structuring china startups presentation
TRANSCRIPT
![Page 1: Structuring China Startups Presentation](https://reader033.vdocuments.net/reader033/viewer/2022051414/55c34ffbbb61eb70778b47da/html5/thumbnails/1.jpg)
1
Structuring China-Focused Startups and Tax Implications for U.S. Founders
![Page 2: Structuring China Startups Presentation](https://reader033.vdocuments.net/reader033/viewer/2022051414/55c34ffbbb61eb70778b47da/html5/thumbnails/2.jpg)
2
OUR FIRM
![Page 3: Structuring China Startups Presentation](https://reader033.vdocuments.net/reader033/viewer/2022051414/55c34ffbbb61eb70778b47da/html5/thumbnails/3.jpg)
The opinions and analyses expressed herein do not necessarily reflect those of Andersen Tax LLC (“Andersen Tax”) or any affiliate thereof. Any suggestions contained herein are general, and do not take into account an individual’s or entity’s specific circumstances or applicable governing law, which may vary from jurisdiction to jurisdiction and be subject to change.
No warranty or representation, express or implied, is made by Andersen Tax, nor does Andersen Tax accept any liability with respect to the information and data set forth herein. Distribution hereof does not constitute legal, tax, accounting or other professional advice. Recipients should consult their professional advisors prior to acting on the information set forth herein.
© COPYRIGHT 2014 ANDERSEN TAX LLC ALL RIGHTS RESERVED. No part of this presentation may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of Andersen Tax LLC.
10/4/2014 3
![Page 4: Structuring China Startups Presentation](https://reader033.vdocuments.net/reader033/viewer/2022051414/55c34ffbbb61eb70778b47da/html5/thumbnails/4.jpg)
About Andersen Tax
The firm is comprised of more than 700 personnel located in 17 major U.S. cities and has an international presence in Europe through Andersen Tax Global. Andersen Tax encompasses top advisors with previous experience in the international accounting firms, law firms, IRS, and state taxing authorities. Many of our advisors hold multiple professional credentials and have depth in a wide range of capabilities allowing us to provide clients with comprehensive, integrated solutions.
4
![Page 5: Structuring China Startups Presentation](https://reader033.vdocuments.net/reader033/viewer/2022051414/55c34ffbbb61eb70778b47da/html5/thumbnails/5.jpg)
About Andersen Tax
In the markets we serve, we have the scale and experience of a multinational tax firm with the visibility and attentiveness of a local boutique firm. We believe that service, experience and a genuine concern for clients are prerequisites for developing long-lasting relationships.
Andersen Tax has over 100 Managing Directors which translates to a significant increase in direct time allocated to your engagement relative to other competitive firms. As an Andersen Tax client, the professionals you get to know in your first meeting are the same professionals who will be working with you throughout the process.
5
Andersen Tax is one of the largest
independent tax firms in the United States, providing a wide range of tax,
valuation, financial advisory and related
consulting services to individuals,
commercial clients and alternative
investment funds.
![Page 6: Structuring China Startups Presentation](https://reader033.vdocuments.net/reader033/viewer/2022051414/55c34ffbbb61eb70778b47da/html5/thumbnails/6.jpg)
Our Strengths
Thought LeadershipWe write the resources that have been used and trusted by tax professionals for over 40 years.
ServiceProfound experience and sophisticated tax planning...for you, for your family, for your business.
AccessibilityWe have the scale and experience of a multinational tax firm with the visibility and attentiveness of a local boutique firm.
ExcellenceAndersen Tax was recognized by Accounting Today as one of the top 20 tax firms in 2014.
IndependenceOur platform allows us to objectively serve as our client’s advocate and is free from the constraints of a firm that provides financial statement audits.
6
![Page 7: Structuring China Startups Presentation](https://reader033.vdocuments.net/reader033/viewer/2022051414/55c34ffbbb61eb70778b47da/html5/thumbnails/7.jpg)
For Private Clients
Our experts can help you with all of your family’s personal wealth matters, from income tax planning and compliance to setting up a family office. The service you receive as a client of Andersen Tax goes beyond tax advisory. We look at the full spectrum of factors affecting your unique portfolio to identify the most valuable solution—a solution you can trust because you know the only thing we gain is your satisfaction and ongoing loyalty.
7
![Page 8: Structuring China Startups Presentation](https://reader033.vdocuments.net/reader033/viewer/2022051414/55c34ffbbb61eb70778b47da/html5/thumbnails/8.jpg)
For Businesses
Whether your business interests are in the U.S. or overseas, our commercial tax and accounting experts can help you with your financial needs. We have extensive experience serving businesses of all types, regardless of industry, size, entity type, ownership or nationality. As an independent advisory firm that is not affiliated with an auditing firm, Andersen Tax is not restricted in its ability to provide a full range of tax advisory services to businesses.
8
![Page 9: Structuring China Startups Presentation](https://reader033.vdocuments.net/reader033/viewer/2022051414/55c34ffbbb61eb70778b47da/html5/thumbnails/9.jpg)
For Alternative Investment Funds
Andersen Tax has the ability to effectively address the complexity of tax and financial reporting that is unique to investment partnerships and the principals who manage them. Our experience ranges across family partnerships, private equity funds, hedge funds, real estate funds, venture capital funds and fund of funds.
9
![Page 10: Structuring China Startups Presentation](https://reader033.vdocuments.net/reader033/viewer/2022051414/55c34ffbbb61eb70778b47da/html5/thumbnails/10.jpg)
Valuation Services
Andersen Tax’ valuation services team provides thorough, independent valuation analyses together with superior client service and responsiveness. We produce comprehensive analyses and deliverables that reflect our technical depth and extensive experience with complex valuation issues and diverse industries.
10
![Page 11: Structuring China Startups Presentation](https://reader033.vdocuments.net/reader033/viewer/2022051414/55c34ffbbb61eb70778b47da/html5/thumbnails/11.jpg)
A Typical China-Based Startup Structure
11
(R&D, Sales/Marketing) OffshoreOnshore
Control
Agreement
(R&D, Sales/Marketing, Manufacturing)
FoundersVC
Cayman(IP)
US
WOFEChineseDomestic
![Page 12: Structuring China Startups Presentation](https://reader033.vdocuments.net/reader033/viewer/2022051414/55c34ffbbb61eb70778b47da/html5/thumbnails/12.jpg)
12
IP ownership by Cayman (unless legally required to be owned elsewhere)
Cayman reimburses U.S./Chinese subs for services at cost plus a certain %
Proper documentation (intercompany agreements)
Proper accounting
Possible U.S. entity classification (“check-the-box”) elections for Chinese subs
U.S. sub needs to file federal (including Form 5472 to report transactions with foreign affiliates) and state tax returns. If conducting R&D, may qualify for R&D credits in federal, CA and certain other states.
Key Tax Considerations
![Page 13: Structuring China Startups Presentation](https://reader033.vdocuments.net/reader033/viewer/2022051414/55c34ffbbb61eb70778b47da/html5/thumbnails/13.jpg)
13
Sometimes IP needs to be owned by a Chinese entity
HK or local country sub to conduct sales/marketing for rest of the world (outside of China and U.S.)
No need for Chinese domestic entity if the Chinese activities are allowed by the WOFE
No need for U.S. sub if no activities in the U.S.
Variations
![Page 14: Structuring China Startups Presentation](https://reader033.vdocuments.net/reader033/viewer/2022051414/55c34ffbbb61eb70778b47da/html5/thumbnails/14.jpg)
14
Subject to U.S. tax on worldwide income
May need to file Form 5471/8858 to report 10% or more ownership (by vote or value; direct or indirect) or being a director in foreign companies
May need to file FinCEN Form 114 (FBAR, formerly TD F 90-22.1) to report ownership or signature authority in foreign bank/financial accounts ($10,000 or more)
May need to file Form 8938 to report foreign financial assets ($50,000 or more)
May need to deal with Subpart F income or passive foreign investment company (“PFIC”) issues (U.S. VC’s and U.S. employees also care about these)
FATCA
Penalties
Overseas Voluntary Disclosure Program
U.S. Tax Implications for U.S. Founders
![Page 15: Structuring China Startups Presentation](https://reader033.vdocuments.net/reader033/viewer/2022051414/55c34ffbbb61eb70778b47da/html5/thumbnails/15.jpg)
15
Controlled foreign corporations (“CFC’s”) are foreign corporations > 50% (by vote or value) owned by U.S. shareholders each owning >10% (by vote)
Passive and certain other income of CFC’s is currently taxable to >10% U.S. shareholders (even if not receiving dividends or selling stock)
Tax planning may reduce or eliminate Subpart F income
Subpart F Income
![Page 16: Structuring China Startups Presentation](https://reader033.vdocuments.net/reader033/viewer/2022051414/55c34ffbbb61eb70778b47da/html5/thumbnails/16.jpg)
16
If a foreign corporation is not a CFC, or if a U.S. person owns <10% (by vote), need to deal with PFIC issues.
A foreign corporation is a PFIC if >75% of its gross income is passive, or >50% of its assets is passive.
Qualified income fund (“QEF”) election is typically recommended. With the election, income of the foreign corporation is currently taxable (even if not receiving dividends or selling stock), but gain on the sale of stock remains capital gain.
Without the election, gain on the sale of stock would be ordinary income, and there would also be interest charge.
In either case, need to file Form 8621 to report ownership of PFIC stock.
PFIC
![Page 17: Structuring China Startups Presentation](https://reader033.vdocuments.net/reader033/viewer/2022051414/55c34ffbbb61eb70778b47da/html5/thumbnails/17.jpg)
17
Hai Tang, Director
415-764-2789 [email protected]
Adam Steinberger, Managing Director
650-289-5705 [email protected]
Yichen Shepard, Managing Director
415-764-2506 [email protected]
Shaun Dublin, Director
415-764-2731 [email protected]
Melodie Tsai, Director
415-762-6314 [email protected]
Andersen Tax Contact Information