Hainan is the smallest
and southernmost province of the People's Republic of China, consisting of
various islands in the South China Sea. Hainan Island, separated from
Guangdong's Leizhou Peninsula by the Qiongzhou Strait, is the largest Chinese
island and makes up the majority of the province.
Haikou is the capital and
most populous city of Hainan province, China. It is situated on the northern
coast of Hainan. Haikou exports substantial quantities of agricultural produce
and livestock. There is a small amount of industry, including canning, textiles,
rice hulling, and light engineering.
Sanya lies at the
southern tip of Hainan Island at Sanya Bay, In recent years Sanya has become a
popular tourist destination Numerous international hotel chains are now
established in the area.
Company setup in Hainan
free trade zone attracts so much attention in these days. As one of China's
foremost tourist destinations, and with its year-long warmth, sunshine and
beautiful tropical beaches, Hainan is an excellent investment destination for
entrepreneurs and businesses. The Chinese central government decreed in April
2018 that HaiNan will open a pioneering free trade zone by 2020, and a similar
free trade port by 2025. It is estimated that economic growth will be more
rapid than that of the Mainland in the next 5 to 10 years.
When investors have
plans on establishing representative office in Hainan, it is better for them to
acquire more information in order to run a successful business in Haikou, Sanya
Hainan China
Haikou Sanya Hainan
Representative Office Setup-Procedures
Preparing all the needed documents→ fill out the application form→ sign the agreement with TCBC→ pay for the services→ submit all the needed documents→ name reservation→ apply for the business license and work card→ go to the public security bureau for stamp-make→ apply for Organization Code License & card→ apply for Setup license of the Local & National Taxation Bureau.
An RO has no legal
personality, meaning it does not possess the capacity for civil rights and
conduct, cannot independently assume civil liability, and is limited in its
hiring ability. Chinese staff working for an RO, although not limited in
number, must be employed through a human resources agency that will sign a
contract with the RO on the one hand and with the Chinese staff on the other in
order to ensure social security and housing fund contributions are paid on a
regular basis. No more than four foreign employees can be hired per RO. Foreign
staff working for ROs should have an employment relationship with the parent
company abroad, and any disputes should be settled under the laws of that
country
Recent Updates to
setting up a Rep Office in Haikou, Sanya Hainan China,
The new restrictions
The January 2010 notice
states that some rep offices have been operating outside of the
restrictions—specifically, changing registration items without authorization,
submitting false supporting registration documents, and conducting business
operations illegally. The notice thus sets out several provisions to strengthen
the administration of rep offices.
Registrations,
renewals, and changes
A new provision in the
notice states that foreign companies applying to establish a rep office in
China must have been in existence for at least two years, as evidenced by an
apostilled certificate of incorporation. This means that foreign companies must
use established vehicles, rather than incorporate new SPVs, to handle their rep
office operations. The notice also requires foreign companies to obtain and
provide new apostilled certificates of incorporation each time they apply to
renew their rep offices’ registration certificates—a potentially onerous
process—and requires rep offices to renew their registration certificates every
year.
Number of
representatives
In addition to stricter
registration and renewal requirements, the notice creates new bureaucratic
hurdles for rep offices’ operations. Specifically, it limits the number of
representatives that a company may appoint to four individuals, including the
office’s chief representative. (Previously, there were no explicit limits on
the number of representatives that a foreign company could appoint.) Existing
rep offices that have more than four representatives may not appoint additional
representatives, though the notice does not specify whether such offices must
reduce this number to comply with the new rules. One local SAIC official in
Beijing indicated that reduction would likely be unnecessary unless a rep
office applies to SAIC to make changes to its registered representatives. (In
addition to SAIC’s registration requirements, the PRC government has found
practical ways to enforce the rule, such as refusing to issue visas or work
permits to foreign employees of rep offices that have more than four registered
representatives.) The notice also does not specify whether the restrictions
would apply to rep offices of companies in industries that require regulatory
approval. Local SAIC officials have provided different answers to this
question, likely because of the limited number of registration applications
that have been received since the notice was issued.
Spot checks
The notice states that
local SAIC branches will perform spot checks on rep offices within three months
after the registration certificates are issued. Rep offices found engaging in
direct operations may be subject to administrative fines, and those discovered
to have moved without updating their registered addresses or operating without
valid registration certificates may be subject to increased scrutiny by the
authorities.
Is a rep office still
worth it?
Though rep offices have
no capitalization requirements, some foreign investors have long debated
whether opening a rep office was worth the time and effort due to the limited
scope of its permitted business activities. Given the recent tighter
restrictions on rep offices, more companies may begin their China operations
with a WFOE, which can conduct revenue-generating activities directly.
Furthermore, increased localization of approval procedures and decreased
capital requirements have made establishing a WFOE less onerous.
Setting up a rep office
may thus be the best choice for a foreign company that is mainly interested in
promoting its overseas products and services and establishing networking
relationships between Chinese businesses and their overseas operations. In
addition, for some entities—such as foreign law firms and certain nonprofit
organizations—a rep office may be the only option for conducting their China
operations.
Many foreign companies
are finding that the question is not simply whether they should set up a WFOE
or a rep office, but rather how they can best take advantage of the vehicles
available for foreign investment through a multifaceted approach. Because
various investment vehicles and industries are subject to different regulations
and authorities, a foreign company may find it advantageous to set up multiple
rep offices, WFOEs, and Sino-foreign JVs. The different permitted business
scopes of these various investment structures may allow companies to conduct
more business in China. The correct approach for investing in China largely
depends on the particular industry and the specific goals of the company.
Recent Updates to
Representative Office Tax Law
The PRC government
earlier this year issued new measures that promise significant changes to how
foreign representative (rep) offices calculate and file taxes in China. The
changes bring China’s law on rep office taxes in line with the 2007 PRC
Enterprise Income Tax (EIT) Law and may subject rep offices to new tax
requirements and potentially higher tax burdens.
According to the
Provisional Measures for Foreign-Enterprise Representative Office Tax Administration,
which were released by the PRC State Administration of Taxation in February
2010 and took effect retroactively from January 1, 2010, foreign rep offices
must now declare and pay income, business, and value-added taxes on income
attributable to the rep office. Previously, rep offices could negotiate EIT
exemptions with local tax bureaus on the basis that their rep office activities
did not generate revenue. Under the new measures, local tax bureaus can no
longer accept new rep office applications for EIT exemptions and must
re-evaluate the applications of rep offices that enjoy existing exemptions.
Only rep offices that have protection under a relevant double tax agreement may
be considered for EIT exemptions.
The measures also
clarified tax registration procedures for rep office staff and offered three
formulas to calculate tax liability, depending on how complete the rep office’s
financial records are:
◾Actual amount method Used when the rep office has kept complete records of its expenditures and revenue, this method is comparable to the tax calculation standard laid out in the EIT Law. (Though rep offices typically do not engage in traditional profit-making activities, income has been assessed—and tax levied—based on the services they provide.)
◾Actual-revenue-deemed-profit method The tax authority will use this method when the rep office has kept complete records of its revenue but not its expenditures. The reported revenue is multiplied by the tax rate and a “deemed profit rate,” which can be no less than 15 percent.
◾Cost-plus method This method is used when the rep office has kept complete records of its expenditures but not its revenue. In this case, the tax authority will generate a figure to indicate revenue: Revenue = expenditures / [1 – deemed profit rate – tax rate].
◾Actual amount method Used when the rep office has kept complete records of its expenditures and revenue, this method is comparable to the tax calculation standard laid out in the EIT Law. (Though rep offices typically do not engage in traditional profit-making activities, income has been assessed—and tax levied—based on the services they provide.)
◾Actual-revenue-deemed-profit method The tax authority will use this method when the rep office has kept complete records of its revenue but not its expenditures. The reported revenue is multiplied by the tax rate and a “deemed profit rate,” which can be no less than 15 percent.
◾Cost-plus method This method is used when the rep office has kept complete records of its expenditures but not its revenue. In this case, the tax authority will generate a figure to indicate revenue: Revenue = expenditures / [1 – deemed profit rate – tax rate].
This figure will then
be multiplied by the determined profit rate and tax rate to calculate tax
liability.
The cost-plus and
actual revenue-deemed-profit methods empower local bureaus to determine the
formula that rep offices must use to calculate their income tax liabilities,
using the all-important deemed profit rate. The new measures increased the
minimum rate from the previous 10 percent to 15 percent. Because 15 percent is
a base rate, however, local tax bureaus may have the discretion to apply a
deemed profit rate that is even higher. The new rules thus create a strong
incentive for rep offices to keep accurate records of their revenue and
expenditures to avoid using the deemed-amount method to calculate tax liabilities.
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