Starting A Business In China

Business Opportunities in China

Beginning a business in China is a huge accomplishment. China offers plenty of promising business opportunities to foreign investors. Here are a few industries booming right now - 

  • ~Tourism
  • ~Aged Care sector
  • ~Education sector
  • ~Financial Services and Investment
  • ~Agriculture sector
  • ~Processed Food sector
  • ~Infrastructure Development
  • ~Legal Services
  • ~Information Communication Technology

However, there are numerous factors and multiple laws to consider while setting up a company in China. Besides, this requires a significant monetary and time commitment. To have the option to get to a level where your business can work without being anxious with every one of the specialized subtleties, there are things that you should make a note of before setting up a business in China. 

Benefits of Starting a Business in China

One of the main benefits of setting up a company in China is gaining access to a whole new market. Accessing another market is significant because it permits you to venture into a different and vast geography and market. This gives your firm a considerable benefit over competitors since you can serve a more extensive client base.

The Chinese government has adopted a proactive strategy to implement innovatively ideal arrangements for homegrown and global organizations arrangements. A portion of these endeavors includes helping youngsters materialize their thoughts, empowering imagination and advancement, and giving business appropriations to its residents. This has benefited both local and foreign organizations to flourish in the country.

China's steady development over the past thirty years has been fostered by social, political, and economic stability. The young are enabled, and the business climate is well disposed. Both Rural and Urban China have a lot of assets for development.

These three elements make up the greatest advantages of doing business in China.

Requirements for Starting a Business in China

To get certified and start operating your business in China, you must prepare a list of documents and submit them for approval. The documents required are -

The company's name:

For the company name, you must seek approval from the Administration of Industry and Commerce. This is a crucial to ensure that your company's name doesn’t conflict with others already in operation. On average, this approval can take between two to fifteen days, depending on where you want to set up an offshore company in China.

The list of controlling partners:

These stakeholders hold the majority of the company you are incorporating. To avoid getting into trouble later, it is advisable to confirm that the business partners can hold stakes in China.

The managerial structure:

It has the data of all the operational profiles of directors, administrators, general managers, and the legal representative of the business. Copies of the directors’ passports should accompany this framework.

The legal address:

The address to the company's headquarters should be mentioned under this so the related authorities can seek answers in the future, in case any query arises. And you should also include the contact number and email address of the owner.

Articles of Association:

This is another crucial requirement for the China organization enlistment process. It contains essential data on business portrayal, including the extension that you mean to work in. In the record, you layout the subtleties of the business, including the administrative design and the techniques to be used for maximizing profits.

Registered capital and total investment:

The enlisted capital means the assets devoted to meeting the organization's costs. Then again, the total investment is the amount of enlisted capital and future advances from financial investors. It can likewise be from outsiders like banks.

A feasibility study:

You must create a comprehensive strategy and a detailed business plan to demonstrate to the experts without question that the organization is economically feasible. Here, you must prove the enlisted capital can fund the activities. If your plausibility study does not persuade the authorities, you can’t enlist the business. Thus, make sure to work with qualified professionals to create a foolproof plausibility report.

Types of Business Structures in China

When you set up an offshore company in China, you ought to comprehend the different legal structure that exists to get your business up and running.

These are five types of entities in China -

  • ~Wholly Foreign-Owned Enterprise (WFOE)
  • ~Foreign Invested Partnership Enterprise (FIPE)
  • ~Equity Joint Venture (EJV)
  • ~Contractual or Cooperative Joint Venture (CJV)
  • ~Representative Offices (RO)

While each of them can be considered an excellent option for setting up your business, the most common and significant options are -  

  • ~Wholly Foreign-Owned Representative Offices (RO)
  • ~Joint Venture (JV) 
  • ~Enterprise (WFOE)
Representative Office WFOE Joint Venture
Common Purpose Market Research and Branch Office Manufacturing, Servicing and

Trading

Enter into Restricted Industries
Taxation Based on Expenditure Based on Revenue Based on Revenue
Advantages Easiest and Inexpensive to set up.

No Registered Capital Required

100% ownership and management control.

Greater freedom in business activities compared to RO.

Allows foreign companies to enter restricted industries.


Local and foreign partners can share assets, resources, risks, and costs between them.

Considerations Restrictions of profit-related activities in China. For example, invoices need to be issued from HQ instead of RO


No contract signing is required. A contract needs to be signed by the parent company


Restrictions on hiring. RO can only hire local staff through an authorized Chinese

agency

Registered capital is required for selected industries.


Restricted from access to certain industries

Profit sharing.


Share ownership and management control.


Inheriting partner liabilities.

Company Registration Process

Once you have prepared the necessary documents, you can apply for company registration by following the steps given below:

Find an organization that can help you register your company 

The company registration process in China is not an easy task. As per the company laws, preparing the required documents can be challenging, but this shouldn't demoralize you from setting up a company in China.

Thus, it’s best to trust third-party organizations with industry knowledge and experience to help you with the company registration process in China. This is because they know the best option your company should follow and what mistakes you should avoid initially. Select the best China company registration firm if you want the process to be easygoing and hassle-free. Furthermore, getting you sorted with the company incorporation in China, the professional organization will also come in handy to guide you with the following:

  • ~Bookkeeping
  • ~Payroll
  • ~Audits
  • ~Support for the annual financial statements
  • ~Tax advice
  • ~Tax minimization methods

Choose the preferred company scope

The Chinese government categorized its sectors and has given importance to the areas which have the potential to grow the economy faster. To learn more about the categories, you can check out the Catalog for the Guidance of Foreign Investment Industries. This catalog is updated every day, with the government encouraging investors who are focusing on revolution.

Submit the documents and apply for the Approval Certificate

You must submit all the documents mentioned above to either one of the two entities - the Ministry of Commerce (MOFCOM) and the State Administration of Industry and Commerce (SAIC) for obtaining the Approval Certificate and Operating License.

These authoritative bodies will review your application and notify you if the certificate has been approved or declined.

 Apply for a business license

Once your business certificate is issued, you must obtain additional licenses based on your niche market from relevant authorities. In China, manufacturing, beverages, construction, and telecoms businesses require special licenses.

Register with the public security bureau

This registration with the PSB will help you get the imprinted seals. Many companies in China use imprinted seals, which is equivalent to the value of signatures in western countries.

Open a bank account

Opening a bank account is a common procedure in all countries before starting a business venture. It not only simplifies the payment procedures for the firm and comes in handy while filing returns.

Register at the tax bureau

In China, all organizations, including wholly foreign-owned enterprises, must comply with the tax guidelines. Initially, one should enlist the business's fundamental financial and working data like CFO check and classification. During this process, you must consider various charges, like:

Corporate annual expense:

This is an assessment on benefits of 25%. If you are in the "energized areas," you can appreciate lower corporate annual expenses.

Exchange Tax:

This expense is otherwise called turnover charge, 3-5% of the business deals.

Custom obligations:

These are charged on products sent out from or imported to China.

Tax (Value added charge):

There are different duty rates in China: 3%, 6%, 9%, and 13% as far as ventures. Check China VAT change in 2019 to find out about VAT in China.

Individual personal assessment:

This expense is forced on profits that the organization’s accomplices and employee allowances.

How Much Does it Cost to Incorporate a Company in China?

The cost of incorporating a company in China for year 1 is $6400. If including company incorporation, resident director, corporate bank account, and virtual office address, it would cost US$17,650 on average.

Different China entity types Cost
Tax resident LLC US$17,650
China fast nominee company US$47,810
China shelf company US$39,110
Guangzhou Knowledge City company US$17,650
Free zone company US$16,650
Branch of a foreign company US$19,350
Representative office US$19,650
Equity joint venture company US$17,650
Subsidiary LLC US$16,650
Holding company LLC US$17,650
LLC with employment visa US$21,600
Hong Kong legally tax-exempt company US$8,910
Marshall Islands IBC with China corporate bank account US$9,430
Fast business setup solution + 6 months tax reporting US$46,970
China export LLC without travel US$35,540
China trading company with tax reporting US$24,570
Hong Kong LLP US$9,110
Macau LLC US$9,150

Timelines

On an average, WFOE entity in China for business incorporation engagement period takes 26 weeks as mentioned thoroughly below:

Services LLC Free Zone Branch Office RO Equity Joint Venture Hong Kong

Offshore

Engagement planning 2-weeks 3-weeks 1-week 1-week 3 weeks 1-week
Entity Registration 3 months 3 months 3 months 3 months 4 months 1-week
Corporate bank account approval 6-weeks 6-weeks 6-weeks 6-weeks 6-weeks 4-weeks
Corporate internet banking approval 3-weeks 3-weeks 3-weeks 3-weeks 3 weeks 1-week
Engagement completion 1-week 1-week 1-week 1-week 1-week 1-week
Total engagement period 5 months 5 months 5 months 5 months 6 months 2 months

Are Foreigners in China on Certain Passes Allowed to Start a Business in China?

In China, certain businesses or industries are off-limits to foreigners. Hence, the foremost step would be to check the government’s list of businesses open to foreigners and then proceed with the business expansion. 

If a foreigner’s business is sanctioned by the government, they can establish and run their company in China and hold the same rights as Chinese business owners. One of the most popular business entities for foreigners in China is the wholly foreign-owned enterprise (WFOE). However, expats can also incorporate their businesses as a joint venture or representative office in China.

Government Assistance for Foreign-owned Businesses

According to China’s revised (1 January 2020) Foreign Investment Law (FIL), the government has enforced a pre-entry national treatment system along with negative list management for monitoring foreign investment in the country. The pre-entry national treatment ensures that foreign business owners get equally favorable opportunities as domestic investors at the market access stage.

Except for a select few industries where foreign investment is restricted (mentioned in the negative list), foreign investors can acquire an equity interest in domestic companies. Expats can also register and file their applications with the local governmental agencies like MOC, SAMR, etc. Moreover, if an expat’s company falls under the “encouraged” category, the government reduces its corporate income tax from 25% to 15%.

How Multiplier Can Help?

Now that you know the procedure for incorporation of a company in China and what goes into it, the question arises - should you set up a company in China yourself or work with an external local service provider?

We will suggest you partner with Multiplier. We’re a global employment solution partner with extensive industry knowledge. Hence, we can steer you through country laws and incorporation processes, making the process of company incorporation in China a hassle-free affair for you. 

Talk to our experts to know more.

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Frequently Asked Questions

What is the main advantage of a WFOE in China?

WFOEs in China give maximum control to the employer over local business operations in the country. Hence, it is a highly flexible option for foreign employers as it boosts profits while also giving local autonomy to the company.

Can foreign employers set up an offshore company in China without establishing a legal entity?

Yes, foreign employers can conduct business in China without actually setting up a business entity in China. However, this is only possible at the initial stage of entering the market. Usually, businesses partner with third-party PEO/EOR firms for conducting market research, hiring employees, and much more.

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