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
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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
Investment Vehicles in China – Wholly Foreign Owned Enterprise (“WFOE”)
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WFOE Incorporation General Procedures & Timeframe
› Time Frame: 3-4 months
Investment Vehicles in China – Wholly Foreign Owned Enterprise (“WFOE”)
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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
Doing Business in China: Global Risks in Entity Management
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.
Doing Business in China: Global Risks in Entity Management