Other Market Entry Options in China
A foreign invested partnership enterprise (FIPE) is an unlimited liability business entity without any minimum registered capital requirements. It is becoming increasingly popular as it does not require registered capital but can hire staff, collect payments, issue invoices, apply for work and residence in China.
Minimum number of partners required is two, and both partners can be foreign nationals. There are three types of FIPEs:
- General partnership enterprise (GPE)
- Can be formed by general partners who share unlimited liabilities for the debt of the partnership.
- Limited partnership enterprise (LPE)
- Formed by a combination of general partners and limited partners where the limited partners bear the liabilities for the partnership's debts to the extent of their capital contributions.
- Special general partnership enterprise (SGPE)
This form of partnership resembles a general partnership except that it must be a professional service institution offering services requiring professional knowledge and special skills. The structure shields co-partners from liabilities due to the willful misconduct or gross negligence of one partner or a group of partners.
Foreign-invested joint stock company
A foreign-invested company limited by shares (FICLS) (or joint stock company) can be set up by foreign investors and it is the only form of a foreign investment entity (FIE) whose shares can be listed on a China stock exchange.
Capital is divided into shares and the FICLS must have a minimum of two and maximum of 200 initial shareholders (promoters), including at least one foreign investor. Minimum registered capital is RMB 30 million.
Founders of FICLS
This form of entity is usually preferred when businesses wish to expand, covert an equity joint venture to an FICLS, or when acquiring a China-based firm, rather than establishing a new company. Founders of an FICLS are restricted to a three-year lockup period after listing during which they cannot dispose of their shares.
A holding company is an umbrella-structure arrangement which enables a foreign company to hold together its Joint Ventures and Wholly Foreign Owned Enterprise (WFOE) investments in China. A holding company can be either an Equity Joint Venture or a WFOE. Generally, the government allows a foreign company to set up a wholly foreign-owned holding company in China if it has a good reputation, financial strength, high technology, and the projects it undertakes are in line with the state production plan.
Operating without an entity (permanent establishment)
An “establishment or place” is defined in the corporate income tax regulations as an establishment or place in China engaged in production and business operations, such as:
- Management organizations, business organizations, and representative offices.
- Factories, farms, and places where natural resources are exploited.
- Places where labour services are provided.
- Places where contractor projects, such as construction, installation, assembly, repair, and exploration are undertaken.
- Other establishments or places where production and business activities are undertaken.
Business agents who regularly sign contracts, store and deliver goods, etc. on behalf of the non-tax resident enterprises.
The Canadian Trade Commissioner Service in China recommends that readers seek professional advice regarding their particular circumstances. This publication should not be relied on as a substitute for such professional advice. The Government of Canada does not guarantee the accuracy of any of the information contained on this page. Readers should independently verify the accuracy and reliability of the information.
Content on this page is provided by Dezan Shira & Associates a pan-Asia, multi-disciplinary professional services firm, providing legal, tax, and operational advisory to international corporate investors.
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