One of the thoughts was that not only would there be a flight to WOFE but that arrangements whereby foreign companies aren't carrying on business in China or don't have a permanent establishment for tax purposes will become more prevalent. On review, it may be be that foreign companies do not now require a presence in China and 'agency' or similar arrangements with Chinese companies may be sufficient.

An thoughts on this issue and on some of the 'threshold' issues for ensuring that foreign companies are not required to register as either a WOFE or RO.

Cheers

If you *really* are not doing any business in China then this will work, because in this situation the domestic company is going be paying the taxes.

If you have some sort of agency relationship in which you are doing business in China and are relying on a corporate structure to avoid taxation, then this likely will not work well, since China is also cracking down in transfer pricing taxation. One problem with this is that if you don't have "boots on the ground" it makes it difficult to deal with day-to-day business issues. You don't have any rationale to get visas to send over business staff, and you can't sue or lobby officials. And all your business is run through an independent entity whose interests may or may not be identical to yours.

I think in the end it will be less painful to live with the rules than to work around them.

I refer to your post dated March 21, 2006: "Chinese Company Formation, Part II -- WFOE Minimum Capital Requirements." (http://www.chinalawblog.com/2006/03/chinese_company_formation_part.html)

Any changes in the outlines you provided back in 06 or are the RC amounts for a WFOE still dependent on the amount of capital required to start and run the company (manufacturing: high capital investment requirements versus consultancy: Asset light organization as an example)?

You make a very interesting point that RC required for the WFOE may be significantly less in one city versus another. This point certainly requires further investigation by anyone looking to drop the RO and go down the WFOE road.

Thank you for another very helpful post.

Alex.

I would like to know if it is an option to either want a 'fa piao' from the tax authority or do not need. If we do not ask for a 'fa piao', are we offend any law ?

Thank you very much.

I'm an Accountant who has been working in China in the last 5 years. I think I can answer your queries.

Legally speaking, you'd need an official 'fa piao' from the supplier. Unlike S'pore and other Western countries, the tax bureau here does not recognise invoice which is printed on a piece of paper. The supplier must purchase official 'fa piao' from tax bureau and fill it up whenever there are sales and submit to buyers like yourself. The 'fa piao' has an anti-counterfeit feature and every single one of them is controlled by the tax bureau (imagine the humongous system used to control it).

When you file in tax return, only those expenses which are accompanied by 'fa piao' are recognised by tax bureau.

Why don't some vendors provide 'fa piao'?

Ans: The vendors would like to evade tax. By not providing any 'fa piao', the vendors can save on tax as they don't need to 'purchase' it from the tax bureau and therefore pay tax to the tax bureau.

As an RO, even though you can't issue invoice and the tax on the 'fa piao' can't be offset, you're still required to obtain the 'fa piao' as the tax bureau may perform an audit on your RO.

Many Thanks