Since 2020, we have worked with a French interior designer whose reputation spans continents. A graduate of Cornell University’s design programme and a familiar face to Chinese audiences through his appearances on CCTV, he brings an exacting standard to every project — one that extends to the materials he specifies. For him, sourcing is not a procurement function; it is part of the design itself. Particular finishes, bespoke components, and specialist materials are selected personally and sourced directly.
His clients want one relationship and one agreement. What China’s tax framework wanted was something considerably more complicated.
One Invoice, Two Tax Rates — and No Way to Bundle Them
The challenge was structural, not incidental. A high-end interior design engagement involves two distinct categories of value: the design and creative direction (a service), and the materials and finishes specified and procured (goods). The client’s preference — and his clients’ preference — was a single, clean service agreement covering everything.
China’s VAT Rules Require Services and Goods to Be Invoiced Separately
Under China’s VAT framework, design services and physical goods attract different tax rates. The tax authority does not permit bundled pricing across categories — each must be declared, invoiced, and reported independently. A single all-in contract with no line-item separation is non-compliant.
Bundled invoicing: not permittedThe China WFOE Had No Import/Export Qualification
Many of the materials the designer sources are specialist items — not standard domestic stock. The existing China WFOE lacked the import and export trading qualification needed to procure directly from overseas suppliers or manage cross-border materials flows. Every sourcing decision that crossed a border created a compliance gap.
Import/export qualification: absentNeither problem was insurmountable on its own. Together, they meant the business as currently structured could not operate the way the designer worked — or the way his clients expected to engage him.
A Dual-Entity Architecture Built Around How the Business Actually Works
The solution was not to force the designer’s way of working into a structure that didn’t fit — it was to build a structure that matched his operational reality. Two entities, one team, clearly defined roles for each.
Entity structure planning is the foundation of any China market entry that spans multiple tax categories, business activities, or jurisdictions. We map the right architecture before registration begins.
Entity Structure Planning →Dual-Entity Structure — Design Services + Materials Procurement
- Signs master service agreement with end clients
- Procures specialist materials directly from domestic and overseas suppliers
- Manages cross-border materials flows
- Holds import/export capability
- Provides design services to the Hong Kong entity
- Houses the China-based design team
- Issues compliant service invoices (fapiao)
- Qualifies for VAT zero-rating on overseas projects
The Hong Kong company became the client-facing entity — the single point of contact that end clients engage with, contract with, and pay. It also handled materials procurement directly, resolving the import/export gap entirely. The China WFOE focused on what it does best: delivering the design work, with a clean, compliant invoicing structure between the two entities.
A Hong Kong company registered alongside a China WFOE is one of the most effective structures for foreign-operated businesses that span services and goods. We handle both registrations.
Hong Kong Company Registration →The second element of the solution was VAT zero-rating. As the designer’s project pipeline has shifted increasingly toward overseas clients, the China WFOE’s design services — delivered to foreign entities and consumed entirely outside China — qualify for zero-rated VAT treatment under Chinese law.
Under Article 9 of the Implementation Regulations of the VAT Law (effective 1 January 2026) and Circular Caishui [2016] No. 36, Annex 4, design services sold to overseas entities and fully consumed outside China qualify for VAT zero-rating. This is not an exemption — it is a zero-rate, meaning input VAT credits are preserved. For a business with significant overseas project revenue, the difference in cash flow is material. See our VAT, Fapiao and Export Tax guide for full details.
We assisted in the application for zero-rated status alongside the structural work, ensuring the tax benefit was locked in from the outset rather than claimed retrospectively.
Two Compliant Entities. One Seamless Client Experience.
The designer now operates with a structure that matches the way his business actually works. The Hong Kong entity handles client contracts and materials procurement; the China WFOE provides the design services and invoices compliantly. Tax reporting is clean, separated by category as required. Overseas project revenue qualifies for VAT zero-rating. And the designer’s clients continue to engage with a single point of contact — which is exactly how it should feel.
What began as a tax compliance problem revealed a deeper structural opportunity. The dual-entity architecture has since supported the designer’s expansion into overseas markets, where the majority of his current projects are now based.
If Your Business Spans Services and Goods, Your Structure Should Too
China’s tax framework treats services and goods as categorically distinct — and enforces that distinction at the invoice level. For businesses that naturally blend both, the solution is rarely a workaround. It is a structure that gives each category its proper home, with the right entity handling each role.
If you are operating — or planning to operate — across design, consulting, procurement, or any business that combines service delivery with physical goods, the architecture matters as much as the registration. We have been building these structures since 2015.
Does Your Business Mix Services and Goods?
Let’s map the right structure for your situation. Start with our WFOE formation package, or speak directly with a China market entry specialist.