Doing business in China

Tom RacicotVice PresidentComputershare Governance Services

Suzanne CallisterRegional Director, Corporate Services, Asia PacificTMF Group

Elizabeth MinerSubsidiary Governance & ComplianceThermo Fisher Scientific

March 21 & April 11, 2013

Doing Business in ChinaGlobal Risks in Entity Management

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Today’s Agenda

› Welcome to Doing Business in China, India & Brazil

webinars

› Register at cgs.computershare.com

› Introductions

› Overview of Investment Vehicles in China

› Benefits & Compliance Concerns in China

› The Role of Technology in Managing Compliance

Concerns

› Questions & CommentsDoing Business in China: Global Risks in Entity Management

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Speaker Profiles

Tom Racicot, Vice President, Computershare Governance Services (CGS)

› Global head of sales for compliance suite of governance products (entity management, SEC filings and corporate board portals)

› Governance engagements at hundreds of Fortune 500 & FTSE 250 co’s

Suzanne Callister, Regional Director, Corporate Services APAC, TMF Group

› Responsible for the corporate strategy in the area of bookkeeping, accounting, HR and payroll and corporate secretarial

› Suzanne is a Fellow of the Hong Kong Institute of Chartered Secretaries, a qualified member of the Hong Kong Institute of Directors, STEP and IFA

› Offices of TMF in Asia Pacific span from Mumbai to Melbourne

Elizabeth Miner, Subsidiary Governance & Compliance, Thermo Fisher› Oversight of governance team managing over 700 global subsidiaries› Oversees17 active China entities› CGS GEMS client for past 2 years

Doing Business in China: Global Risks in Entity Management

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Foreign Direct Investment Breakdown


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China Tops In FDI


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Recent Investments In China


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Industry Hubs In China –Hulan


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Industry Hubs In China – Shanghai, Beijing, Chengdu, Suzhou & Chongqing


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Industry Hubs In China –Qingdao, Guangzhou & Shenzhen


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Advantages › Quicker setup › Simpler management structure and

objectives › Business decisions more flexibly and

quickly › Shorter period for incorporation › Greater control over IP rights protection

Disadvantages› Lack of connections, established

markets, and local knowledge › WFOEs cannot operate in some sensitive

areas such as securities

Investment Vehicles in China – Wholly Foreign Owned Enterprise (“WFOE”)

Must know: By law, the minimum registered capital for

WFOE is RMB 30K or 100K for a single-investor WFOE. Approval authorities typically require a higher amount in practice.

Furthermore: Injection of registered capital: – First 3 months: 15% of paid-up capital

(min. RMB 30,000) – Within 2 years: remaining 85% of paid-up

capital Total investment

= total registered capital + foreign loan e.g. USD200,000 = USD140,000 + USD60,000

*Average exchange rate of 2012: USD1=RMB 6.299


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Investor Foreign company or individual

Registered office address

A real physical address with duly signed original lease agreement and Property Ownership Certificate

Chinese name format

e.g. #### Consulting (Chengdu) Co., Ltd.

Registered capital

To be determined based on operating cost of the proposed entity, i.e. at least for the next 3 years (subject to local bureau’s approval based on industry)

Legal representative

Chinese or foreigner

Board of Director & General Manager

The number of board members should be between 3 ~ 14 or a sole Executive Director, and a general manager is required

Business scope According to the investors’ intended business scope (subject to approval by local bureaus)

Board of Supervisor

One or two Supervisors is also required according to Company Law 2006



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WFOE Incorporation General Procedures & Timeframe

› Time Frame: 3-4 months



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Adding Value

As compliance is complex in China you need to “look around” the whole situation.› TMF can provide insight & provide some local practical tips to ensure the tax clearance goes smoothly.

eg. Cross-district relocation can be tricky; When filing a registered address change application, tax clearances have also to be addressed & tax auditor’s selection quotations negotiated

Finding the right people in China with the skill set you need.› Qualified & experienced staff are hard to find and keep, TMF provide an alternative solution. eg. An engineering company lost their internal corporate governance manager to the “hot” employment market. Instead of replacing, they outsourced the compliance of their 100+ entities & partnered with TMF China to provide the required technical expertise subject to high international standards*

Expanding in China can be like entering a different country each time. › Variance on local practices in different cities/provinces can be a headache. With offices all over China, TMF have the local knowledge you need to succeed.

eg. A client establishing in Shanghai, Beijing, Chengdu & Shenzhen faced the following issues…

*SoW: review of subsidiaries , guidance on local legal requirements & procedures from corporate secretarial perspective; incorporation support, M&A, liquidation, changes of registrar particulars; Board Meetings attendance, draft & review Board/Shareholders Resolutions; Supervision of the appointment and rotation of corporate officers


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Cities

Re : Company Secretarial Shanghai Beijing Chengdu Shenzhen

Entity need to apply for Public Registration Cerificate No Yes No No

Annual Examination for Public Registration Certificate No Yes No No

Change of Director (total no. of director after change is remain unchanged)- filing with Commerce Authority Yes Yes No No

Transfer of Shares - submission of immediate last year audited report Yes No Yes Yes

Change of Chief Rep ("CR") in Representative Office - obtaining tax clearance for the resigning CR from the Tax Bureau No

No(Yes before Jan 2013) Yes Yes

Change of Registered Addressfor Foreign Invested Enterprise out of the original registered district - obtaining tax clearance from the Tax Bureau Yes Yes Yes No Re: Tax

Local Tax Bureau and State Tax Bureau - separate or combineLTB is responsible for Business Tax, Individual Income TaxSTB is responsible for Corporate Income Tax, VAT

Combined Combined Separated Combined

VAT Reforms Implemented Implemented Not yet implemented ImplementedTax Surcharge - River Maintenance Fee 1% n/a n/a n/a Re: HR

Social Security Contribution Rate - Employer Portion Housing Fund 7% 12% 6%-15% 5%-20%Pension 22% 20% 20% 10%-11%Medical 12% 10% 6.5% 7%Injury 0.5% 0.5% 0.6%-2% 0.4%-1.2%

Maternity 0.8% 0.8% 0.6% included in Medical

But It’s All China Isn't It?


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Compliance Requirements

RO WFOE /JV Compliance Requirements

Monthly filing of individual income tax

Monthly filing of individual income tax

Quarterly filing for corporate income tax and business tax

Monthly filing of business tax

Annual audit on or before April of every year

Quarterly filing for corporate income tax

Annual tax filing on or before April of every year

Annual tax filing on or before April of every year

Annual examination with Administration of Industry and Commerce on or before June of every year

Annual audit and foreign exchange audit on or before April of every year

Annual Examination of Enterprise Code Certificate in December of every year

Annual Unified Examination filing with 6 mandatory bureaus on or before June of every year

Annual renewal of Enterprise Code Certificate on or before December of every year

Annual Examination

Definition: A supervision and management system whereby the relevant government authorities carry out regular inspections on the company registration items based on the annual examination documents submitted by the company once a year.

Period: from March 1 to June 30 of each calendar year

Extension: 30 days may be postponed upon approval in case of justifiable reason

In-charge authorities: • Commission of Commerce• Statistics Bureau• Finance Bureau• Tax Bureau• State Administration of Foreign

Exchange• Administration of Industry and

Commerce


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Subsidiary Governance & Compliance

How do you manage the Compliance Risks?

› Is there professional firm assigned?

› Are local rules being followed?

› Entity setup in accordance with founding documents?

› Are filings being managed?

› When have entities been reviewed?


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Risks & Concerns: How Are They Managed?

Compliance Risk Concerns

Formation Is there a formal workflow approval process?

Organizational Notification Who else needs to know?

Board Details/Formation Who needs to understand this?

Jurisdictional Rules Does the organization understand what is required?

Necessary Filings Are there penalties, requirements to consider?

Registered Capital How is this managed?

Intellectual Property Protection How do you confirm these are protected?

Ongoing Maintenance Can you verify entity information is accurate?


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Formation Data

How are these recorded and reviewed?

› Local counsel/Service Provider can initiate the

process

› Subject to review and approval

› Entity name

› By-laws/articles of incorporation

› Registered capital

› Intellectual property


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Approval Process In China

CatherineA GEMS

approver for all legal entities

Reviews the Formation Request

Approves or

Rejects the

Request for the legal entity

AdamA GEMS updater of data held for Chinese legal

entities

Forms the legal

entity and submits

the Request

How does the organization Approve Formations?


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Verifying Data Accuracy: Ongoing Maintenance

How do you ensure Ongoing Compliance?


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Compliance Module

Do you know the entity is in Good Standing?› Is the entity in

compliance with international jurisdictional rules?

› Have you completed necessary filings?

› Is the entity in compliance with the by-laws?

› Does it have a complete data record?


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Benefits of a Compliance Dashboard

› Continious audits using self-defined parameters

› Conduct validity checks› Compliance monitoring

› Detect and resolve issues in time› Integrated Notification Manager & Task-

Manager

› Enforce compliance standards › Flexible user screens, report-wizards,

integration of business processes

Audit

Detect & Edit

Implement

Security(Risk

Management)

Govern(Corporate Governanc

e)

Transparency


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What Other Information Needs to Be Shared?

GEMS Global Entity Management

System

LegalDepartment

FinanceDepartment

ComplianceManagement

BankingDepartment

Auditors

TaxDepartment

InvestorsRelations

Entity Management

Trade Marks Department

Who needs current information within a company?


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Annual Examination for WFOE - Legal Liabilities

Fails after 30 June, will be fined RMB 10,000 ~100,000

Still fails, AIC shall announce it

Still fails within 60 days as of announcement, its business license shall be revoked

Be found deceits in AE, AIC shall order corrections within time limit & be fined RMB 10,000~RMB 50,000

Nullified and revoked should found have no capital, site and structure


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Next Webinars: China, India & Brazil

› Doing Business in China, March 21 @ 1 pm EDT› Doing Business in China, April 11 @ 1 pm GMT› Doing Business in India, May 15 @ 1 pm EDT› Doing Business in India, May 22 @ 1 pm GMT› Doing Business in Brazil, June 19 @ 1 pm EDT› Doing Business in Brazil, June 26 @ 1 pm GMT

› Register at cgs.computershare.com


Questions & Comments

Thank you for joining us. What questions do you have?

› Tom RacicotComputershare Governance [email protected]

› Suzanne CallisterTMF [email protected]

› Elizabeth MinerThermo Fisher [email protected]

Register for upcoming webinars at cgs.computershare.com.
