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

  1. Limited company 
  2. Partnership 
  3. 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.