China, People's Republic
1,306 million (est. 7/2005)
Mandarin (official), Yue
sq. km (land area)
(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
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
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:-