Must know: By law, the minimum registered capital for WFOEis RMB 30K or 100K for a single-investor WFOE.Approval authorities typically require a higheramount in practice.Furthermore: Injection of registered capital:– First 3 months: 15% of paid-up capital(min. RMB 30,000)– Within 2 years: remaining 85% of paid-upcapital Total investment= total registered capital + foreign loane.g. USD200,000 = USD140,000 + USD60,000*Average exchange rate of 2012: USD1=RMB 6.29910 Doing Business in China: Global Risks in Entity Management
    • Investor Foreign company or individualRegistered officeaddressA real physical address with duly signed original lease agreement and PropertyOwnership CertificateChinese nameformate.g. #### Consulting (Chengdu) Co., Ltd.RegisteredcapitalTo be determined based on operating cost of the proposed entity, i.e. at least forthe next 3 years (subject to local bureau’s approval based on industry)LegalrepresentativeChinese or foreignerBoard of Director& GeneralManagerThe number of board members should be between 3 ~ 14 or a sole ExecutiveDirector, and a general manager is requiredBusiness scope According to the investors’ intended business scope (subject to approval by localbureaus)Board ofSupervisorOne or two Supervisors is also required according to Company Law 2006Investment Vehicles in China –Wholly Foreign Owned Enterprise (“WFOE”)11 Doing Business in China: Global Risks in Entity Management
    • WFOE Incorporation GeneralProcedures & Timeframe› Time Frame: 3-4 monthsInvestment Vehicles in China –Wholly Foreign Owned Enterprise (“WFOE”)12 Doing Business in China: Global Risks in Entity Management
    • Adding ValueAs compliance is complex in China you need to “look around” the whole situation.› TMF can provide insight & provide some local practical tips to ensure the tax clearance goes smoothly.eg. Cross-district relocation can be tricky; When filing a registered address change application, taxclearances have also to be addressed & tax auditor’s selection quotations negotiatedFinding the right people in China with the skill set you need.› Qualified & experienced staff are hard to find and keep, TMF provide an alternative solution.eg. An engineering company lost their internal corporate governance manager to the “hot” employmentmarket. Instead of replacing, they outsourced the compliance of their 100+ entities & partnered with TMFChina to provide the required technical expertise subject to high international standards*Expanding in China can be like entering a different country each time.› Variance on local practices in different cities/provinces can be a headache. With offices all over China,TMF have the local knowledge you need to succeed.eg. A client establishing in Shanghai, Beijing, Chengdu & Shenzhen faced the following issues…*SoW: review of subsidiaries , guidance on local legal requirements & procedures from corporate secretarial perspective; incorporationsupport, M&A, liquidation, changes of registrar particulars; Board Meetings attendance, draft & review Board/Shareholders Resolutions;Supervision of the appointment and rotation of corporate officers13 Doing Business in China: Global Risks in Entity Management
    • CitiesRe : Company Secretarial Shanghai Beijing Chengdu ShenzhenEntity need to apply for Public Registration Cerificate No Yes No NoAnnual Examination for Public Registration Certificate No Yes No NoChange of Director (total no. of director after change is remain unchanged)- filing with Commerce Authority Yes Yes No NoTransfer of Shares- submission of immediate last year audited report Yes No Yes YesChange of Chief Rep ("CR") in Representative Office- obtaining tax clearance for the resigning CR from the Tax Bureau NoNo(Yes before Jan 2013) Yes YesChange of Registered Addressfor Foreign Invested Enterprise out of the originalregistered district- obtaining tax clearance from the Tax Bureau Yes Yes Yes NoRe: TaxLocal Tax Bureau and State Tax Bureau - separate or combineLTB is responsible for Business Tax, Individual Income TaxSTB is responsible for Corporate Income Tax, VATCombined Combined Separated CombinedVAT Reforms Implemented Implemented Not yet implemented ImplementedTax Surcharge - River Maintenance Fee 1% n/a n/a n/aRe: HRSocial Security Contribution Rate - Employer PortionHousing Fund 7% 12% 6%-15% 5%-20%Pension 22% 20% 20% 10%-11%Medical 12% 10% 6.5% 7%Injury 0.5% 0.5% 0.6%-2% 0.4%-1.2%Maternity 0.8% 0.8% 0.6% included in MedicalBut It’s All China Isnt It?14 Doing Business in China: Global Risks in Entity Management
    • Compliance RequirementsRO WFOE /JV ComplianceRequirementsMonthly filing of individualincome taxMonthly filing of individual income taxQuarterly filing for corporateincome tax and business taxMonthly filing of business taxAnnual audit on or before Aprilof every yearQuarterly filing for corporate income taxAnnual tax filing on or beforeApril of every yearAnnual tax filing on or before April ofevery yearAnnual examination withAdministration of Industry andCommerce on or before Juneof every yearAnnual audit and foreign exchange auditon or before April of every yearAnnual Examination ofEnterprise Code Certificate inDecember of every yearAnnual Unified Examination filing with 6mandatory bureaus on or before June ofevery yearAnnual renewal of Enterprise CodeCertificate on or before December ofevery yearAnnual ExaminationDefinition: A supervision and managementsystem whereby the relevant governmentauthorities carry out regular inspections onthe company registration items based onthe annual examination documentssubmitted by the company once a year.Period: from March 1 to June 30 of eachcalendar yearExtension: 30 days may be postponed uponapproval in case of justifiable reasonIn-charge authorities:• Commission of Commerce• Statistics Bureau• Finance Bureau• Tax Bureau• State Administration of Foreign Exchange• Administration of Industry andCommerce15 Doing Business in China: Global Risks in Entity Management
    • Subsidiary Governance & ComplianceHow do you manage the Compliance Risks?› Is there professional firm assigned?› Are local rules being followed?› Entity setup in accordance with founding documents?› Are filings being managed?› When have entities been reviewed?16 Doing Business in China: Global Risks in Entity Management
    • Risks & Concerns: How Are They Managed?Compliance Risk ConcernsFormation Is there a formal workflow approval process?Organizational Notification Who else needs to know?Board Details/Formation Who needs to understand this?Jurisdictional Rules Does the organization understand what is required?Necessary Filings Are there penalties, requirements to consider?Registered Capital How is this managed?Intellectual Property Protection How do you confirm these are protected?Ongoing Maintenance Can you verify entity information is accurate?17 Doing Business in China: Global Risks in Entity Management
    • Formation DataHow are these recorded and reviewed?› Local counsel/Service Provider can initiate the process› Subject to review and approval› Entity name› By-laws/articles of incorporation› Registered capital› Intellectual property18 Doing Business in China: Global Risks in Entity Management
    • Approval Process In ChinaCatherineA GEMSapprover forall legalentitiesReviews theFormation RequestApprovesor RejectstheRequestfor thelegalentityAdamA GEMS updater ofdata held forChinese legalentitiesForms thelegal entityandsubmitstheRequestHow does the organization Approve Formations?19 Doing Business in China: Global Risks in Entity Management
    • Verifying Data Accuracy: Ongoing MaintenanceHow do you ensure Ongoing Compliance?20 Doing Business in China: Global Risks in Entity Management
    • Compliance ModuleDo you know the entityis in Good Standing?› Is the entity in compliancewith internationaljurisdictional rules?› Have you completednecessary filings?› Is the entity in compliancewith the by-laws?› Does it have a completedata record?21 Doing Business in China: Global Risks in Entity Management
    • 22Benefits of a Compliance Dashboard› Continious audits using self-defined parameters› Conduct validity checks› Compliance monitoring› Detect and resolve issues in time› Integrated Notification Manager & Task-Manager› Enforce compliance standards› Flexible user screens, report-wizards,integration of business processesAuditDetect& EditImplementSecurity(RiskManagement)Govern(CorporateGovernance)TransparencyDoing Business in China: Global Risks in Entity Management
    • 23What Other Information Needs to Be Shared?GEMSGlobal EntityManagement SystemLegalDepartmentFinanceDepartmentComplianceManagementBankingDepartmentAuditorsTaxDepartmentInvestorsRelationsEntityManagementTrade MarksDepartmentWho needs current information within a company?Doing Business in China: Global Risks in Entity Management
    • Annual Examination for WFOE - Legal LiabilitiesFails after 30 June, will be finedRMB 10,000 ~100,000Still fails, AIC shallannounce itStill fails within 60 days as ofannouncement, its businesslicense shall be revokedBe found deceits inAE, AIC shall ordercorrections within timelimit & be fined RMB10,000~RMB 50,000Nullified and revokedshould found have nocapital, site and structure24 Doing Business in China: Global Risks in Entity Management
    • Next Webinars: China, India & Brazil› Doing Business in China, March 21 @ 1 pm EDT› Doing Business in China, April 11 @ 1 pm GMT› Doing Business in India, May 15 @ 1 pm EDT› Doing Business in India, May 22 @ 1 pm GMT› Doing Business in Brazil, June 19 @ 1 pm EDT› Doing Business in Brazil, June 26 @ 1 pm GMT› Register at cgs.computershare.com25 Doing Business in China: Global Risks in Entity Management
    • Questions & CommentsThank you for joining us. What questions do you have?› Tom RacicotComputershare Governance Servicestom.racicot@computershare.com› Suzanne CallisterTMF Groupsuzanne.callister@tmf-group.com› Elizabeth MinerThermo Fisher Scientificelizabeth.miner@thermofisher.comRegister for upcoming webinars at cgs.computershare.com.Doing Business in China: Global Risks in Entity Management