We are registered as a business in the UK but are not registered as a business in China. We have been told by our suppliers that they will need to invoice our customer on our behalf for VAT reasons because the sale is within China and relates to goods produced in China (N.B. the customer is registered in China). Our suppliers are very trustworthy but obviously it is not ideal that they should have full visibility of our sales price to our customer. Any advice/thoughts would be gratefully received!
I am not sure why your supplier is mentioning VAT specifically, but in order to trade (invoice and receive money) within China, you need to have a legal entity in the market – that is, a wholly foreign-owned entity or a joint-venture.
I would be very happy to talk this through with you, further (email is below).
China-Britain Business Council
Legally, the Chinese supplier is correct. VAT would have to be paid in China in the manner described for the movement of products made in China and sold within China.
To set up a WOFE in China is a very expensive operation and not worth doing unless you see a large opportunity developing. Our experience are that JV’s are tricky and has to be done with a long standing partner of which you have total trust. Difficult to develop this easily.
It could be the best course of action is to set up an entity in Hong Kong for trading your products and services cross border into China and enabling you to keep your suppliers and buyers apart.
In this particular instance right now in order to go forward and to protect the client information, we suggest that you ask your supplier to sign non-solicitation agreement, acknowledging that the client information passed is for VAT purpose and that they promise not to solicit or otherwise engage those clients for as long as they are your supplier, and for 6 (or 12) months thereafter. To give the non-solicitation agreement teeth, ask them to agree to put a certain sum in escrow, which they will lose if the supplier breaks the agreement. Not sure if the supplier will agree, but this is the only way we see.
Going forward we’d be happy to talk to you and give you best advice from here in London or Hong Kong where we have experts dealing with such scenarios all the time.
If anyone needs great travel options to China, we have some special deals currently. Regards to all. John