Company Introduction

Bridging East and West – Your partners for all legal and accounting matters

in Asia and Europe

Company

Adbeco / De Nerée Corporate Services Shanghai..

• …is a cooperation between the law firm De Nerée Advocates and the accounting firm Adbeco..

• … which has been established at the beginning of 2010…

• … and offers combined expertise to assist foreign companies that are planning to enter or already do business in the Chinese market..

• … together both partners have further offices in Hong Kong, Holland and Germany.

Adbeco / De Nerée Corporate Services Shanghai

Adbeco and De Nerée Advocates Hong Kong

Cooperation Partner in Lingen (GER)

Adbeco Hoogeveen

De Nerée Advocates Amsterdam

Service Scope

Our areas of expertise:

Legal Advice

- Legal structuring

- Trademark Registration

- Litigation

- Draft and negotiate agreements, corporate & commercial documents

- Advice on employment issues

- Day-to-day legal issues

Corporate Services

- Company Formation in Mainland China (Representative Office, Wholly Foreign Owned Enterprise, Joint Venture)

- Company Formation in Hong Kong (including provision of registered office address and company sectrary services)

We help you whenever and wherever you may need.

Company Maintenance

- Accounting & Bookkeeping

- Tax Filing & Tax Advice

- Audit

- Staff and payroll administration

Legal AdviceStructuring

Having the required knowledge and the desired corporate structure is fundamental to being a successful entrepreneur and having a successful company. This especially applies when doing business in China. The possibilities in respect of setting up a corporate structure in China are limited for foreign companies and entrepreneurs and besides the rules and regulations that apply to companies (partly) owned by foreigners are unclear and continuously changing.  Hong Kong plays a major role in setting up a corporate structure and doing business in China, as Hong Kong with its solid legal system and its profitable tax system is often used as a base for going into China.  We are able to advise you about the desired corporate structure for your company in China, which is the start of doing successful business in China.  As integral part of the structuring of your business, we can also assist you in registering and protecting your intellectual property rights in China. 

Contracting

Doing business, one way or the other, leads to making commercial arrangements and entering into agreements. We are able to advise you on and provide you with the required agreements. We can negotiate agreements on your behalf with your Chinese of Hong Kong counterpart. The agreements we draft are solid, tailor made and reflect both parties’ intentions and wishes.

Litigating

In the unfortunate situation, conducting business sometimes comes along with having a dispute. We can help you with resolving disputes promptly with minimum disruption to your commercial relationships. We can guide you when the dispute resolution takes place in Hong Kong or China.

Corporate Services in China

Once the decision is made on the best structure available, we can help you with the actual establishment. We conduct a name search for the company’s intended name and prepare all documents to register the company in China. Basically, we guide you through the whole establishment process.

Chinese law allows 3 possibilities for the structuring of foreign investments that all have their own legalrequirements:

1. Representative Office (Rep Office)

A Representative Office is not an independent legal entity, but closely tied to its parent company outside of China.The immediate parent funds the Representative Office thus there is no capital investment required. The Rep Officeis not allowed to engage in direct profit making business, but should rather act as a liaison office. Business activities should be strictly indirect, such as market research, coordination between parent company andother affiliates, introduce potential customers etc.

Pro's:• No registered capital requirement• Set up is less time consuming compared to other options• Easiest way to hire Mainland Chinese staff

Con's:• Is not allowed to engage in commercial activities (no production, no sales)• Is being taxed on its expenses (since it does not generate profit)• The number of foreign representatives is limited

Corporate Services in China

2. Wholly Foreign Owned Entity (WFOE)

A WFOE is an independent legal entity in China of which 100% of the shares are owned by a foreign company or person. The structure of a WFOE is similar to a limited liability company. In general, WFOEs can either engage in manufacturing, trading or provide services. In China companies can only operate within a defined business scope, which has to be submitted with the registration application. The minimum requirement of the registered capital also depends on the company’s desired scope of business.

Pro's:• Less government involvement compared to a Joint Venture• Slightly easier process of incorporation• No necessity of a Chinese partner

Con's: • High capital investment depending on the activity conducted in the WFOE• If there is no Chinese partner involved, the company cannot profit from a local network which can be very

important • Dispute resolution in China

Corporate Services in China

3. Chinese / Foreign Joint Venture (JV)

The Joint Venture is a cooperation completely governed by an agreement between the Chinese and the foreign party. The control over the Joint Venture and the distribution of dividends can be organized by share capital but other arrangements can be made. There are some specific industry sectors which only allow foreign investment in the form of Joint Ventures.

Pro's:• high level of involvement of the local government (in some businesses this is necessary)• close cooperation with the Chinese partner• 'tailor made' for the parties (it is in effect a contract)

Con's:• high level of involvement of the local government (can lead to bureaucracy)• the cooperation with the Chinese partner at all levels (the cooperation between Western and Chinese partners

has proven to be difficult in the past)• have to be governed by Chinese law• dispute resolution in China• takes a long process of approvals to incorporate• the sale of the shares in the Joint Venture are subject to approval of the government

As an alternative, a Joint Venture can be created at Hong Kong level (please see page 9).

Corporate Services in Hong KongEstablishment of a Hong Kong Company

The incorporation of a Hong Kong Ltd. is a relatively straightforward affair. Hong Kong company law does not have any minimum capital requirements therefore a company with a capital of HK$ 1 (EUR 0,10) can be incorporated.  The basic legal requirements for a Hong Kong Ltd. are that the company needs to have at least one shareholder and one director, both can either be companies or persons and do not have to reside in Hong Kong. Additionally, a Hong Kong Ltd. is required to have a Hong Kong based ‘Company Secretary’ which is responsible for the contact with the local authorities and a registered address in Hong Kong. Company Secretarial services as well as registered address can be provided by us. The whole set up process takes around 3 weeks and the directors and shareholders do not have to be present in Hong Kong during the set up.

The Hong Kong tax system

In general Hong Kong is considered a very low tax jurisdiction. There is no withholding tax, no capital gains tax, no property tax, no VAT and no inheritance tax. The Hong Kong tax system furthermore has a territorial approach for profits tax. What that boils down to is that any profit of a company in Hong Kong that is generated outside of Hong Kong, is not taxed in Hong Kong. This in practice means trading profits from products that are produced in China and that are sold elsewhere (but not in Hong Kong) and that are only (re)invoiced and administrated by the Hong Kong Ltd., are not considered taxable profit for Hong Kong tax purposes. Some formal requirements have to be met but the principle works. The only problem with this system is that it is at the discretion of the IRD to determine whether profits are considered on-shore for Hong Kong (and therefore taxable) or not on-shore (and therefore not taxed). The IRD may therefore determine after tax filing, that some profits are still taxable in Hong Kong. Sometimes it works to file a part of the profit a on-shore voluntarily to avoid the discussion with the IRD. The profits’ tax rate in Hong Kong is generally between 15% and 17%.

Corporate Services in Hong KongJoint Venture in Hong Kong to invest into China

Should a foreign investor want to go together with a Chinese partner in order to profit from the partner's network and local know-how, it is advisable to use following structure: In this structure the foreign and the Chinese partner jointly incorporate a WFOE in China of which all shares are held by a Hong Kong Ltd. This Hong Kong Ltd. is the entity in which the cooperation between the two partners is organized (legally). Both partners take part in the Hong Kong Ltd. for 50% (or any other percentage that the partners may agree upon.)

Advantages:

• JV is governed by Hong Kong law which in effect is English law and which is extremely reliable and easily accessible

• Control over the WFOE is organized at Hong Kong level • The sale of the shares in the JV can be organized at Hong

Kong level and will not be subject to approval of the Chinese government

• Dispute resolution in Hong Kong • Specifics of Hong Kong tax law may lower the tax base for

the WFOE as well for the whole company structure• Operational responsibilities for the company’s activities

and legal control over the WFOE itself, can be clearly separated

• Easier financial control over the cooperation because Western accounting standards apply to Hong Kong

• Hong Kong offers a infrastructure for services that makes business with China easier (international banks, insurance companies, accountants etc.).

100%

50%50%

Foreign Partner

Foreign Partner HK

Ltd.

CN Partner HK Ltd.

HK Ltd.JV

WFOECHINA

HK

China

Europe

Legal

Operational

Corporate Services in Hong KongHong Kong Holding for Foreign Investment

Entering the Chinese market through a Hong Kong Holding Company is not only advisable for companies that are planning to work with a Chinese partner in the form of a Joint Venture. Having a Hong Kong Holding in the company structure provides any company with an additional layer of security, as the Hong Kong Holding is directly liable for the China investment and therefore protects the company in your home country.

Additionally, Hong Kong offers tax benefits when the WFOE in China pays out dividends to its parent company in Hong Kong. Due to a beneficial tax treaty, the withholding tax on dividends is only 5% (compared to 10-20%) when being paid to Hong Kong. Hong Kong does not raise any dividends tax.

Should you additionally plan to use the Hong Kong Company for your trading business, you can benefit from the low profit tax as well as the possibility to claim profits as ‘off-shore’ and avoid taxation.

Advantages:

• Protect existing company• Lowest tax rate available for dividend distribution• No tax on dividends in Hong Kong• Low profits tax between 15-17%• Possible ‘offshore’-tax exemption for trading companies• A Hong Kong Limited can be established in 3 weeks• Registered office and corporate secretary can beoutsourced

Hong Kong Trading Company

Company / Customers

Supplier in China

Order Order

InvoiceInvoice

Direct shipment (FOB)

A Hong Kong Trading Company

(Re-)Invoicing

Company maintenance

Payroll Services

• Salary payment to the employee’s bank account

• Calculation and payment of the statutory social insurance in China and Mandatory Providence Fund (MPF) in Hong Kong

• Calculation and payment of commission, bonus etc.

• Payment of Individual Income Tax

Audit Services

• Annual Company audits according to Chinese and Hong Kong standards

• Close cooperation with the client to fulfill their specific needs

Accountancy

• Arrange chart of accounts

• Prepare monthly, quarterly or annual financial statements (according to clients’ needs)

• Coordinate accounting requirements with headquarters in Europe

Tax filings & tax advise

• Tax computation

• Tax declaration

• Onshore / Offshore tax advise and application in Hong Kong

Regulations regarding the tax system in China are constantly changing. Therefore it is important for foreign investors to have a reliable partner who ensures that the company is in compliance and assists in its international tax planning. It is equally important to pay the overseas staff on time – a task many foreign companies like to outsource in order to ensure on-time payment. Outsourcing these activities frees up time for the company to concentrate on their core value-adding business instead of company administrational tasks. We can offer you a ‘tailor-made’ package:

Our advantage

1 We can coordinates all necessary activities to create and maintain your entity in China or Hong Kong

2 Chinese, Dutch and German qualified lawyers and CPAs

3

Excellent relations with Chinese authorities4

Multilingual approach: We speak English, Dutch, German and Chinese

5Over 5 years of experience in the Chinese market with sensitivity for the European and the Chinese side of things

Contact

De Nerée Advocates / De Nerée Corporate Services Mr. A.R. de Nerée tot Babberich

1703, Chinachem Leighton Plaza

29 Leighton Road

Causeway Bay, Hong Kong

alexander@dntw.com.hk

T: +852 28104030

F: +852 28104031

M: +852 94481240

De Nerée Advocates / De Nerée Corporate Services Mr. A.R. de Nerée tot Babberich

1703, Chinachem Leighton Plaza

29 Leighton Road

Causeway Bay, Hong Kong

alexander@dntw.com.hk

T: +852 28104030

F: +852 28104031

M: +852 94481240