The Leading Edge - Spring 2012 - 13

implications of your scope of business than the business license issuing departments. You do need to satisfy the tax bureau’s inspection, and this means ensuring your business scope is accurate. Attempts to fool the tax bureau into thinking you are one thing, while in fact you are another—even if you can get it past the approvals process—will inevitably end in failure. Play the game the right way and say what it is you are really doing. If not, you are only saving up trouble for later. Writing your scope of business in China usually requires assistance from a professional firm familiar with China’s business laws and, for foreign investors, the “Foreign Investment Catalogue.” This document, which is usually redrafted every four years, outlines exactly what investors in China may and may not do, which areas require additional licenses or permission, and the circumstances surrounding these. Accuracy is the watchword here. But attention to detail by your advisors isn’t just about ensuring your scope of business is accurate. There can be positive aspects to this too, as in certain encouraged industries tax treatment towards companies in your defined
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scope of business can improve, which is obviously good news. An example is the recent announcement by Chinese customs that grants tax exemptions to foreign investors in encouraged industries. Of course, this advantage needs to be applied for—and it too is cross-referenced with your scope of business on the business license, as well as your tax bureau registration, to ensure your company qualifies. That said, businesses of course evolve and mature, and at a later stage you may wish to increase your scope of business to include other activities. Often, but not always, this can mean an additional investment into the business is required in terms of registered capital status; however, in all cases an application to amend the business license can be made with your original licensing authorities. The procedure involves submission of the original license, redrafting of the desired scope, and proof of any additional requirements that may need to be met. If completed properly, an enhanced scope of business—and the license to go with it— can be issued within four to six weeks.

The lessons for writing a scope of business in China are simple: Be honest and be accurate. It is advisable to take professional advice and use a firm with a strong China presence that knows what it is doing. Its advice might not just help you write a good scope of business, but may help you obtain other benefits that China often provides to foreign investors in select areas or industries. For instance, having the correct scope of business not only clears away uncertainties, but may also help you obtain better tax and customs treatments. LE
Dezan Shira & Associates, a Leading Edge Alliance firm, specializes in foreign direct investment, providing business advisory, tax, accounting, payroll and due diligence services to multinationals investing in China, Hong Kong, India, Singapore and Vietnam. Established in 1992, the firm is a leading regional practice in Asia with 20 offices in five jurisdictions, employing more than 170 business advisory and tax professionals. To contact the firm please email china@dezshira.com or visit www.dezshira.com.

The Leading Edge - Spring 2012

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