China
Legal and Accounting Services in China
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China Legalities
Business isn't as easy in some countries as it is here in the UK. You need to be aware of the cultural and legal implications of your business operations in China, because you could face heavy punishment for transgressing.
It is therefore important to acclimatise yourself with the law in China. There will be many legalities that you will have to adhere to, and you may even find that some laws you are familiar with here in the UK are no longer applicable. Likewise, you may find some new laws which strike you as strange or even oppressive.
China has what is officially termed ‘a socialist legal system with Chinese characteristics’. The legal system is based on both statutory law and custom.
You must identify whether the market is open to you and whether restrictions apply. In some sectors it is possible to set up a 100% foreign-owned company. In others entry is possible only through a local partner.
Intellectual Property ( IP)
China is a World Trade Organization (WTO) member.
It is essential to know how to use, guard and enforce the rights you have over the IP that you or your business own. As part of your market entry strategy you must:
- Establish how you can protect your rights
- Find out about costs
- Monitor the market for possible infringements
China uses a ‘first-to-file’ system for trademarks. You may lose legal protection if a similar mark has already been registered within China. Therefore, you must register your trademarks in China before entering the market.
Some of the areas to investigate are:
Labour Laws
The body of laws, administrative rulings, and precedents which oversees the legal rights of, and restrictions on, employees and their organisations. This will include things such as minimum wage in China, holiday and maternity entitlement, ergonomics, trade unions, disability, etc.
Commercial Laws
The body of laws which oversee business and commercial activity. It may encompass such areas as principal and agent; freight and shipping; guarantee; marine, fire, life and accident insurance; bills of exchange and partnership; contracts; food and health regulations; safety laws; privacy rights; copyrights; trademarks; etc.
Civil / Common Law
The body of law that oversees sociality. It is invariably culture specific. It is important to familiarise yourself with these laws, especially as you will be adopting a new environment and culture.
Accountants in China
It is recommended, and probably in your best interest, to employ an accountant in China. They'll nearly always save money, and more importantly, will make your business the most financially efficient it can be. Used wisely, accountants in China can make you more profitable than ever.
Accountants in China provide a range of services. They can look after everything financial, from fundamental book-keeping to more expert advice. You could hire accountants in China simply to prepare financial statements for your tax return, or you may require them for other added-value services such as auditing. Accounts must be audited each year, unless the company or region you are based in is exempt.
It is essential to choose an appropriate accountant for your circumstances. If you just want an accountant to take care of your book-keeping, then a small firm will probably suffice. However, if you require astute financial and planning advice, a larger, more reputable company might be needed. Check they're chartered / registered with a recognised accounting body. It is important to lay out exactly what you want them to do for you and what the charges will be.
Keeping a sound financial record is essential. Apply yourself. Have a good system in place and then the time that you do spend on accounts won't be so burdensome. Ensure you retain receipts for everything you buy. It is recommended that you keep a ledger or book with the details of what the receipt is for. Keep a record of all sent and received invoices too. These will keep you informed that you've been paid or have money owing, etc.
Ultimately, applied and diligent record-keeping will keep your accountancy costs low when setting up a business in China.
Tax and customs considerations
The UK has double taxation agreements in place with China.
Value Added Tax (VAT)
VAT is charged on the sales and import of goods as well as processing, repair and replacement services. There are exemptions for the import of certain goods identified in relevant regulations.
The basic VAT rate is 17%, but a lower rate of 13% is levied on a number of goods.
Consumption tax
14 categories of goods are subject to consumption tax. The rate is calculated based on price and is between 1% and 56%.
Corporate tax
Taxes applicable to a Foreign Invested Enterprise (FIE) include:
- Enterprise income tax: 25% (rate for SMEs under Chinese law is 20%)
- Business tax: usually 3% or 5%
The EU SME Centre provides information on Enterprise Income Tax in China.
All service companies obtaining income in China or with consumers located in China are subject to Chinese taxes, unless exempted expressly by Chinese regulations.
Income tax
Individual income tax is charged between 5% and 45%.
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