23rd August 2019
LehmanBrown, China-based member firm within the MGI Worldwide global accounting network, has published a white paper highlighting the importance of due diligence strategies when doing business in China.
China is continuing to grow and is changing rapidly, while the business environment and ease of doing business have been steadily improving. As of April 1, 2019, VAT tax reforms were implemented, seeing a reduction for Individual Income Tax, aiming to combat the rising costs in China.
However, despite a number of positive changes, many problems are still troubling the Chinese market. There are cases of inconsistent regulatory interpretations or implementational guidelines, unclear laws and enforcement, and ever-growing risks regarding regulatory non-compliance for foreign businesses. Furthermore, foreign companies in recent surveys in China feel unfairly targeted when undergoing tax audits and work permit reviews, compared to their local competitors.
Is investing in China, the world’s biggest market, something to be avoided?
"Not at all, as long as you do your due diligence because taking a calculated risk is what business is all about" states Dickson Leung, Senior Partner at LehmanBrown. "But, note the word “calculated” is used advisedly, as business decisions inherently should be based on sound information."
Due diligence checklist
Due diligence is much broader in scope than is generally perceived. Regardless of which country you are doing business in making a substantial investment in getting to know the prospective partner or the proposed market, is not money that should be begrudged. It is imperative to seek answers to vital questions in areas such as:
- Management
- Legal issues
- Concept
- Market
- Capital requirements
- Financial statements
- Investigate
How do companies perform Due Diligence?
Firstly, by getting the right advisors. With China’s complex accounting system, rapidly changing legal and tax system and bureaucratic controls, seeking sound professional advice is paramount in setting up any China operation.
Secondly, by conducting due diligence. The key lesson learned is that in China, especially, it is imperative that an in-depth “Complete Business Due Diligence” be done before any firm begins in the China market.
If you have any questions, please contact MGI Worldwide member Dickson Leung at dleung@lehmanbrown.com.
For further details please visit LehmanBrown International Accountants' member profile page HERE or visit their website HERE.
MGI Asia is part of MGI Worldwide, a top 20 ranked international accounting network with some 5,200 independent auditors, accountants and tax experts in over 260 locations around the world.