Malaysia
Hotline: +603-2141 8908
RO-Representative Office
Representative Offices (ROs) are established by foreign
companies to engage in business liaison, product promotion, market research,
exchange of technology and other permitted activities in China.
ROs are not allowed to directly engage in any profit activities. The AIC usually specifies in the Business Scope, as shown in the
Business License of ROs, that a RO should not engage in direct operational
activities. Therefore, ROs are not a form of foreign investment in China .
However, some ROs are engaged in operations in a lawful or tacitly permitted
way and constitute one of the direct foreign Investment forms in China.
The tacitly permitted way is applicable to those industries
that do not require special material conditions or environment for their
operations. For example, a consulting business does not need manufacturing
equipment and raw materials. It only needs offices, employees and office
articles. These physical conditions are necessary for other ROs as well. In
practice, many ROs that are established by foreign consulting companies
directly engage in consulting activities. Chinese government does not prohibit
them in practice and this is reflected by the fact that the tax authorities
collect business tax from these ROs.
The lawful operational activities engaged in by ROs refer to
those business activities permitted pursuant to the bilateral treaties between
China and other countries. In the event that a bilateral treaty provides that
certain types of ROs are permitted to engage in operational activities, these
bilateral treaties should prevail over Chinese domestic law.
WFOE -Wholly Foreign
Owned Enterprise
The registered capital of a Wholly Foreign Owned Enterprise
(WFOE) should be subscribed and contributed solely by foreign investors. A WFOE
does not include branches established in China by foreign enterprises and other
foreign economic organizations. The Chinese Laws on Wholly Foreign Owned
Enterprises does not have a clear definition of the term "branches".
The term "branches" should include both the branch companies engaged
in operational activities and representative offices, which are generally not
engaged in direct business activities. Therefore, branches and representative
offices set up by foreign enterprises are not WFOE.
The Wholly Foreign Owned Enterprise (WOFE) is a Limited
liability company wholly owned by the foreign investor(s). With China 's entry
into the WTO, more and more investors prefer to set up WOFE other than other
enterprises forms.
Because WOFE has its own advantages, it has been the most
preferred enterprise form for foreign investor to set up. In general, the The
advantages of establishing a WOFE include, but not limited Independence and
freedom to implement the worldwide strategies of its parent company without
having to consider the involvement of the Chinese partner; Ability to formally
carry on business rather than just a representative office function and capable
of issuing invoices to their customers in RMB (Chinese Currency) and receive
revenues in RMB ;Capable of converting RMB profits to US dollars for remittance
to their parent company outside China ;Protection of intellectual know-how and
technology; Greater efficiency in its operations, management and future
development.
EJV -Equity Joint
Venture
Equity joint ventures are the second most common manner in
which foreign companies enter the China market and the preferred manner for
cooperation where the Chinese government and Chinese businesses are concerned.
Joint ventures are usually established to exploit the market knowledge,
preferential market treatment, and manufacturing capability of the Chinese side
along with the technology, manufacturing know-how, and marketing experience of
the foreign partner.
Normally operation of a joint ventures is limited to a fixed
period of time from thirty to fifty years. In some cases an unlimited period of
operation can be approved, especially when the transfer of advanced technology
is involved. Profit and risk sharing in a joint venture are proportionate to
the equity of each partner in the joint venture, except in cases of a breach of
the joint venture contract.
Shareholdings in a joint venture are usually non-negotiable
and cannot be transferred without approval from the Chinese government.
Investors are restricted from withdrawing registered capital during the life of
the joint venture contract. Regulations surrounding the transfer of shares with
only the approval of the board of directors and without approval from
government authorities will probably evolve over time as the size and number of
international joint ventures grow.
There are specific requirements for the management structure
of a joint venture but either party can hold the position as chairman of the
board of directors. A minimum of 25% of the capital must be contributed by the
foreign partner(s). There is no minimum investment for the Chinese partner(s).
It is preferable that foreign exchange accounts are balanced
in order to remit profits abroad so that the repatriated foreign exchange is
offset by exports from the joint venture. With the elimination of foreign
exchange certificates and the further opening of the China market, this
requirement is becoming more and more relaxed.
Equity can include cash, buildings, equipment, materials,
intellectual property rights, and land-use rights but cannot include labor. The
value of any equipment, materials, intellectual property rights, or land-use
rights must be approved by government authorities before the joint venture can
be approved.
After a joint venture is registered, the entity is
considered a Chinese legal entity and must abide by all Chinese laws. As a
Chinese legal entity, a joint venture is free to hire Chinese nationals without
the interference from government employment industries as long as they abide by
Chinese labor law. Joint ventures are also able to purchase land and build
their own buildings, privileges prevented to representative offices.
CJV- Co-operative
Joint Venture
Co-operative Enterprises are also named contractual
operative enterprises. When Chinese and foreign partners establish a
co-operative enterprise, provisions on such items as investment or terms for
co-operator, distribution of earnings or products, sharing of risk and losses,
method of business management and the ownership of property on the expiration
of the contract term shall be prescribed in the co-operative enterprises contract
in accordance with the provisions of Chinese law. Convenience and flexibility
are the characteristics of this type, therefore it is easier for co-operative
partners to reach an agreement. A co-operative enterprise which complies with
the provisions of Chinese law for a legal person shall acquire the status of a
Chinese legal person.
General practice of co-operation is that investment or terms
of co-operation provided by foreign partners is in the form of cash, equipment
and technology and by Chinese partners is in the form of land-use rights,
labour and related services.
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Contact us
If you have further queries, please contact Tannet
24 hours Malaysia hotline：603-21418908;
24 hours Hong Kong hotline：852-27837818;
24 hours Shenzhen hotline：86-755-
36990589;
Email: mytannet@gmail.com
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