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Tighter control of Foreign Companies in Beijing - Tax Bureau Issues New Regulation on Representative Office Taxation
Representative Offices (ROs) from foreign companies in China are in theory
not commercial entities, and therefore have no business licenses. This means
that they may not write invoices, or even receive money from anyone except their
head office. They are allowed to conduct certain operations such as market
research, business liaisons and other preparatory services for the head office,
without being taxed in any way.
Despite the RO’s tax-free status certain other activities are allowed and
taxed. These include services for the head office, such as legal, tax and
consultancy services. Other taxable activities include: services by ROs of
trading companies, transport companies, advertising agencies and tourism
companies. Note that all these activities are services provided only to the head
office.
Some ROs circumvent the rule barring them from doing business with third
parties, by informally billing their own head office for services provided to
third parties. The head office then bills the third party. Thus, although the RO
provides a taxable service, the payment happens completely outside of China.
Often the head office passes the payment back to the RO in China. This means
that the RO has effectively received payment for its service, without paying tax
on the profit (money transfers from head offices to affiliated ROs are
tax-free).
Theoretically, ROs should pay tax on any service rendered to their head
office too, but it is difficult for the tax authorities to prove that a service
has been provided, using only an expense statement; especially since the only
input for certain services is labour time, and this appears nowhere on an
expense statement outside the labour cost.
In order to gain tax revenue from these currently undeclared transactions,
the Beijing tax bureau has pioneered new legislation, which imposes more
stringent controls on the tax reporting of ROs.
Effective as of July 1st, 2003, ROs are required to provide more detailed
information on their transactions. This legislation targets especially ROs of
service companies. All ROs should expect more frequent surprise audits,
especially those, who declare no taxable income at all.
The changes affect only Beijing. Tax Bureaus in Shanghai and Guangdong have
not issued such rulings yet, although they are expected to do so, in the future.
Visit Fiducia’s China Biz Library for the full version of the article
describing the changes and comparing the old and the new taxation methods.
Finding your Brand Name in China
Branding has proven to be a powerful tool for increasing profit or market share
– often both. However, in China you should think at least three or four times
before entering the branding game.
In China, companies that are trying to establish a successful brand face even
more difficulties than in Western countries. Cultural differences regarding
people’s associations with the form and colour-scheme of a logo require equally
strong attention and care as the brand-name.
Good examples for these peculiarities of the Chinese culture are the colours
blue and white which are extensively used by Western companies as the colour-scheme
of their choice. In China, however, these colours represent death and thus are
not a favourable scheme at all.
As pointed out there are many problems to be addressed when creating a brand in
China. Still, one of the first steps when entering a market is to choose a
suitable brand name. A good brand name helps to establish and communicate brand
value. It should be distinctive (memorable, unique) and relevant (to brand
values, product category, customers).
This is especially true for China but also especially difficult: In China it is
not an easy task finding a good name and should not be neglected. Often it pays
well to do a lot of research. .
When translating you should consider your international name and core brand
values. It is important to work with professionals with both local language
capabilities and knowledge about your company.
One thing to remember is to check the name in different dialects – a good name
in Mandarin could sound terrible in Shanghainese or Cantonese.
Generally we can see six different approaches to generate a Chinese brand name.
Click here to download PDF document for an overview on these different ways.
Written by Stefan Ronnquist - Stefan Ronnquist has over 20 years of
experience in international marketing. He is Managing Director/Creative Director
at The Tomorrow Group, a Hong Kong based b2b marketing and branding agency.
(www.tomorrow.com.hk)
Zhejiang Province – a Good Ground for Foreign Investment?
China’s Zhejiang province is struggling to be an integrated part of the booming
Yangtze Delta Region. In economic figures already the fourth largest province in
China, Zhejiang is accounting for 7.5% of China’s total GDP and has the fourth
largest gross industrial output on the mainland. In terms of foreign
corporation, Zhejiang has the fourth largest export value and the highest
year-to-year growth rates of foreign direct investment in China since 1999 – in
average 35 per cent.
Despite the impressive figures, Zhejiang is still struggling to rid itself of
the notion of being Shanghai’s little brother: In the Yangtze Delta Region
Zhejiang stays behind Shanghai in terms of overall economic performance
but the province is keen to benefit from the economic growth in the region by
creating an attractive business environment to lure foreign investors
The establishment of development zones offering preferential policies for
foreign investors has been important to attract foreign investors. Zhejiang now
has around 10 state level development zones and more than 50 provincial approved
development zones.
Most of the state level zones are found in Northern Zhejiang around the Hangzhou
Bay and include the free trade zone in Ningbo and two newly approved export
processing zones in Ningbo and Jiaxing. The explosion of development zones in
Zhejiang is a respond to a similar pattern in the rest of China.
In terms of operational costs Zhejiang is comparatively cheap. In Hangzhou
and Ningbo average labor prices for management and labor staff is up to
40% to 50% cheaper than Shanghai. Land prices in Hangzhou are similar to
Shanghai Puxi area but 50% lower compared to Shanghai Pudong New district,
whilst land prices in Ningbo Free Trade Zone are 50% lower than that of
Shanghai’s Waigaoqiao Free Trade Zone.
However, foreign investors should be aware that some of the local zones do not
have proper certificates to operate. This year the State Council made an
announcement of completely banning the establishment of new development zones and
put the expansion of
existing ones to a hold. Furthermore a campaign to investigate operation and particular
land leasing in existing zones was begun.
Another important way to improve the environment for foreign investors is
improving the infrastructure. Recently the construction of the Shanghai Ningbo
sea bridge over the Hangzhou Bay started. The project will reduce the driving
distance between Zhejiang’s Ningbo, one of China’s leading port cities, and Shanghai by 120km.
Another bridge over the Hangzhou Bay between Shaoxing and Jiaxing is scheduled
to be completed by 2008.
These projects will contribute to better integration between Zhejiang, Shanghai
and Jiangsu. Thus northern Zhejiang will be an attractive alternative for
foreign investors to Shanghai and Jiangsu.
Please contact our office in Shanghai if you want to know more about investment
in Zhejiang province
(shanghai@fiducia-china.com)
China’s Media Industry is Opening Gradually
During the two years following China’s accession to the WTO, we have witnessed
the opening up of a number of PRC industries previously off-limits to foreign
investment. But there are still a handful of industries, which are closed
to foreign investors. The media industry is one of the more notable examples.
However, one step towards liberalization of the mainland’s tightly controlled
media industry was taken when the State Administration of Radio, Film and
Television (SARFT) agreed on granting television production licenses to eight
privately owned Chinese companies in August 2003. These new measures are a first
sign of emerging pressure on China to produce high quality TV, beneficial as
well for the Chinese TV consumers as for international companies trying to enter
the vast market.
Chances for foreign investors
With China’s increasing consumer spending power and huge growth-potential in
terms of advertising spending, foreign investors have been keeping an eye on the
Chinese media industry for some time. China is not committed under the WTO
Protocol to liberalize foreign investment in the media industry. Therefore it
came as something of a surprise to many China watchers, when they learned in
July of this year that parts of the media industry could open up to foreign
investment in the near future.
According to a news report published in the Nanfang Wang, a Newspaper Industry
Reform Plan (the “Reform Plan”) has been completed by the State News Publication
Bureau and submitted to the Propaganda Department of the Communist Party for
approval. Sources indicate that under the Reform Plan, all but a handful
of printed media would be de-linked from their respective government
administrators and opened up to both domestic and foreign private investment.
According to the news report, the Reform Plan further proposes that the equity
cap for private investment be set at 40% (no matter whether domestic or
foreign).
Another major liberalization regards allowing the distribution of more foreign
cable channels than before. “China has a huge programming gap,” says
Jeanne-Marie Gescher, a Beijing based media consultant with Claydon-Gescher
Associations. ”The number of hours of TV production doesn’t even meet
one-quarter of the need.” About 30 foreign channels have been approved for
broadcasting on the mainland, but being beamed by satellite, they reach only a
limited audience of foreign residence compounds and luxury hotels.
Conclusion
Only time will show whether the approved reform plan will contain substantially
the same contents as its draft. In particular, it remains to be seen how the PRC
Government will regulate the content published or broadcasted. It is the answers
to these questions that will determine whether or not multinational media
corporations will invest substantially in China’s media industry - one of the
final frontiers in terms of foreign direct investment in China.
Beijing Rep. Office
Unit 0603, Landmark Tower 2, Chaoyang
District,
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Tel: (+86) 10 6590 6108
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10 6590 6109 |
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South Tower, China Merchants Plaza,
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Shanghai, P.R. China
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1807 |
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518033 Shenzhen,
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