Foreign Direct Investment

The Business Scope of a Trading Company

To fulfill its commitments made for its WTO accession, from 11 December 2004, China allows wholly foreign-owned trading company to be established in China. According to the Regulations on the Administration of Foreign Investment in Trade Sector (2004) (“the Regulations”), enacted by the Ministry of Commerce, the business scope of a foreign-invested trading company may include: (1) to be a trade agent; (2) wholesale; (3) retail; (4) franchise; (5) export and import.

According to the above Regulations, the categories of the goods to be traded by the trading company should be specified in the company's business scope, for example: wholesale and export of textile, electronic products, furniture, plastic products, hardware, etc.

Registered Capital

According to the above-mentioned Regulations, the minimum registered capital for a foreign-invested company should comply with the requirement of the Chinese Company Law, which provides that the registered capital for a wholesale company should be at least RMB 500,000 (about USD62,000), and for a retail company should be at least RMB300,000 (about USD37,000).

The examination and approval authority may require a higher amount of the registered capital pursuant to the categories of goods which the company is going to trade. For example, if the company wants to trade automobile, a higher amount of registered capital would be required.

The registered capital does not need to be contributed when applying for the registration of the company. After the company being registered, 20% of the registered capital needs to be put into the bank account of the company within 90 days after the registration.

The requirement of the registered capital is to ensure that the company will have enough funds for its operation after being registered. The registered capital is to be used for the expenditures of the company, and it is not allowed to be returned to the investor(s) unless the company is to be terminated (dissolved).
The Government Fees for the Registration of a Trading Company

The government fees include relevant registrations fees, such as the Industry and Commerce Registration Fee, which is 0.08 % of the registered capital, and other registration fees such as the tax registration fee (RMB30), code registration fee (RMB150), customs registration fee (RMB150). If, for example, a company's registered capital is RMB500,000 (USD62,000), the total amount of government fees is around RMB1100 (USD136).

Documents Needed for the Registration of a Trading Company

The following basic documents are required to be submitted to the relevant government departments:

(1)  Identification certificate (such as passport or business registration certificate) of the investor(s);

(2)  Bank Reference Letter issued by bank of the investor(s);

(3)  Documents (such as an office tenancy contract) to prove the use right of an office of the company in China;

(4)  Application Letter for the establishment of the company;

(5)  Feasibility Study Report on the establishment of the company;

(6)  Articles of Incorporation (Articles of Association) of the company;

(7)  Letter with the pre-registered name of the company, issued by the registration authority;

(8)  Name(s) of the board director(s) of the company;

(9) The categories of goods to be traded by the trading company;

(10)  Agreement between/among the investors.

All the above documents shall be in Chinese. If some of them are in foreign language, they need to be translated into Chinese.

We will help our clients to prepare the documents needed. On the above list, documents from item (3) through item (10) could be drafted by our law firm for our clients.
Taxation

According to the Chinese tax laws and regulations, there are mainly two kinds of tax which a trading company needs to pay. One is called the Value Added Tax (VAT), the other the Corporate Profit Tax.

Generally speaking, there is no export tax for exported goods, except for a few kinds of goods specified by the tax regulations. A trading company may get the Value Added Tax (VAT) refunded for the exported goods after the company has been recognized by the tax authority to be qualified to be a General Tax Payer, whose annual turnover must reach or exceed RMB one million and eight hundred thousand (RMB1,800,000, about USD222,000).

Director(s) of a Trading Company

The investor may appoint himself or other Chinese or foreigner to be the director(s) of the Company.

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NOTICE: The material contained herein is in the nature of general comment and information ONLY and neither purports, nor is intended, to be advising on any particular matter. Readers should not act or rely upon any matter or information contained in or implied by the publication without taking appropriate professional advice.

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