China Tax & Investment Consultants Ltd

Entry modes for trade and investment in the PRC with varying degree of permanence in descending order

The Legal forms they can take:

Wholly owned subsidiary
Joint venture company
Free trade zone trading company
Contracted manufacturing with guaranteed profits
Processing trades
Branch
Representative office
Licensing and franchise
Resident agent
Cross border trading

Classification as direct and indirect investment

	Foreign direct investment		Indirect foreign investment
1	Wholly foreign owned enterprises	1	Landed property
2	Sino-foreign equity joint venture enterprises	2	Contracted manufacturing with guaranteed profits
3	Sino-foreign cooperative joint venture enterprises	3	Outward processing arrangement
4	Trading company in free trade zones	4	Construction projects
5	Built, transfer, and operate (BOT) project	5	Representative offices

Other alternative forms of investment

PRC Domestic Company

Limited company
Partnership
Sole Proprietorship

PRC Company

PRC companies are incorporated under the PRC Company Law.

Non-resident foreign investors are allowed to hold majority of equity in a company incorporated under the PRC Company Law. In that case, the PRC Company is entitled to have the tax incentives available to those Foreign Investment Enterprises.

If the non-resident foreign investors only have less than 25% in the equity interest, the Company is considered to be a domestic company (內資企業).In that case, no tax incentives are available to the domestic company in the same way as that enjoyed by foreign investment enterprises.

Specifically Hong Kong residents are allowed to incorporate PRC Companies in Guangzhou City. These companies are classified as domestic companies.

Partnership


	Hong Kong residents are allowed to become a member of the partnership formed under the PRC Partnership Law.

Sole proprietorship


	Hong Kong residents are allowed to do business in Guangdong province in the name of a sole proprietor under the PRC Law.

Analysis on the use of different entry vehicles

The following is a comparison between different modes of operation in terms of capital commitment, legal status, ability to sell in domestic market, and income tax liabilities.

	Capital requirement	Legal person status	Being able to issue VAT invoice	Income tax liabilities
Resident agent	No	No	No	No
Licensing	No	No	No	Yes
Representative office / branch	No	No	No	Yes
Construction projects	No *	No	No	Yes
Outward processing arrangement	No *	No	No	Exempt
Contracted Manufacturing	No *	No	Yes	Yes
Foreign investment enterprises	Yes	Yes	Yes	Yes

* In certain cases, the foreign party provides machinery and equipment free for use inside the PRC.

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