Past iadvisory Questions and Answers: China

What the requirements when purchasing office space in Shanghai? Can the office space subsequently be leased to third parties? Can the rental income be remitted back to Singapore? Our iadvisors shed some light on these issues.

We are a shipping firm based in Singapore looking to purchase office space in Shanghai, either in Puxi or Pudong. The objective is to hedge on the ever increasing cost of office rental for which the space could either be used by our agent or leased out to third parties. According to the real estate agent, we must incorporate a company in order to own this office space. In this context, my queries are set forth as follows:

a) What type of company would best facilitate the purchase of the office space? i.e. Wholly Owned Foreign Entity (WOFE), Joint Venture (JV) etc?

Regulations relating to investing in real estate have been tightened. The agent is correct that you have to form a company to own the property. Both forms of vehicles are acceptable. The difference between WFOE and JV is that in a JV, you will have a Chinese partner participating in the investment.

b) Are we required to apply for any business license for this purpose? If so, what type and how much would this license cost?

Every company incorporated in the People’s Republic of China (PRC) will require a business license. This is part of the incorporation process and you do not need to apply a separate license. The business license will state the businesses that you are permitted to carry out. In your case, it will be investing and leasing of property.

c) What is minimum registered capital required for such a company?

The minimum registered capital is US$120,000 (S$165,912). However for a real estate company there are additional restrictions,

(i) Minimum registered capital will be 50% of the total investment of the project, and
(ii) You will not be allowed to take any loans to purchase the property.

d) What is the estimated time frame and approximate cost (SGD) to incorporate such a company, inclusive of the application of relevant licenses?

It will usually take 3 to 6 months to incorporate the company. One of the new requirements is that you will also have to register your purchase with the Beijing CSRC (China’s Securities Regulatory Commission) and this may take some time. Your costs should be around an estimated S$15,000.

e) If we were to lease the office space to third parties and rental income is collected in RMB, can this income be remitted back to Singapore?

Yes. You may do so once taxes have been paid. Dividends of profits may then be made back to the investing company.

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