Step by step for WFO E-Commerce Business Setup in China

What is a WFO E-commerce Business ?

WFO E-commerce business stands for Wholly Foreign Owned E-commerce business. Either a foreign individual or corporate wholly owned and registered entity in China. In fact, WFOE is a common business setup by which non-Chinese nationals or non-Chinese corporate entities, when they need to incorporate a foreign-owned limited liability company in Mainland China.  Indeed, many more expats are looking into the China consumer market for the past 2 years. Admittedly, comparing with a traditional retail shop business, it is much more cost effective and easier to manage when it is a e-commerce based. Additionally, with all the travel limits, e-commerce business allows owners to be running the business in any part of the world.

In 2020, Singles Day shopping topped a new record of RMB498.3 billion of sales in 1 day.  A huge increase from last year, with reasons to the pandemic, more consumers are familiar with shopping online as well as the special offers and bargain you get from the online shops. During the sales event’s peak period, there are around 583,000 orders placed each seconds. Furthermore, from Midnight onwards there were hundreds of millions of shoppers logging on to the receive extra discounts. 

 

How to setup a WFO E-commerce Business in China?

Recently, many of our clients are asking how they can setup a e-commerce business. They noticed many e-commerce are setup via platforms like Taobao and Alibaba.  Business owners also need to setup a China payment gateway accounts to cater the Chinese market. Herein below, we are listing out the steps for setup process on a Wholly Foreign Owned Enterprise

  1. Check Company Name if usable or not
  2. Check and sign agreement to lease office space
  3. Translation of director / Shareholder names  with notarised by CHINA APPROVED PUBLIC NATARY
  4. Incorporation (Obtain the 5-in-1 business license)
  5. Company Bank Account Opening
  6. Personal Bank Account Opening
  7. Setup WECHAT China Company Account 
  8. Register for Website displayed publicly in China with the China WFOE Certificate. 
  9. Register for Taobao, Alibaba, JD, etc…

For further information, please contact us.

You may want to read: WHAT IS THE REQUIREMENT FOR A WFOE REGISTERED OFFICE?

IS YOUR PROFESSIONAL COMPANY SECRETARY A QUALIFIED ONE?

According to Section 154 of Hong Kong Company Ordinance, every company must appoint a Company Secretary. Along with this article, you can see the importance of a company secretary for every Limited Companies in Hong Kong. In fact, many of the Limited Companies do not know if they have hired a QUALIFIED professional company secretary to help handle documents and work with Company registry on their behalf.  

Owing to the change of name of “The Institute of Chartered Secretaries and Administrators” to “The Chartered Governance Institute”. To clarify, the Company Registry have an updated information related PROFESSIONAL COMPANY SECRETARY listed in details.

Who is Qualified Professional Company Secretary? 

A professional company secretary practicing in Hong Kong means a member of Hong Kong Institute of Chartered Secretaries (HKICS) and The Chartered Governance Institute (CGI). Company secretary must be holding the professional designations of FCG* / FCIS*, FCS* or ACG* / ACIS*, ACS*. 

Nevertheless, since 2018, all company secretaries services providers are required to have a Trust or Company Service Providers License ( TCSP).  

What does a Company Secretary do?

Generally, a company secretary will provide below services:

  • Communication with the Company Registry on Company’s behalf
  • Draw up & keep Statutory Records related to Company Structure
  • Prepare & submit application for Business Registration Certificate
  • Put together & Submit Share allotment documents
  • Arrange Minutes and Resolutions for Directors & Shareholders
  • Filing with the Company Registry

Besides, Company Secretary is responsible for:

  • Obtaining prior approval from the Registrar of Companies (“the Registrar”) to become the TCSP licensee’s ultimate owner, partner or director
  • Reporting changes in particulars to the Registrar
  • Reporting cessation of business to the Registrar
  • Complying with other ongoing obligations of a TCSP licensee, including the statutory requirements relating to customer due diligence and record-keeping.

How does a company secretary charge their fees?

There is a company secretarial service fee applied, together with a client due diligence and on-going monitoring checking fee per year.  Here at Centre O, this yearly cost covers unlimited changes of the company structure, changes of directors and shareholders or related members information.  Unless the company is changing persons or company within, there will be a client due diligence and on-going monitoring fee chargeable to the new director, shareholder or entity.

For further information, please contact us. 

You may want to read: COMPANY SECRETARIAL SERVICES FOR A HONG KONG LIMITED BUSINESS

CHINA INVOICING SYSTEM WITH ELECTRONIC FAPIAO

What is Fapiao?

Other than invoice, fapiao is a legal receipt that serves as proof of purchase for goods and services. Nevertheless, it is an essential component of China’s tax law, and compliance for businesses. 

Development of Digitalized Fapiao 

July 2019

The State Administration of Taxation announced the preparation of Digitalised platform

October 2019

Launched online platform naming E-VAT 

November 2019

The State Council proposed the E-VAT will be launched by the end of 2020, while the Tax department is promoting and providing training classes and seminars on how to register, access and use the platform for business operations. 

March 2020

Confirmation that both paper and E-VAT have the same legal status for tax filing. While using the E-VAT system will allow companies to avoid needing to send the original hardcopy to their clients and running to the local tax office, while they only need to keep digital copy of the document.

July 2020

The State Council announced the E-VAT will be widely use throughout China from end of 2020.

At the same time, Shanghai Tax Bureau took Shanghai, Jiangsu, Zhejiang, Ningbo and Anhui district as a pilot region to roll out the public use of the E-VAT platform.

September 2020

Ningbo piloted the first E-VAT platform in selected area

Benefits of Electronic Fapiao to Enterprises 

Enterprises do not need to go to the local tax office in person for fapiao related processes. For example, application for paper fapiao or validating VAT fapiao. Besides, entrepreneurs can also save financial resources by not purchasing special printing and scanning machines. In terms of accounting, enterprises can save time and lessen the workload by using a paperless invoicing system. 

In conclusion, the advantages of E-Fapiao, we can summarised as below:

  1. Better Record Keeping & Controlling
  2. Centralized Information Platform
  3. Application logistic & Processing Advancement
  4. Technology Advancement & Connecting to ERP system

For further information, please contact us. 

You may want to read: CHINA TAXATION VS HONG KONG TAXATION FOR FOREIGN INVESTORS

MANAGING YOUR INVENTORY AND ACCOUNTING WORK

Measuring inventory accurately is essential to a success business operation. Without keeping an accurate record, you risk upsetting your customers as well as increasing the cost of carrying more products then your customers need. Ultimately, you will suffer from losing profit. On the other hand, when the goods records are well kept with true accuracy, it contributes to visibility, allowing managers to understand data trends and forecast future demand.

Maintain Ideal Stock Level

Accurate and update inventory records can inform you when you need to order new items. When under-stocked, you may not have enough products to send to customers. Meanwhile, if you overstock, your warehouse might be overcrowded, leading to disorganisation. In some cases, overstocking perishable items can lead to waste. Failure to properly track your stock could eliminate any earnings your business would have made from this business transaction. Analysing inventory records over a length of time can help you track trends to predict what items typically sell faster than others.

Improve Customer Satisfaction

Lack of accuracy inventory record, it can create chaos. The chaos may create a snowball effect on client orders. Customers expect a certain level of service when they place an order. If you fail to meet clients’ expectations or do not have enough inventory to deliver. This is not only upsetting customer, but have a negative effect on the relationship. Probably this may cause customers to pull future orders. In addition, unsatisfied customers may spread negative message with their peers. Therefore, if you have an accuracy stock record, you can keep high customer satisfaction.

Improve Employee Satisfaction

keeping an accurate inventory record may allow your staff to devote more time to other areas. Working with inaccurate records can be time-consuming, but accurate records means your staff can work on improving certain aspects of the status-quo inventory process to improve productivity and efficiency in new ways.

Inaccurate Accounting Reporting

Businesses do not update their Balance Sheets and Profit and Loss reports may fall behind in reporting their financial operations. Having a outdated inventory information, it results in incorrect stock cost values and inaccurate profit reporting.

How to Prevent Inaccurate Inventory in your Accounting Reporting?

To ensure your business’ inventory is accurate and up-to-date. You might need to adapt a tracking practice. For example, you can simply use a excel file with 3 separate pages to book: Purchase record, Opening record and Sales record. Then you need to record every transaction manually. And deduct the number of sales from opening balance + purchase. Then you will get the accurate inventory balance.

If the calculation is still confusing you. Please engage us for your accounting work, we’ll guide you through the whole process.

For further information, please contact us.

You may want to read: CHECKLIST FOR ACCOUNTING AND AUDITING IN HONG KONG

HONG KONG ENTREPRENEURS’ TAX REPORTING DURING PANDEMIC

The Organisation for Economic Co-Operation and Development (OECD) published an analysis entitled “OECD” Secretariat Analysis of Tax Treaty and the Impact of the COVID-19 Crisis”. (OECD Analysis). The OECD Analysis provides guidance on cross-border tax issues arising from the COVID-19 pandemic. The analysis mentioned the lead to creation of PERMANENT ESTABLISHMENT or change in the tax residence status. Due to the government implementation of various quarantine measures and travel restriction. 

FAQ about Tax Treaty implementation during Pandemic

Question 1

During the pandemic, my employees are working from home. Can I define HOME OFFICE as a PERMANENT ESTABLISHMENT in the tax treaty?

Answer:

No, it is not a PERMANENT ESTABLISHMENT in the tax treaty. Working from home is an Exceptional and Temporary Change of the location where employees exercise their employment because of the Pandemic. 

Question 2:

During the pandemic, an employee has to work from home temporarily. In fact, the employee is working for an overseas enterprise with an official employment contract. The home office located in Hong Kong, China. And the employee is exercising the employment such as concluding contracts with trading partners. Is it a PERMANENT ESTABLISHMENT in the tax treaty? 

Answer:

No, it is not a PERMANENT ESTABLISHMENT. Employees working temporarily from home and concluding contracts in their home jurisdictions on behalf of their foreign employers for short period of time. Rather than as the normal routine because of government directives are unlikely to be regarded as Habitually concludes contracts on behalf of the enterprise”. Therefore, it should not create Permanent Establish for the enterprises.

Question 3:

For construction sites that have been temporarily suspended due to the pandemic. Not due to a shortage of material or labour. The construction project is overrun. When calculating the duration of the project. Can I deduct the suspension days from the total project day for a PERMANENT ESTABLISHMENT in the tax treaty?

Answer:

The construction sites suspended due to the pandemic and caused project overrun. The number of days of the overrun can deduct from the number of project completion day. So, it is not a PERMANENT ESTABLISHMENT.

However, the period of temporary interruption of activities on a construction site. Due to shortage of labour or material. In that scenario, the suspension needs to include in a PERMANENT ESTABLISHMENT. 

Question 4:

During the pandemic, there is a change in location of decision making from top management. Does it affect the place of effective management and make change of the resident status?

Answer:

Temporary relocation or inability to travel of chief executive officers or other top management officers of an entity. This should not trigger a change in the tax residency of the entity under a tax treaty or create the issue of dual residency. 

Question 5:

During the pandemic, it caused changes in the places of residence of some people. It may appear that they constitute resident individuals under the respective tax laws of the parties to the tax treaty. How to solve this dual resident personal status problem? 

Answer:

A temporary dislocation of an individual by reason of the pandemic will unlikely the individual’s tax residency when the tie-breaker rules for dual residency in tax treaty are applied.

 

For further information, please contact us. 

You may want to read: INLAND REVENUE DEPARTMENT – TAX AUDIT & INVESTIGATION