China Outbound: E-Commerce and Start-up Landscape in ASEAN and India

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Our Latest Round-Up of Business News Affecting China-Based Businesses Investing in Asia

In this edition of China Outbound, we start with an overview of the current state of the e-commerce landscape in India and Vietnam. We also include a guide to Vietnam’s import and export restrictions, which is closely related to the development of the country’s e-commerce industry. Then, we examine the corporate establishment procedures, regulations and key considerations when setting up businesses in other ASEAN nations such as Singapore and the Philippines.

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Getting into Shape: Exploring China’s Health Supplements Industry

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By Dezan Shira & Associates
Editor: Nathan Wakelin-King

Dietary and health supplements are an industry with huge growth potential in China, in particular for overseas companies. The market has almost doubled since 2008, and was worth approximately  RMB 102 billion by the end of 2014. Surveys show that very close to half of urban Chinese consumers regularly buy vitamins and dietary supplements. 

Social Factor Trends Influencing the Market

The size of the market is likely to grow over the foreseeable future due to a range of social and economic factors, namely:

  • Economic growth: most obvious is the increase in incomes and the rise of China’s consumer class. This includes many cities aside from Beijing and Shanghai.
  • An Ageing Society: mostly as a result of the previous One Child Policy, demographic trends in China show a society that will be heavily weighted towards older people. This has relevance both in increased demand for health products and the demand for specific health products.
  • Health scares in China: a mixture of corruption in the industry and health scares associated with domestically produced food and health products has left a legacy of deep skepticism amongst Chinese consumers, creating an opening for foreign brands.
  • E-Commerce: a set of highly developed e-commerce systems is especially useful for the marketing and distribution of products that are both specialized and easily delivered (like bottles of vitamin tablets).

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Strategic Considerations when Establishing a WFOE in China, Part 3: VAT and Corporate Governance

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By Chet Scheltema and Vivian Mao
Dezan Shira & Associates, Shanghai

General VAT Taxpayer Status

China is completing its transition to a value-added tax (VAT) system. China’s VAT is an indirect tax on business transactions imposing a rate of three percent to 17 percent of the transaction amount. As is readily obvious, this can translate into a sizeable tax burden if one does not properly manage value-added taxation.

The key to managing the VAT system for some companies may lie in becoming a “general VAT taxpayer” and obtaining the right and ability to use input VAT credits to offset output VAT, thereby potentially reducing the VAT burden by a substantial amount. Although general VAT taxpayer status can theoretically be obtained at any point in a WFOE’s life, it may be easiest and most advantageous to obtain it upon incorporation, otherwise one may need to wait until the annual turnover reaches a certain threshold. Because investors cannot always be sure when such annual turnover thresholds will be reached, they may seek to obtain such general VAT taxpayer status immediately upon incorporation of the WFOE.

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A Guide to China’s Free Trade Zones – New Issue of China Briefing Magazine

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China's Free Trade Zones 250x350The latest issue of China Briefing Magazine, titled “A Guide to China’s Free Trade Zones”, is out now and available to subscribers as a complimentary download in the Asia Briefing Bookstore through the months of January and February.

Contents:

  • Getting in the Zone: Understanding China’s FTZs
  • Navigating China’s FTZs: Market Access, Tax Systems and Registration Procedures
  • Expert Commentary: Additional Considerations when Investing in China’s Free Trade Zones

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China Market Watch: Suspension of Investment Company Establishment and Smart Manufacturing in Shanghai

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Hit on China’s Financial Sector: China Suspends the Approval of Investment/Fund Management Companies

In order to crack down on illegal fund raising activities and restore the order of China’s financial market, the Chinese government has decided to restrict the approval of investment related registration applications nationwide starting January 12. The restrictions implemented differ per city and district. For example, Beijing has already suspended the registration of all companies whose business scope contains words such as “investment,” “capital & fund,” “equity investment,” and “finical management.” The officer of the Administration for Industry and Commerce (AIC) stated that currently the length of this suspension period remains unclear.

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China’s Economy and Trade with ASEAN: the Short and Long Term Outlook

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Examined from a certain angle, China’s trade and business relationship with the Association of Southeast Asian Nations (ASEAN) is in a state of flux. A number of important questions currently face the two: as China’s workforce ages and labor costs rise, will the Middle Kingdom’s role as the “world’s factory” be surpassed by its ASEAN neighbors? As China’s growth slows, will this have a knock-on effect on ASEAN’s ten member nations? And how will this affect western companies doing business in the region?

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Labor Case Study: Terminating a Manager in China

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By Allan Xu
Manager, Business Advisory Services
Dezan Shira & Associates, Shanghai

When it comes to hiring and firing in China, foreign managers and investors should not hold preconceived ideas about the strictness of China’s laws. Highly publicized cases of worker exploitation might give the impression that China unambiguously favors employers, but this is not so. In fact, China’s laws for firing employees are considerably more rigid than those in the U.S.

Firing managers is an especially complicated process in China that requires a thorough understanding of the country’s laws. Even before a decision to fire someone has been made, proactively preventing risks related to HR is important. In this article, we present a case study that illustrates how a successful termination can be made. 

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Strategic Considerations when Establishing a WFOE in China, Part 2: Holding Companies & Corporate Names

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By Chet Scheltema and Vivian Mao
Dezan Shira & Associates, Shanghai

WFOE Holding Company

Every investor of a WFOE in China will have to select the formal investor shareholder of the entity. The shareholder could be the ultimate beneficiary of all activities in China or could be an intermediary structure, otherwise known as a holding company.

Historically, investors may have been able to obtain certain preferential tax benefits by locating a holding structure in a legal jurisdiction that has negotiated a favorable tax treaty with China, such as Hong Kong. While this continues to be a reason to consider using an intermediary holding structure to establish one’s WFOE, the analysis is no longer as straightforward as it once was. Many countries home to traditional foreign investors (the United Kingdom, Netherlands, Ireland, etc.) have negotiated favorable tax treaties with China, eliminating the need to locate a holding company in jurisdictions such as Hong Kong. In any case, the ability to qualify for favorable tax benefits has become more difficult, as Chinese authorities have become wise to abuses and moved to close loopholes.

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