China, People's Republic of
million (est. 7/2005)
sq. km (land area)
Fiscal year: Calendar
(People's Republic established )
CHINA, PEOPLE'S REPUBLIC OF, is firmly committed to
economic reform and opening to the outside world. The
Chinese leadership has identified reform of state industries
and large-scale privatization of unprofitable state-owned
enterprises and development of a pension system for
workers has been made its ways for improvements. The
leadership has also downsized the government bureaucracy.
The 66.35 million member Chinese Communist Party, authoritarian
in structure and ideology, continues to dominate government.
In periods of greater openness, the influence of people
and organizations outside the formal party structure
has tended to increase, especially in the economic influences.
With the entering the World Trade Organization ("WTO")
in December 2001, as part of trade liberalization agreement,
China agreed to lower tariffs and abolish market impediments.
The criminal law and the criminal procedures laws were
amended to introduce significant reforms. Criminal procedures
reforms also encouraged establishment of a more transparent,
adversarial trial process. Provinces, autonomous regions
and municipalities' governments have made efforts to
organize and revise local laws and regulations under
the uniform guidance of the Standing Committee of the
National People's Congress ("NPC") and State
Council. Particularly in special economic zones where
preferential treatments is given to foreign investors,
foreign related laws and regulations are currently in
the process of being re-organized and revised.
Renminbi ("RMB") is the formal currency used
in China, where US dollars may be quoted in Shanghai
and HK dollars may be used in daily transactions in
Guangzhou & Shenzhen areas. Because the Renminbi
is not yet fully convertible, restrictions (as to be
approved by the State Administration of Foreign Exchange
("SAFE") apply to the exchange for so-called
capital account items. Foreign Exchange for Current
Account items and profits to be distributed to foreign
investors are both fully convertible. However, the banks
authorized to handle such matters are charged with reviewing
the documents to be submitted.
The tax administration of Foreign Investment Enterprises
(FIEs), including foreign representative offices, is
handled by two separate tax bureaus. Generally, Enterprise
Income Tax ("EIT") and Value Added Tax ("VAT")
are collected by the local branches of the State Administration
of Taxation whereas Business Tax and other local taxes
are collected by the local tax bureau.
VAT of 17% is
imposed on the sale or importation of goods. Input VAT
is payable on the purchase of raw materials and other
product inputs from domestic suppliers and output VAT
is collected on sales to domestic customers. Import-stage
VAT is payable on the purchase of imported materials.
For overseas sales, part of the input VAT is refunded.
The standard enterprise income tax rate applicable to
FIEs is 30%. However, this rate may be reduced either
to encourage certain kinds of business activity or to
encourage activities generally in a Special Economic
Zone or other incentive areas. Alternatively or additionally,
tax holidays may apply to certain types of activity
Role of a Hong Kong Company for the investment in
Hong Kong companies are still the main investors into
China. Hong Kong is still used by many international
companies as a base or headquarter for their China operation.
The reason for this are easier set up procedures, liability
and tax incentives, which includes the following:-