Four Phases of the Chinese Business Cycle
The life cycle of a business in China can be grouped into four phases:
- initial investigation;
- maintenance, development, and growth; and
- sale, merger, and public offering.
Professional services are needed at every stage, but the services differ from stage to stage.
- Initial investigation
The initial investigation of a business opportunity is a critical step that lays the foundation for what is to come. The initial investigation into setting up business in China involves
- assessing initial feasibility, including whether the project will be approved by the authorities;
- determining possible locations within China;
- structuring and planning tax (income tax, value-added tax, business tax, and customs duty);
- developing projections of income and cash flow, and a critical path of tasks to be done;
- visiting China; and
- identifying joint venture partners and preliminary negotiations with them (if the business is structured as a joint venture).
We can assist in all of these areas, through our contacts in Hong Kong and China. In particular, we can
- assess the overall feasibility, based on experience with similar situations;
- advise on possible locations;
- advise on tax matters, especially income tax exemptions;
- review projections and advise on cost estimates;
- advise on the overall process; and
- find joint venture partners and make introductions.
The second phase involves setting up operations in China. To establish the business, the following will be needed:
- developing a feasibility plan to submit to various government bodies for approval,
- negotiating tax incentives with state and local tax authorities,
- obtaining various approvals,
- finding a physical location and negotiating a lease or purchase of land-use rights,
- incorporating a corporation,
- setting up an accounting system,
- hiring staff,
- setting up banking facilities, and
- making various tax and other filings (including foreign exchange clearances).
Our fundamental approach is to provide a professional adviser in China who is dedicated exclusively to the client in a one-on-one relationship. This person will be a locally established individual with business experience who is retained by our Hong Kong associates to oversee an agreed-on list of tasks critical to the project.
We also advise on Canadian tax issues concerning
- deductibility of initial startup losses,
- ownership of the China business,
- characterization of the China income,
- withholding tax issues,
- application of the Canada-China tax treaty, and
- repatriation of income back to Canada.
- Maintenance, development, and growth
Clients typically need ongoing assistance with a host of issues, including
- tax filings and remittances;
- legal issues (copyright, contracts, leases, and annual directors' minutes),
- government filings; and
- labour and staffing issues.
Our representatives are available to support clients through these issues.
- Sale, merger, and public offering
Clients may also require advice and assistance to
- expand into other areas and locations;
- seek mergers or joint venture partners, or go public;
- sell the business;
- obtain financing; and
- buy other entities.
We advise on the Chinese and Canadian tax consequences of a sale of the business in various formats.