The main categories of business for foreign investors (including Hong Kong investors) in the Mainland include Representative Office, Individual Sole Proprietorship and Foreign Invested Enterprises.
An RO can engage in non-profit generating activities that are related to the business of its foreign parent enterprise and business-related liaison activities. ROs cannot operate business directly and they do not have legal person status.
To set up an RO in Wuhan, application could be made to the relevant administrative authorities. A Business Registration Certification and a Representative Certification will be issued after the application has been approved. The RO then needs to proceed with registration procedure.
The Closer Economic Partnership Arrangement (CEPA) states that Hong Kong permanent residents with Chinese nationality may, in line with relevant laws, regulations or administrative rules of the Mainland, establish ISPs in any provinces, municipalities, or autonomous regions in the Mainland without being subject to foreign investment approval process. There is no limit on the number of employees or the size of its business space. The permissible business scope of ISPs of Hong Kong residents covers retail, restaurants, computer services, advertising, clinic, economic, trade and management consulting services, etc.
For more information, please refer to the Wuhan Administration for Industry & Commerce Portal Website (WAIC)(Chinese version only).
There are mainly four types of foreign invested enterprises in the Mainland:
Foreign investment projects are subject to pre-approval requirements in the Mainland. To streamline the pre-approval process, the Ministry of Commerce (MOC) delegates most approval authority over foreign investments to the commerce departments of local governments. According to the Notice of MOC about Delegating Approval Authority over Foreign Investment to Local Counterparts (Shangzifa  No. 209), the delegation of approval authority on foreign investment is set out below:
|Conditions for Delegation||Approval Authority|
1. Foreign investment in Encouraged Industries with total investment below USD 300 million
|Commerce department of local governments|
2. Foreign investment in Restricted Industries with total investment below USD 50 million
3. Foreign investment companies with registered capital below USD 300 million
4. Establishment and alteration of foreign investment enterprise in service sector (excluding those that require approval from MOC as stipulated by relevant laws and regulations).
5. Other foreign investments that do not belong to the above categories.
The Foreign Investment Industrial Guidance Catalogue (hereinafter referred to as "Catalogue") issued by the National Development and Reform Commission (NDRC) and MOC classifies foreign investment projects into three categories: encouraged industries; restricted industries; and prohibited industries. Foreign investment industries that are not listed in the above three categories may be treated as permitted industries. For certain industries, the Catalogue also imposes specific conditions on foreign investments.
For more information about the Catalogue, please refer to the website of the Central People's Government.
When entering into joint venture contracts with Mainland investment partners, investors should pay due attention to issues such as whether the Mainland partner is a legal entity; whether it has valid business registration, its financial strength and capability to perform the contractual duties, etc.
In addition, in line with the Law of Sino-Foreign Equity Joint Ventures and Law of Sino-Foreign Cooperative Joint Ventures, investors should also take note of issues such as the rights and obligations of respective investing parties, the organisation structure of the joint venture, business scope, period of operation, appointment of company management, profit distribution, distribution of assets after termination and liquidation of the joint venture, etc.
For more information, please refer to the website of the WAIC.
Generally, after obtaining pre-approvals from the relevant commerce departments, FIEs could apply for the Business License for Enterprise Legal Person with local administrative authority for industry and commerce. Subsequently, FIEs could arrange for injection of registered capital, the engraving of company seals with the Public Security Bureau, the opening of bank account and perform relevant registrations with relevant government authorities, including tax bureau, foreign exchange administration authority, bureau of quality and technical supervision, customs, statistical bureau, finance bureau and other related government authorities. The Government Affairs Service Centre set up at Wuhan Citizens Home is a one-stop centre where approval and relevant registration could be processed jointly. Please refer to the websites of relevant government authorities listed below for detailed information on the registration as well as the procedures and formalities for setting up FIEs:
For certain industries, foreign investors should apply for required certificates/licenses from relevant authorities before applying for foreign investment approval with the commerce department.
Please note that the above information of set-up procedure for FIE in Wuhan is for reference only, and should not substitute legal or professional advice. For more detailed information and advice on local practice, investors could visit the websites of the Wuhan Commerce Bureau (Wuhan Investment Promotion Bureau) and Wuhan Citizens Home or seek advice from qualified law firms or other professional consulting agencies of the Mainland. Normally, professional consulting agencies could provide services on FIE set-up, which may cover the drafting of Articles of Association, submission of application documents for FIE establishment, negotiation with local government authorities, etc.
According to the new People’s Republic of China (PRC) Company Law that came into effect on 1 March 2014, the registered capital of a limited liability company should be the sum of the capital contribution subscribed by all shareholders registered with the company registration authority. If other laws, administrative regulations and decisions of the State Council specifies the amount of paid-in capital or minimum threshold for the registered capital of a limited liability company, they should be followed.
Total investment of an FIE refers to the total amount of funds needed to run the company, i.e. the total amount of capital for infrastructure construction and working capital that is commensurate with the FIE's production scale. Registered capital of a FIE refers to the total amount of capital registered with the business registration authority for the purpose of establishing the FIE, i.e. the total amount of capital subscribed by foreign investors. Investors are liable for the FIE's debts by their capital contribution. To determine the amount of total investment/registered capital of an FIE, the following debt-equity requirement must be followed according to Gongshangqizi  No. 38 issued by State Administration for Industry and Commerce in February 1987:
|Total Investment (USD)||Minimum Registered Capital (USD)|
Less than 3 million (inclusive)
|70% of total investment.|
Between 3 and 10 million (inclusive)
|50% of total investment, or not lower than 2.1 million if the total investment is below 4.2 million|
Between 10 and 30 million (inclusive)
|40% of total investment, or not lower than 5 million if the total investment is below 12 million|
More than 30 million
|1/3 of total investment, or not lower than 12 million if the total investment is below 36 million|
Despite the above minimum registered capital requirements, the commerce authority has the discretion to determine whether or not to approve the establishment of an FIE having regard to the registered capital of the FIE and its operation scale. For specific requirements of debt-equity ratios in foreign-invested EJV and CJV, investors can seek advice from qualified law firms or professional consulting agencies in the Mainland or communicate with the local in-charge commerce authority.
In leasing operating premises, investors should pay attention to the following issues:
PRC Labour Contract Law came into effect on 1 January 2008, and regulates all employment relationships including establishment, execution, revision, dissolution or termination of labour contracts within the Mainland. In 2012, the Standing Committee of the National People's Congress passed revision of the original Labour Contract Law. The revision came into effect on 1 July 2013.
The Labour Contract Law requires employers to enter into written labour contracts with employees when establishing an employment relationship. In case the employer fails to enter into a written labour contract with the employee within one year after commencement of the employment, an employment contract with indefinite terms would be deemed to have been established with the employee. In such case, the employer should pay the employee double salary on a monthly basis for the one year period since the first month of the employment.
Recruitment methods differ between FIEs and ROs. According to the PRC Labour Law which took effect in 1995, FIEs can hire staff from the local workforce based on their operating needs, as well as determine their own organization structures and human resources. Recruitment can be carried out through different channels, such as engaging authorized professional agencies, posting advertisements, etc.
ROs are required to employ staff through authorized labour agencies. A RO must sign a service contact with a labour agency and the labour agency would establish employment relationship with the employees.
According to the Regulations of Individual Sole Proprietor which came into effect in November 2011, there is no limit to the number of employees that can be hired by an ISP. The ISP should establish employment contract with employees, and should discharge all obligations prescribed under relevant laws and regulations.
Taiwan, Hong Kong and Macao residents will need a work permit for working in the Mainland. If a company plans to hire persons or accept assignees from Taiwan, Hong Kong and Macao, it shall apply for the "Taiwan, Hong Kong and Macao Expatriates Work Permit" (hereinafter referred to as "Work Permit") for the individuals. Hong Kong people who engage in an individual business in the Mainland, shall apply for Work Permit by themselves. For more information on employing Hong Kong residents, please refer to the “Working and Education” section of this website.
Employers could determine remuneration packages for their employees. However, salaries and wages paid to employees shall not be lower than the minimum wages set by local and provincial governments. Employers could establish employee incentive plans, such as performance bonus and stock options, to attract capable employees. Salaries and wages shall be paid on a monthly basis in local currency. Payment date should be agreed upon and documented in the employment contract.
FIEs should follow requirements about the standard working hour prescribed by labour laws in the Mainland. Standard working hours is 8 hours a day and no more than 40 hours a week on average. The employers should deduct the Individual Income Tax (IIT) before making salary payments to employees, and file with and pay the taxes to relevant tax authorities in the month following salary payment.
The PRC Social Security Law which took effect in July 2011 has established a basic social security system, including basic pension, basic medical insurance, work-related injury insurance, unemployment insurance, and maternity insurance, etc. For any expatriate employees being employed in the Mainland, employers should be responsible for contributing to social security on their behalf. The employers' social security contribution, together with the employees' personal contribution, makes up the employees' social security benefits. For Hong Kong residents, employers should, in theory, make contribution to the social security scheme for them. However, since there is no implementation detail with regard to social security payment for Hong Kong residents at the moment, employers could exercise their discretion on whether to enroll their Hong Kong employees in the social security scheme.
According to the Administrative Regulations on the Housing Provident Fund promulgated by the State Council, employers and employees are required to contribute to employees' personal Housing Fund account.
For more information, please refer to the website of the Wuhan Municipal Human Resources and Social Security Bureau.
Foreign investors (including Hong Kong investors) who have set up FIEs or ROs would generally be subject to the following types of China tax : Corporate Income Tax, Withholding Tax, Value Added Tax, Business Tax, Consumption Tax and local surcharges, Stamp Duty, Urban Land Use Tax, Property Tax, Deed Tax, Land Appreciation Tax, Customs Duties, etc. Brief introduction of some of these taxes are set out below. For enquiry on detailed taxation information, please call the hotline of Wuhan Local Taxation Bureau : (8627) 12366.
Enterprises incorporated in the Mainland (such as FIEs) or foreign enterprises incorporated according to the laws of other jurisdictions but have effective management located in the Mainland should pay CIT in the Mainland on their income. The applicable CIT rate is 25%. With respect to foreign enterprises that have no permanent establishment or fixed place of business in China; or have permanent establishment or fixed place of business in the Mainland but the income derived from the Mainland is not effectively connected with the permanent establishment or fixed place of business, they would be subject to a Withholding Tax (WHT) on their China-sourced income. The statutory WHT rate is 10%, which could be reduced by applicable tax treaties between the Chinese government and other national governments.
CIT Taxable income is assessed based on an enterprise's accounting profit, but not necessarily equals to its accounting profit. It is the net amount of the annual gross income less non-taxable income and tax-exempt income, and after deducting applicable costs and expenses and offsetting the net operating loss carried over from previous years.
CIT is calculated on an annual basis and within each tax year, taxpayers should perform provisional CIT filings on a monthly or quarterly basis. The tax year of CIT taxpayers is the calendar year (January 1 to December 31). The provisional CIT filing should be performed within 15 days after the end of each month/quarter. Taxpayers should perform annual CIT filings and settle the CIT due/refund within 5 months from the end of each calendar year.
Income from the sales of tangible goods, provision of services, transfer of intangible assets or real property is subject to PRC VAT or BT.
In accordance with the tax reform objective of the Mainland’s 12th Five Year Plan, the Pilot VAT Reform was announced in the executive meeting of the State Council in October 2011. From January 2012 onwards, Pilot VAT Reform was introduced in selected locations to expand the scope of VAT to cover industries that were previously subject to BT. Shanghai is the first location selected with pilot sectors covering the transportation sector and 6 sub-sectors under the modern services sector (collectively known as “the Pilot industries”, including research & development and technical services, IT services, cultural and creative services, logistics auxiliary services, tangible movable property finance leasing and certification & consultation services).
On 1 August 2012, Pilot VAT Reform was rolled out to 8 other provinces / municipalities. From 1 August 2013, the Pilot VAT Reform was implemented nationwide and its scope has been expanded to cover the radio, film and TV industry. Effective from 1 January 2014, the Pilot VAT Reform was further expanded to cover railway transportation and postal services. From 1 June 2014, the Pilot VAT Reform has been expanded to include telecommunications sector.
In the pilot locations, the taxpayer engaged in the business of the Pilot industries shall be subject to VAT instead of BT. New VAT rates of 6% and 11% were introduced for some of the Pilot industries. Regarding calculations of VAT, prevailing VAT policies continue to adopt different methodologies for general VAT payer and small-scale VAT payer. Detailed information on Pilot VAT Reform is listed as follows:
= Output VAT - Input VAT
|Tangible movable property finance leasing||17%|
|Transportation and postal services, basic telecommunications services||11%|
|R & D and technical services, IT services, cultural and creative services, logistics auxiliary services, certification & consultation services, radio, film & TV production, distribution and broadcasting services, value-added telecommunications services||6%|
|VAT Payable =
Sales income * VAT rate
|All taxable services||3%|
CT is imposed on top of VAT / BT for the sale of 14 specific types of consumer products. According to the Tentative Regulations on Consumption Tax (amended in 2008 and came into force since 1 January 2009), the 14 specified types of product subject to CT include cigarettes, wine and alcohol, cosmetics, gasoline, luxury cars, golf balls and equipment, yachts, luxury watches, etc. CT payable varies amongst different consumer products, and is calculated on the basis of the sales amount and / or the sales volume / quantity.
City Construction Tax (CCT), Education Surcharge (ES) and Local Education Surcharge (LES) are calculated on the basis of the actual payment of VAT, BT and CT (hereinafter referred to as "the Three Taxes"), which are filed and paid together. The calculation is based on the actual payment of the Three Taxes multiplied by the tax rates respectively.
There are three levels of CCT rates in Wuhan (7%, 5% or 1%), depending on the regions of the taxpayer. ES rate is 3% and LES rate is 2%.
Consignee of imported goods, consignor of export goods and owner of entry articles are the responsible taxpayers of Customs Duties. All goods permitted to be imported into or exported out of and all articles allowed to enter into the Mainland shall be subject to payment of Customs Duties unless otherwise specified by the State Council. The tariff items, tariff heading numbers and tariff rates as prescribed in the Customs Import and Export Tariffs of China and the Import Tariff Rates of the PRC for Entry Articles are formulated by the State Council.
Customs Offices are responsible for the collection of Customs Duties of goods imported into the Mainland and other import taxes (including import VAT and consumption tax). To comply with relevant World Trade Organization (WTO) requirements, tariff rates of imported goods have gradually been reduced since 2002. Customs Duties are computed based on customs value assessed by the Customs Offices or quantity.
According to the PRC SD Provisional Regulations ("SD Regulations", effective in October 1988), entities or individuals which conclude or receive the dutiable documents prescribed in the SD Regulations in the PRC are subject to SD.
Since December 2006, the Arrangement between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation on Income and the Prevention of Fiscal Evasion with Respect to Taxes on Income (hereinafter referred to as "Mainland - Hong Kong Tax Arrangement") and its first Protocol came into effect. Subsequently, the second and third protocol came into effect in June 2008 and December 2010 respectively. To enjoy preferential tax treatment of the arrangement, qualified Hong Kong tax residents, who obtained dividends, interest, royalties and / or capital gains from transfer of property from the Mainland, should apply for pre-approval with relevant tax authorities in the Mainland for eligibility of preferential tax arrangements. For the dividend, interest, royalties and capital gains originated in the Mainland and derived by Hong Kong residents, but are not eligible for preferential treatment under the Mainland - Hong Kong Tax Arrangement, it would be subject to WHT at the standard rate of 10%.
Applicable WHT rates under Mainland - Hong Kong Tax Arrangement (Note)
|5% / 10%||7% / 10%||7% / 10%||0% / 10%|
Note : the preferential rates would apply only if the income recipient meets necessary requirements and is eligible for the preferential tax treatments under the Mainland - Hong Kong Tax Arrangement.
Trademark, patent, copyright, and business secrets are the major types of IP in the Mainland. There are relevant laws and regulations for the protection of IP rights, sanction of IP right infringement and settlement of IP right dispute.
When infringement on IP rights occurs, the rights' holder or other affected parties may request an administrative remedy from relevant administrative authorities or directly file lawsuit with a people's court. The main administrative punishments on IP right infringement include: ordering the assailant to stop IP right infringement activity and to compensate the IP right owner for any losses incurred and cash fines; in case of severe IP right violation, the assailant might be subject to criminal punishment.
For more information on the application of patent, trademark and copyright in the Mainland, please seek professional advice or visit the official websites of relevant government authorities listed below :