Doing Business in China: Managing Compliance Risks
1. Tom Racicot
Vice President
Computershare Governance Services
Suzanne Callister
Regional Director, Corporate Services, Asia Pacific
TMF Group
Elizabeth Miner
Subsidiary Governance & Compliance
Thermo Fisher Scientific
March 21 & April 11, 2013
Doing Business in China
Global Risks in Entity Management
2. 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 & Comments
2 Doing Business in China: Global Risks in Entity Management
3. Speaker Profiles
Tom 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’s
Suzanne Callister, Regional Director, Corporate Services APAC, TMF Group
› Responsible for the corporate strategy in the area of bookkeeping, accounting, HR and
payroll and corporate secretarial
› Suzanne is a Fellow of the Hong Kong Institute of Chartered Secretaries, a qualified
member of the Hong Kong Institute of Directors, STEP and IFA
› Offices of TMF in Asia Pacific span from Mumbai to Melbourne
Elizabeth 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 years
3 Doing Business in China: Global Risks in Entity Management
5. China Tops In FDI
5 Doing Business in China: Global Risks in Entity Management
6. Recent Investments In China
6 Doing Business in China: Global Risks in Entity Management
7. Industry Hubs In China –
Hulan
7 Doing Business in China: Global Risks in Entity Management
8. Industry Hubs In China –
Shanghai, Beijing, Chengdu, Suzhou & Chongqing
8 Doing Business in China: Global Risks in Entity Management
9. Industry Hubs In China –
Qingdao, Guangzhou & Shenzhen
9 Doing Business in China: Global Risks in Entity Management
10. Advantages
› Quicker setup
› Simpler management structure and objectives
› Business decisions more flexibly and quickly
› Shorter period for incorporation
› Greater control over IP rights protection
Disadvantages
› Lack of connections, established markets, and
local knowledge
› WFOEs cannot operate in some sensitive areas
such as securities
Investment Vehicles in China –
Wholly Foreign Owned Enterprise (“WFOE”)
Must know:
By law, the minimum registered capital for WFOE
is RMB 30K or 100K for a single-investor WFOE.
Approval authorities typically require a higher
amount 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-up
capital
Total investment
= total registered capital + foreign loan
e.g. USD200,000 = USD140,000 + USD60,000
*Average exchange rate of 2012: USD1=RMB 6.299
10 Doing Business in China: Global Risks in Entity Management
11. Investor Foreign company or individual
Registered office
address
A real physical address with duly signed original lease agreement and Property
Ownership Certificate
Chinese name
format
e.g. #### Consulting (Chengdu) Co., Ltd.
Registered
capital
To be determined based on operating cost of the proposed entity, i.e. at least for
the next 3 years (subject to local bureau’s approval based on industry)
Legal
representative
Chinese or foreigner
Board of Director
& General
Manager
The number of board members should be between 3 ~ 14 or a sole Executive
Director, and a general manager is required
Business scope According to the investors’ intended business scope (subject to approval by local
bureaus)
Board of
Supervisor
One or two Supervisors is also required according to Company Law 2006
Investment Vehicles in China –
Wholly Foreign Owned Enterprise (“WFOE”)
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12. WFOE Incorporation General
Procedures & Timeframe
› Time Frame: 3-4 months
Investment Vehicles in China –
Wholly Foreign Owned Enterprise (“WFOE”)
12 Doing Business in China: Global Risks in Entity Management
13. Adding Value
As 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, tax
clearances have also to be addressed & tax auditor’s selection quotations negotiated
Finding 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” employment
market. Instead of replacing, they outsourced the compliance of their 100+ entities & partnered with TMF
China 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; incorporation
support, M&A, liquidation, changes of registrar particulars; Board Meetings attendance, draft & review Board/Shareholders Resolutions;
Supervision of the appointment and rotation of corporate officers
13 Doing Business in China: Global Risks in Entity Management
14. Cities
Re : Company Secretarial Shanghai Beijing Chengdu Shenzhen
Entity need to apply for Public Registration Cerificate No Yes No No
Annual Examination for Public Registration Certificate No Yes No No
Change of Director (total no. of director after change is remain unchanged)
- filing with Commerce Authority Yes Yes No No
Transfer of Shares
- submission of immediate last year audited report Yes No Yes Yes
Change of Chief Rep ("CR") in Representative Office
- obtaining tax clearance for the resigning CR from the Tax Bureau No
No
(Yes before Jan 2013) Yes Yes
Change of Registered Addressfor Foreign Invested Enterprise out of the original
registered district
- obtaining tax clearance from the Tax Bureau Yes Yes Yes No
Re: Tax
Local Tax Bureau and State Tax Bureau - separate or combine
LTB is responsible for Business Tax, Individual Income Tax
STB is responsible for Corporate Income Tax, VAT
Combined Combined Separated Combined
VAT Reforms Implemented Implemented Not yet implemented Implemented
Tax Surcharge - River Maintenance Fee 1% n/a n/a n/a
Re: HR
Social Security Contribution Rate - Employer Portion
Housing 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 Medical
But It’s All China Isn't It?
14 Doing Business in China: Global Risks in Entity Management
15. Compliance Requirements
RO WFOE /JV Compliance
Requirements
Monthly filing of individual
income tax
Monthly filing of individual income tax
Quarterly filing for corporate
income tax and business tax
Monthly filing of business tax
Annual audit on or before April
of every year
Quarterly filing for corporate income tax
Annual tax filing on or before
April of every year
Annual tax filing on or before April of
every year
Annual examination with
Administration of Industry and
Commerce on or before June
of every year
Annual audit and foreign exchange audit
on or before April of every year
Annual Examination of
Enterprise Code Certificate in
December of every year
Annual Unified Examination filing with 6
mandatory bureaus on or before June of
every year
Annual renewal of Enterprise Code
Certificate on or before December of
every year
Annual Examination
Definition: A supervision and management
system whereby the relevant government
authorities carry out regular inspections on
the company registration items based on
the annual examination documents
submitted by the company once a year.
Period: from March 1 to June 30 of each
calendar year
Extension: 30 days may be postponed upon
approval in case of justifiable reason
In-charge authorities:
• Commission of Commerce
• Statistics Bureau
• Finance Bureau
• Tax Bureau
• State Administration of Foreign Exchange
• Administration of Industry and
Commerce
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16. Subsidiary Governance & Compliance
How 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?
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17. Risks & Concerns: How Are They Managed?
Compliance Risk Concerns
Formation 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?
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18. Formation Data
How 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 property
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19. Approval Process In China
Catherine
A GEMS
approver for
all legal
entities
Reviews the
Formation Request
Approves
or Rejects
the
Request
for the
legal
entity
Adam
A GEMS updater of
data held for
Chinese legal
entities
Forms the
legal entity
and
submits
the
Request
How does the organization Approve Formations?
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20. Verifying Data Accuracy: Ongoing Maintenance
How do you ensure Ongoing Compliance?
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21. Compliance Module
Do you know the entity
is in Good Standing?
› Is the entity in compliance
with international
jurisdictional rules?
› Have you completed
necessary filings?
› Is the entity in compliance
with the by-laws?
› Does it have a complete
data record?
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22. 22
Benefits 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 processes
Audit
Detect
& Edit
Implement
Security
(Risk
Management)
Govern
(Corporate
Governance)
Transparency
Doing Business in China: Global Risks in Entity Management
23. 23
What Other Information Needs to Be Shared?
GEMS
Global Entity
Management System
Legal
Department
Finance
Department
Compliance
Management
Banking
Department
Auditors
Tax
Department
Investors
Relations
Entity
Management
Trade Marks
Department
Who needs current information within a company?
Doing Business in China: Global Risks in Entity Management
24. Annual Examination for WFOE - Legal Liabilities
Fails after 30 June, will be fined
RMB 10,000 ~100,000
Still fails, AIC shall
announce it
Still fails within 60 days as of
announcement, its business
license shall be revoked
Be found deceits in
AE, AIC shall order
corrections within time
limit & be fined RMB
10,000~RMB 50,000
Nullified and revoked
should found have no
capital, site and structure
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25. 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.com
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26. Questions & Comments
Thank you for joining us. What questions do you have?
› Tom Racicot
Computershare Governance Services
tom.racicot@computershare.com
› Suzanne Callister
TMF Group
suzanne.callister@tmf-group.com
› Elizabeth Miner
Thermo Fisher Scientific
elizabeth.miner@thermofisher.com
Register for upcoming webinars at cgs.computershare.com.
Doing Business in China: Global Risks in Entity Management