Operation & Administration of Foreign Invested Enterprises

With the entering of WTO in the near future, China will surely practice National Treatment Status to Foreign Invested Enterprises progressively. The practice of National Treatment Status doesn't mean either the total cancellation of preferential polices to Foreign Invested Enterprises or the total opening of Chinese domestic market.

63. What other formalities should be done after a Foreign-invested Enterprise gets its Business License?

1) to apply for the official seals at Shanghai Public Security Bureau;

2) to apply for the foreign exchange registration certificate at the Shanghai Foreign Exchange Administration Bureau;'

3) to open the RMB and foreign currency account;

4) to go through the tax registration at the Tax Bureau;

5) to apply for Corporation Code Certificate at the Shanghai Technology Supervising Bureau;

6) to go through the Customs registration;

7) to go through the Commodity Inspection registration at the Commodity Inspection Bureau;

8) to go through the registration at the Shanghai Statistic Bureau;

9) to go through the employee recruitment procedure at the Labour Bureau and overseas person's working procedure at the Foreigner Working Administration Office or Taiwanese, Hongkongese and Macaunese Working Administration Office in the Labour Bureau.

64. Does the Customs have any regulations about foreign-invested enterprises and their imports and exports?

In accordance with Customs Law of the P.R.C. and relevant regulations, the Customs has formulated the following major regulations to administrate foreign invested enterprises imports and exports:

(1) Once approved for establishment, a foreign-invested enterprise shall register to the Customs.

The enterprise shall fill out the application for declaration registration and prepare the following papers:

A. A duplicate or photo copy of approved business opening certificate;

B. A duplicate or photo copy of the business license issued by ICAB;

C. The financial guarantee issued by the bank (Hand in when the Customs considers it necessary);

D. Relevant papers to show the business operations of the enterprise.

Once examined and approved by the Customs, the foreign-invested enterprise will be given the Certificate of Declaration Registration and pay service charge for it.

Given the Certificate of Declaration Registration, the foreign-invested enterprise shall choose a full-timer in charge of or a person with special responsibility for declaration at the Customs. They will receive special training from the Customs. If they are qualified through tests, they'll be given a Certificate of Declarer. With this, they can handle declaration.

(2) Raw materials, fuel, components, parts, accessories and packing materials imported by a foreign-invested enterprise to fulfil export contract of goods for export are exempt from import duty. The Customs shall supervise in accordance with relevant provisions and issue "A Registration Booklet of the Customs of the P.R.C. About Imported Materials and Parts to Be Processed for Export." The enterprise doesn't have to obtain import license for the goods mentioned above. And the Customs examines and releases the goods according to its enterprise contract or its import and export contract.

(3) While following the procedure of declaration on imported or exported goods, the foreign-invested enterprise shall fill out the Customs Declaration Form on Imports (Exports), and declare to the Customs with the receipt of the list of goods transported. If the goods imported or exported need licensing, the Customs will cheek the license as well.

(4) In accordance with the regulation, the receiver of the imported goods shall declare to the Customs within 14 days after the means of transport declares its arrival, and the sender of exported goods shall declare to the Customs 24 hours prior to the loading except those with special permission of the Customs.

(5) Imported and exported goods shall be subject to the Customs' examination.

(6) Materials and parts imported through a Free Duty Zone and used to manufacture products for domestic market shall be subject to normal import formalities. The foreign-invested enterprise shall have its import license examined by the Customs for its licensed commodities and shall pay import duties and VAT for the materials and parts.

65. Is it necessary to get the assessment from the relevant government authority when the Foreign Invested Enterprises use equipment as their capital contribution?

It is necessary for foreign investors to get approval from the government authority in case that they use equipment as capital contribution. The Commodity Inspection Bureau is responsible for assessing the value of the equipment and the Custom Office will impose import duty on the equipment on basis of the assessed value.

66. What procedures shall the Foreign Invested Enterprises follow to exchange the foreign currencies at the bank?

The Foreign Invested Enterprises should apply to their account-opening bank for handling the foreign exchange and then provide the necessary documents such as Application Form for exchanging foreign currency, payment voucher of foreign currency or cheque according to the bank's requirements.

67. How are the products manufactured in Foreign-invested Enterprises exported?

Foreign invested enterprises can directly export their products or entrust Chinese foreign trade company to handle it.

68. How shall a foreign-invested enterprise organise its production and export if some of the products are under the administration of state export license?

A foreign-invested enterprise shall be ratified by the responsible department of the State before establishment if it is going to manufacture products that need license for export. Having begun its production, the enterprise shall declare its annual plan within the scale ratified by the State. The responsible department of the State will issue an annual export license to the enterprise.

69. How can a foreign-invested enterprise obtain an import license?

A foreign-invested enterprise shall submit its application to the responsible government authority if it is going to import products which are licensed for import by the state. Under the prerequisite of reasonable use, the government will arrange for the enterprise an import license within the allocation by the State.

70. What should Foreign Invested Enterprises do to establish branches?

The Foreign Invested Enterprises should apply to the original Registration Administration Bureau for Industry and Commerce for the establishment of branches in China according to the relevant regulations. The Foreign-Invested Enterprise shall have paid its registered capital periodically according to regulation and have started production if it wants to establish branches in China, and it should have paid all its registered capital if it wants to establish any operative branches.

71. Can Foreign Invested Enterprises establish branches out of China?

The Foreign Invested Enterprises shall fully contribute their registered capital which is verified by the CPA according to the Articles of Association and have started production (or open business) for at least one year and manufacturing enterprises shall have certain volume of export before they apply to establish overseas branches including sub-company and representative office. The Foreign Economic and Co-operation Department of State Council is responsible for the examination and approval of the application to establish overseas sub-company, while the Foreign Economic and Trade Commission of Provincial level is responsible for the representative office. The Foreign Economic and Co-operation Department of State Council is also responsible for the application submitted by the enterprise whose Certificate of Approval is issued by the same department.

72. Can Foreign Invested Enterprises enjoy the tax-refund policy for their exported products?

Foreign Invested Enterprises established after January 1, 1994 can apply to the tax bureau monthly for VAT exemption for their exported products with necessary documents. The current taxable VAT for the domestically sold products can be offset by the income VAT amount and if the former one is greater than the later one, the balance can be refunded.

73. What's the difference between VAT and Consolidated Industrial and Commercial Tax?

Consolidated Industrial and Commercial Tax is an old tax system with too narrow tax items and duplicate taxation. It is disadvantageous to fair competition between domestic enterprises and Foreign Invested Enterprises with two different tax systems. The VAT now practised imposes tax on basis of added value, which overcomes the shortcoming of Consolidated Industrial and Commercial Tax, standardises the tax system and equalises the tax burden.

74. How can a trademark be registered in China?

Applying for a trade mark registration should be classified according to Commodity Classification Table and the application shall be handed to a trademark business office.

75. What's the provision about the legal-person of a Foreign-invested Enterprise?

Chairman of the Board is the legal representative of the enterprise.

76. Can a foreign investor remit abroad his share of profit from the Foreign- Invested Enterprise?

Yes, he can.

77. Shall a foreign investor be levied on his share of profit from the Foreign- Invested Enterprise?

He's exempt from the income tax because his share of profit from the foreign invested enterprise belongs to the profit after taxation.

78. How does a foreign management staff in a Foreign-invested Enterprise pay personal income tax?

The income of foreigners now working in China should be taxed. The taxable income is monthly income with 4,OOORMB reduction.

The personal income tax rate form: (applicable to wages and salaries ):

Grade	Monthly Income Taxable (RMB)	Tax Rate %
1	550 or less	5
2	The section from 500 plus to 2,000	10
3	The section from 2,000 plus to 5,000	15
4	The section from 5,000 plus to 20,000	20
5	The section from 20,000 plus to 40,000	25
6	The section from 40,000 plus to 60,000	30
7	The section from 60,000 plus to 80,000	35
8	The section from 80,000 plus to 100,000	40
9	The section exceeding 100,000	45

79. What preferential policy can foreign investors enjoy if they reinvest the after-tax profit obtained from the Foreign Invested Enterprise?

Foreign investors can get refund of company income tax imposed on the amount of reinvestment through application to and approval by the tax bureau if they reinvest the after-tax profit in the high-tech or export-oriented enterprises in China with at least five-year operation period. For an ordinary manufacturing project, the refund percentage is 40%.

80. Can a foreign-invested enterprise borrow a loan from a bank inside China and what's the interest rate upon loans?

According to the needs of business, a foreign-invested enterprise can apply for a loan of either foreign exchange or RMB from bank inside China. The interest rate is promulgated by the People's Bank of China.

81. How do the Chinese and the foreign party share the loss in the joint venture?

The Sino-foreign joint venture inside China ratified by the Chinese government is a responsible corporation limited with the position of a legal- person. The investment proportion shall be discussed and agreed upon by both Chinese and foreign parties, who together share investment, operation of the business, risks, profits and losses.

82. How is a dispute solved between the two parties of either a Sino- foreign joint venture or a Sino-foreign co-operative enterprise?

Any dispute that occurs in the explanation or implementation of the joint ventures agreement, contract and Articles of Association had better be solved through negotiation or conciliation. If negotiation or conciliation fails, it can be brought to the court of arbitration or administration of justice.

According to the written-agreement on arbitration, each party of the association can have their dispute solved by the court of arbitration. Arbitration can be handled in accordance with the arbitration procedures of the China's Arbitration Committee of International Trade and Commerce. With the consent of each party concerned, the dispute can also be handled by an arbitrary organisation in the country prosecuted or in a third country, following its arbitration procedures.

If there is no written agreement on arbitration between the parties of the negotiation, either party can bring the dispute to the People's Court of Justice according to law.

83. Can foreign businessmen working for Foreign-invested Enterprises apply for a multi-exit and re-entry visa?

Yes. After getting the working permission from the Labour Bureau, foreign businessman can apply to the Exit and Entry Department of Shanghai Municipal Bureau of Public Security.

84. Can foreign employees of a Foreign-invested Enterprise remit their pay abroad?

Yes. The foreign employees of a foreign-invested enterprise can remit abroad their salaries and other proper incomes after fully paying the income tax.

85. Can a foreign-invested enterprise open a bank account at a foreign bank in China?

With the business license issued by the State ICAB, any foreign-invested enterprise can open bank accounts of both foreign exchange and RMB at any bank or at any other financial institution which is permitted to handle foreign exchange business by the State Foreign Exchange Administration Department.

86. Can a Foreign-invested Enterprise withdraw the interest of its capital?

The interest of a foreign-invested enterprise's capital cannot be listed as the cost or expenditure.

87. What sort of funds shall a foreign-invested enterprise extract from its profit after enterprise income tax is paid?

The proportion of extraction for the reserve funds, staffs reward and welfare funds as well as enterprise development funds shall be decided by the Board. It's not necessary for a wholly foreign owned enterprise to extract enterprise' development funds. As far as reserve fund is concerned, the foreign invested enterprises shall extract from its after-tax profit no less than 10 percent for its reserved funds. When the reserved funds extracted is added up to 50% of its registered capital, the enterprise doesn't have to extract any more.

The reserve funds is used to cover loss; the enterprise' development funds is normally used to expand operation and increase investment with approval from the original examination and approval department, while the staffs reward and welfare funds is used as irregular reward to employees and other collective welfare such as allowance to employees' house purchasing, construction and repairing.

88. What sort of employee's welfare shall a foreign-invested enterprise be responsible for?

(1) A foreign invested enterprise shall pay to the government social insurance administration department 25.5% of the total net income of all the Chinese employees as their pension insurance fund and 4.5% as medical insurance every month.

(2) A foreign invested enterprise shall pay to the labour service company of the district or county where it is located 10% of the total net income of all the Chinese employees as laid-off pension insurance fund every month.

(3) A foreign invested enterprise shall put aside 15% to 20% of the total Chinese employee's salaries per month as their housing fund.

(4) A foreign-invested enterprise can also pay to the Insurance Co. 10% of the total Chinese employee's net income per month as health insurance premium.

(5) A foreign-invested enterprise can also pay to the Insurance Co. 1 % to 8% of the total Chinese employee's net income per month as security insurance premium.

89. Is a Foreign-invested Enterprise free to choose an insurance company for all its insurance?

A foreign-invested enterprise is free to choose an insurance company inside China to handle all these insurance policies except those with special regulations.

90. Can a Foreign-invested Enterprise engage employees itself? What shall be done if disputes arise?

Under the guidance of Labour and Personnel departments, a Foreign-Invested Enterprise can take on employees by itself. The original enterprises of the employees enrolled shall support it and allow them to transfer. If any dispute arises, it can he harmonised and arbitrated by Shanghai Labour Bureau and Shanghai Personnel Bureau.

91. Can a Foreign-invested Enterprise engage employees from outside Shanghai?

With the consent of the Labour and Personnel Departments of the province or autonomous region or municipal city where it is located, a foreign-invested enterprise can take on employees from outside Shanghai if it cannot find suitable technical engineers, business administrators or skilled workers needed locally.

92. Can foreign investors recommend their relatives as employees for Foreign-invested Enterprises?

Yes, they can. They can recommend from one to three relatives inside China as their employees according to their investment quota.

93. Is it a foreign invested enterprise's responsibility to pay a female employee's salary during her maternity leave?

Yes. The female employee shall be paid during her maternity leave by the foreign-invested enterprise.

94. What sort of legal holidays do a foreign invested enterprise's employees have?

A foreign invested enterprise's employees also enjoy legal festivals and holidays, general holidays and other paid holidays such as home leave for visiting relatives, wedding and funeral, parturition and family planning.

95. Are there any regulations about labour protection for employees in a Foreign-invested Enterprise?

A foreign invested enterprise must implement our State's provisions and regulations about labour protection, industrial hygiene, safety cheek of boiler's pressure and special protection of women employees, strengthen labour protection and receive supervision and cheek from labour departments of all levels. The enterprise shall necessarily have personnel deal with its labour protection and industrial hygiene, shall take some practical measures to improve the working conditions for its employees and ensure their safety and health in production. According to the practical needs of the enterprise's production and work, the foreign-invested enterprise shall distribute to its employees labour protection articles and wholesome food.

96. What shall be done if there are disputes about production between a Foreign-invested Enterprise and its employees?

If labour disputes occur between the employer and employees, they shall first of all be solved through negotiation between the enterprise and its trade union. If they cannot be solved, either party of the disputes or both parties can seek arbitration from Shanghai Labour Dispute Arbitrary Committee. Either party who is still unconvinced can bring it to the Shanghai People's Court of Justice for legal prosecution.

97. Is it necessary to form a trade union in a Foreign-invested Enterprise? What's the relationship between the business manager and the trade union in the enterprise?

In accordance with the Law of Trade Union of the P.R.C., any physical labourer or mental labourer of a manufacturing enterprise or of an institution or of a government office who lives mainly on his salary has the right to join or organise a trade union regardless of his nationality, race, sex, occupation, religion and education.

The trade union of the enterprise shall help and guide the employees in signing labour contracts with the administration of the enterprise or of the institution. It can also represent all the employees to sign a collective contract with the administration of the enterprise. The collective contract shall he handed to the Congress of Staff Representatives or all the employees for discussion. The trade union shall co-ordinate with the administration of the enterprise to deal with the employee's welfare, pay, labour protection and labour insurance. The trade union shall help the administration to arrange for the employee’s cultural and technical studies at their spare time as well as training, to improve their cultural standard and professional work and to organise sports and recreational activities for them. A Sino-foreign joint venture or a Sino-foreign co-operative enterprise shall ask its trade union for its opinions before it makes decisions on employees' pay, welfare, production safety, labour protection and labour insurance.

The trade union of a foreign-invested enterprise can put forward suggestions about employees' pay, welfare, production safety, labour protection and labour insurance and negotiate with the administrators of the enterprise.

98. What's the regulation about the trade union's funds of a Foreign- Invested Enterprise?

A foreign-invested enterprise shall extract 2% of the total income of the enterprise's staff per month as the trade union's fund: The funds can be used in accordance with the regulation on the trade union's funds promulgated by China's Federation of Trade Unions.