Foreign-invested commercial enterprises, popularly known as FICE, are fast-becoming an ideal way for foreign investors to penetrate China's Mainland market. Previously, foreign companies could only form trading companies by themselves should they registered within the country's Free Trade Zones. However, as part of China's WTO dedication to let foreign-invested enterprises exercise trading and distribution rights, beginning December 11, 2004, foreign investors happen to be able to build FICE within the country to conduct wholesale, retail, as well as other permitted businesses. Definition of FICE A FICE describes an enterprise with foreign investment that engages inside the following business activities: Commission agency: Sales of merchandise as a possible agent, broker, auctioneer or sales of others' goods as being a wholesaler through a number of fees on the contractual basis; along with the related ancillary services thereof. Wholesale: Sales of products to retailers, consumers from industry, trade, and organizations, or to other wholesalers; as well as the related ancillary services thereof.

Retail: Sales of goods to the people or groups in fixed places or through television, telephone, catalog shopping, Internet, or vending machines; and the related ancillary services thereof. Franchising: Authorization in the utilization of its trademark, trade name, and operational mode with the signing of contracts to get remuneration or franchise fees. Given that the spotlight is basically for the growth with the China consumer market at the moment, our experience is inside the last few years we're to determine a big influx of foreign investors investing China by establishing a company in hong kong, comments Cory Lam, the senior business development associate at Dezan Shira & Associates. This is particularly apparent across the Yangtze River Delta region where many companies are looking to bring their high-end Western brands for the growing retail markets of Shanghai, Hangzhou, and Suzhou. FICE: Pros and Cons Establishing a FICE is one of the simplest ways to get a foreign company to distribute its products in China.

The advantages and disadvantages of an China FICE are listed below. Pros Can sell in RMB to local Chinese customers and issue fapiaos Ability to reap the benefits of VAT rebates if exports are executed over the FICE Can take control in the supply chain and expand the array of suppliers in China by buying in RMB Can establish and operate branch offices anywhere within China Can be totally owned by a foreign entity Can hire directly Has no annual turnover or minimum asset requirements FICE may also execute a wide variety of activities, including wholesale, retail, and franchising trade activities in China. Cons Requires registered capital to ascertain usually at least RMB500,000 to become General VAT Taxpayer Can take several months to setup (typically 4-6 months) Export and VAT issues may be complex Need to obtain permission from many bodies The legal minimum capital underneath the law is RMB100,000 for a company with multiple shareholders or RMB30,000 to get a single-shareholder company. However, because the registered capital must reflect the needs in the business, it is almost always far greater than the minimum requirement. Depending about the kind of operation, the normal minimum capital necessary for approval is between RMB500,000 and RMB1 million. FICE: Tax Treatment The major taxes which sign up for a FICE really are a value-added tax (VAT) and corporate income tax (CIT). Other taxes, for example business tax, consumption taxes, tariffs, property taxes, stamp duties, or vehicle and vessel usage license taxes, are often payable based on different situations. Corporate Income Tax The taxable income of an enterprise may be the net income after deducting the appropriate business costs, including administration, marketing, and financial expenses, taxes on sales and depreciation. The standard CIT rate to get a China FICE is 25 percent, similar to for Chinese-owned companies since 2008. Value-Added Tax All enterprises and individuals engaged inside the sale of products, provision of processing, repairs and replacement services, or importation of products within China shall pay VAT. Under that structure, there's 2 kinds of VAT payers: VAT general taxpayers VAT small-scale taxpayers For the VAT general taxpayers, the tax rates are generally 17 percent for some products. The tax payable will probably be the total amount of output tax to the current period after deducting the input tax for the current period. The formula for computing taxes payable is really as follows: Tax Payable = Output Tax to the Current Period Input Tax for your Current Period For VAT small-scale taxpayers, the tax payable is: Tax Payable = Sales Amount x Applicable Tax Rate of 3 percent Most clients don't know that VAT registration can become many with the build process, comments Lam. For FICEs, it's important receive the VAT general taxpayer status since without this they can't deduct the VAT In from the VAT Out, and this will have a big impact around the margins.

Gangfeng Group is an overseas investment agent, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, homework, and financial review services to multinationals committing to emerging Asia. Since its establishment, the firm is continuing to grow into one of Asia's most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore, and Vietnam too as liaison offices in Italy along with the United States.