Managing Multinational Operations

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China has become one of the most attractive places to do business lately. Firms from all over the world are planning to start businesses in China. However, a multitude of factors need to be considered before the decision to invest in China can be made by enterprises…

Introduction


According to the New Foreign Trade Law amended in April 2004, import goods and technologies are divided into four categories, namely prohibited imports, restricted imports, free imports, and goods under tariff-rate quota management (Hong Kong Trade Development Council).
The exports are restricted for resources that are in short supply in China. The foreign currency rules allow enterprises to either sell their foreign exchanges to certain banks or open current foreign currency accounts to keep their foreign exchange.
"Foreign-invested enterprises (FIEs) and foreign enterprises have to pay income tax on their income derived from production, business operations and other sources within the territory of China" (Hong Kong Trade Development Council).
Income tax on foreign enterprises is levied on an annual basis and paid in advance in quarterly installment (Hong Kong Trade Development Council). The foreign enterprises in preferred sectors are subject to lower income tax rate of 15%.
A foreign enterprise can open a foreign exchange settlement account through one of the banks; and can use this fund to make external payments, whenever required. In case additional funds are required, this can be purchased from the bank. A foreign enterprise can also open a foreign exchange capital fund account. Chinese government also allows the foreign enterprises to remit their profits, dividends and bonuses outside the country.
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