Introduction

The recent shifts in global economic dynamics have created both challenges and opportunities for foreign businesses looking to enter or expand in the vast Chinese market. Despite initial disruptions, foreign investments in China have gradually regained momentum, with a notable resurgence in sectors such as technology and business consulting. Statistics reveal a 20% surge in tech companies and a 30% increase in business consulting firms entering the market, underscoring China's enduring appeal as a strategic destination for international expansion.

Entry Modes for Foreign Enterprises

Foreign enterprises entering China typically navigate through various entry modes tailored to their unique needs and objectives. The most prevalent include:

• Wholly Foreign-Owned Enterprises (WFOEs): Ideal for companies seeking full control over operations and branding. WFOEs allow direct investment without local partners, facilitating independent decision-making and strategy implementation.
• Joint Ventures (JVs): Involving a partnership with a Chinese enterprise, JVs offer access to local knowledge, networks, and potentially reduced market entry barriers. They are particularly attractive to firms seeking to leverage local expertise while maintaining a degree of international influence.
• Representative Offices: Suitable for initial market exploration, these offices engage in non-profit activities like market research, liaison work, and product promotion. They serve as a gateway to understanding the market before committing to a more substantial investment.

Departmental Engagement

To establish a foreign-invested enterprise, it is necessary to liaise with various government departments in a specific order to ensure compliance with regulations. However, please note that the specific departments and the sequence of reporting may vary by region. Therefore, it is crucial to follow the requirements set forth by the local government authorities during the actual process:

• Ministry of Commerce (MOFCOM): Obtain approval for the establishment of the business entity, whether it's a wholly foreign-owned enterprise, a joint venture, or a representative office.
• Administration for Market Regulation (AMR): Register with the Administration for Market Regulation at the company’s location, acquire a business license, and complete all corporate registration formalities.
• Tax Bureau: Conduct tax registration, obtain a tax registration certificate, and understand tax obligations.
• Banking Institutions: Open a corporate bank account for financial transactions and comply with foreign exchange regulations.
• Other Relevant Departments: Depending on the industry, it may also be necessary to obtain approvals from environmental protection, health and safety, or industry-specific regulatory bodies.

Key Considerations

Entering the Chinese market necessitates a thorough assessment of several critical factors:

• Legal Framework: Understanding and complying with China's complex legal system, including intellectual property protection, labour laws, and commercial regulations.
• Taxation: Planning an efficient tax strategy, considering corporate income tax, VAT, and potential incentives for foreign investors.
• Equity Structure: Carefully designing the equity structure to align with business objectives, ensuring flexibility for future growth and potential exits.
• Cultural Adaptation: Recognising and adapting to cultural nuances, consumer preferences, and business practices unique to the Chinese market.
• Market Research: Conducting thorough market research to identify opportunities, assess competition, and understand consumer behaviour.

Conclusion

In conclusion, the evolving global economic landscape offers a compelling opportunity for foreign enterprises to tap into the vibrant Chinese market. By navigating the entry modes, engaging with the relevant departments in a strategic sequence, and addressing key considerations, foreign businesses can successfully establish themselves in this dynamic and promising market.

China Updates

Accounting and Taxation

STA Notice on Further Facilitating the Cross-regional Relocation of Taxpayers and Serving the Development of a Unified and Large Market

• Optimising the processing of pending matters: If a taxpayer applying for cross-regional relocation has pending tax-related matters, these matters shall be immediately forwarded to the taxpayer to determine whether to continue processing. If the taxpayer chooses to continue, tax authorities shall complete such matters within a prescribed time limit; if the taxpayer opts not to continue, tax authorities shall terminate the matters immediately. Matters initiated by tax authorities ex officio shall be processed and completed within the prescribed time limit.
• Simplifying the procedures for using invoices: For a taxpayer who uses fully digitised electronic invoices, the information system will automatically adjust the invoice ceiling to the new location. When using tax-control equipment, if relocating within a province, the taxpayer may update the equipment information online without deregistering it at the original tax authority. For relocations across provinces, the taxpayer may deregister the equipment online and either claim new equipment from the local tax authority or use fully digitised electronic invoices.
• Categorising tax-related risks: For a taxpayer with pending risky tasks, tax authorities shall complete relocation formalities for those with low risks and transfer the risky tasks to the tax authorities at the new location for further processing; for taxpayers with medium and high risks, tax authorities shall complete the risk response as required within the prescribed time limit, and complete the relocation formalities in a timely manner.
• Optimising the tax refund process: Where a taxpayer pays excess tax, the information system will automatically remind it to handle tax refund within a prescribed time limit. If the taxpayer opts to apply for tax refund before relocation, tax authorities shall process the application within a prescribed time limit. If the taxpayer opts not to refund tax for the time being, tax authorities shall guide the taxpayer to apply for tax refund after the relocation.
  

To promote the healthy development of the lottery industry, the State Administration of Taxation, the Ministry of Finance, the Ministry of Civil Affairs and General Administration of Sport jointly issued an Announcement on the Caliber Relating to Application of Tax Law to Lottery Prize Claims on 15 August 2024. The main contents of the Announcement are as follows:

• According to relevant provisions of the Individual Income Tax (“IIT”) Law and its regulations thereof, lottery prize income is classified as contingent income.  IIT is calculated and paid on the basis of the income received each time. The preferential policy allowing an exemption from IIT for income from a single lottery ticket not exceeding RMB 10,000 remains in effect.
• For computer lottery prizes, all the prize money obtained by one individual in a single game during the same period shall be deemed as income from one single winning. For scratch-open lottery tickets, the amount of one lottery ticket is deemed as the income from one single winning.
• The agencies for computer lottery are responsible for withholding IIT according to following instructions:

• This Announcement is effective from 1 September 2024. Lottery tickets which have been sold before this date and are still within the validity period for claiming but haven’t been claimed shall be subjected to this Announcement.

Human Resources

On 1 August 2024, The General Office of the State Council issued the Guiding Opinions on Improving the Long-term Mechanism of Basic Medical Insurance Participation.

The "Opinions" proposed that megacities should effectively implement the policy of insurance participation based on residence permits. This includes promoting the participation of primary and secondary school students and preschool children with foreign household registration in resident medical insurance in their place of permanent residence.

Establish a serious illness insurance incentive mechanism for continuous residents' medical insurance participants and zero-reimbursement personnel. The maximum payment limit for serious illness insurance can be appropriately increased for insured persons who have participated in resident medical insurance continuously for at least four years, with further increases for each successive year. The limit can also be increased the following year for residents with zero reimbursements from the fund.

In principle, each increase in the limit for continuous insurance and zero reimbursement incentives should be no less than 1,000 yuan. The cumulative increase in the total amount should not exceed 20% of the original maximum limit for serious illness insurance in the overall planning area.

Corporate Governance

The Shanghai Municipal Commission of Commerce and other three departments issued the Implementation Plan on Further Optimising the Foreign Investment Environment and Strengthening Efforts to Attract Foreign Investment, which came into effect on 11 July 2024.

The Plan outlines 15 measures aimed at improving the quality of foreign investment utilisation, facilitating foreign investment operations, optimising foreign investment services, and refining foreign investment promotion methods. The Plan clearly holds that it will actively strive for pioneering opening-up measures in key fields such as financial services, biomedicine, and fashion consumption. This includes accelerating the implementation and operation of foreign investment projects in the biomedicine industry and encouraging foreign-invested enterprises in Shanghai to conduct clinical trials of cell and gene therapy drugs already listed overseas, in accordance with the law. The Plan also holds that the concerning governmental authorities shall study and formulate regulations for the cross-border flow of data in the Shanghai Pilot Free Trade Zone, and explore creating a "negative list" and guidance documents for the said cross-border flow of data, focusing on scenarios such as biomedicine, intelligent connected vehicles, shipping, retail, finance, and technology exports.