Tax avoidance is a right for every company, and choosing to establish a company in an area with investment incentives is one of the options for startups. Here's a tip: By ensuring the following four points, your company won't be classified as a shell company by the state!
1. To genuinely transfer a portion of the business
Many investment and attraction regions offer tax incentives or financial rewards. Even with regular tax payments, substantial rewards are provided by the local government, usually around 50% of the available local funds, which is approximately one-fifth of the actual tax amount. For instance, if you pay 1 million RMB in value-added tax, the company can enjoy a financial reward of about 200,000 to 250,000 RMB. This is a legitimate income source, and such low-tax zones still have a market. However, it cannot be done through fictitious invoicing; one must split their existing company's business. Typically, part of the current business is operated by a new "digging" company, which has real operations, thereby avoiding shell companies.
2. To incur actual expenses.
Establishing an accounting system is essential when setting up a company in a foreign location. When seeking reimbursements from a foreign company, it's typically subject to核定征收. Regardless, it's crucial to keep a well-documented evidence chain of business transactions, and payments should be made through the bank (Alipay and WeChat Pay are also acceptable).
Many companies, when faced with on-site tax inspections, are unable to provide evidence and accounting records, potentially leading to being identified as shell companies.
3. Provide a physical address
Establishing a company in a foreign location typically doesn't involve a factory, thus the address requirement is often lower. Many companies entrust local accounting agencies to handle registration, utilizing virtual addresses and forming cluster enterprises, which poses significant risks. Even if costs are a concern, a real physical address is essential.
4. Other Necessary Evidence Chain
In addition to the aforementioned necessary content, to prevent the audit risk associated with shell companies, financial personnel in all units should pay attention to collecting other evidence chains.
(1) Out-of-town company-to-company travel tickets and expense reimbursement forms.
(2) When dealing with contracts between out-of-town and local businesses, pay close attention to how the contract amount is structured; do not fabricate contracts.
(3) Ensure clear separation of business activities between out-of-town companies and local entities; avoid duplication.
(4) Funds cannot be repatriated.
