Structuring Companies in China: Software Enterprises or R&D Centres?

November 30, 2003 | BY

clpstaff &clp articles

How a foreign investment is structured as a legal entity in China requires careful consideration as there are different implications and different tax benefits. One of our contributors looks at the implications of company structure for the IT industry.

By Tang Zhengyu, Partner and Chen Ling, PRC Consultant, Sidley Austin Brown & Wood, Shanghai

Perhaps the most common decision a foreign investor faces is choosing between a service-oriented or a manufacturing-oriented entity. The IT industry is no different; there are certain pros and cons to establishing a foreign-funded software enterprise versus a foreign-funded R&D centre in the form of an internal R&D department, an R&D branch, or an independent R&D. Here we will discuss the different issues involved with establishing software enterprises and R&D centres. We will begin with an overview of both structures and then compare them. A case study will also be presented that outlines the problems that are frequently encountered in China.

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