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DEFINITION OF 'FOREIGN INVESTED ENTERPRISE - FIE'
Any one of a number of legal structures under which a company can participate in the foreign economy. FIEs tend to have tight government regulation at nearly every important business juncture, which limits the efficiency at which any foreign company can profit from foreign ventures as well as the amount of control that a foreign parent has over the FIE.
INVESTOPEDIA EXPLAINS 'FOREIGN INVESTED ENTERPRISE - FIE'
Setting up an FIE is a common method of creating an operation in Asian countries, especially in China. In China, any one of a number of legal entities can be considered FIEs including equity joint ventures (EJV), cooperative joint ventures (CJV), wholly-owned foreign enterprises (WFOE) and foreign-invested companies limited by shares (FCLS).
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FICE: Pros and Cons
Establishing a FICE is one of the best ways for a foreign company to distribute its products in China. The pros and cons of a China FICE are listed below.
Pros
Can sell in RMB to local Chinese customers and issue fapiaos
Ability to benefit from VAT rebates if exports are done through the FICE
Can take control of the supply chain and expand the range of suppliers in China by purchasing in RMB
Can establish and operate branch offices anywhere within China
Can be 100 percent owned by a foreign entity
Can hire directly
Has no annual turnover or minimum asset requirements
FICE can also carry out a wide range of activities, including wholesale, retail and franchising trade activities in China.
Cons
Requires registered capital to establish – usually at least RMB500,000 to become a General VAT Taxpayer
Can take several months to set up (typically 4-6 months)
Export and VAT issues can be complex
Need to obtain permission from several bodies
The legal minimum capital under the law is RMB100,000 for a company with multiple shareholders, or RMB30,000 for a single-shareholder company. However, as the registered capital must reflect the needs of the business, it is usually far higher than the minimum requirement. Depending on the type of operation, typical minimum capital required for approval is between RMB500,000 and RMB1 million.
FICE: Tax Treatment
The major taxes which apply to a FICE are value-added tax (VAT) and corporate income tax (CIT). Other taxes, such as business tax, consumption taxes, tariffs, property taxes, stamp duties, or vehicle and vessel usage license taxes, may also be payable based on different situation.
Corporate Income Tax
The taxable income of an enterprise is the net income after deducting the relevant business costs, such as administration, marketing and financial expenses, taxes on sales and depreciation. The standard CIT rate for a China FICE is 25 percent, the same as for Chinese-owned companies since 2008.
Value-Added Tax
All enterprises and individuals engaged in the sale of goods, provision of processing, repairs and replacement services, or importation of goods within China shall pay VAT. Under that structure, there are two types of VAT payers:
VAT general taxpayers
VAT small-scale taxpayers
For the VAT general tax payers, the tax rate is generally 17 percent for most products. The tax payable shall be the balance of “output tax” for the current period after deducting the “input tax” for the current period. The formula for computing taxes payable is as follows:
Tax Payable = Output Tax for the Current Period – Input Tax for the Current Period
For VAT small-scale taxpayers, the tax payable is:
Tax Payable = Sales Amount x Applicable Tax Rate of 3 percent
Contact Us
If you have further queries, don’t hesitate to contact ATAHK anytime, anywhere by simply visiting ATAHK’s website www.3737580.net , or calling Hong Kong hotline at 852-27826888 or China hotline at 86-755-82148419, or emailing to info@citilinkia.com.