Going through the procedure of the Company registration in China, you will realize that it is not at all simple to incorporate a company in China. So before deciding to incorporate a company in China, you need to consider the options, whether it is absolutely necessary to incorporate a company, or your project can be completed via an Umbrella company.
Umbrella Company is an entity in China that works for and on behalf of any foreign entity or individual who wants to do some business in China. It manages employees and your work on your behalf. Usually, it takes care of all your sales, marketing, import-export or any other kind of consultant needs. It takes care of recruitment, salaries, accounts etc.
In order to start a business in China in a less expensive manner, to start it as an umbrella company is the best option. Once you set your business on its feet, you can certainly set up your own company. However, this arrangement will only work if the business you are starting is of service. If the business concerned is of any other nature, you got to start your own company in China or get into a joint venture.
There are four major forms of business entity to register a business in China
- Wholly Foreign Owned Enterprise
- Foreign Invested Commercial Enterprise
- Representative offices in China
- Joint Venture Company registration in China
- Wholly Foreign Owned Enterprises (WFOEs)
Wholly Foreign Owned Enterprises (WFOEs) is in the form of limited liability companies, established under Chinese Company Law. It is a kind of organization where complete shareholding is of foreign individuals or entities. Only International business enterprises or foreign individuals (Citizen) can be shareholders in a Wholly Foreign Owned Enterprise. Liability in a WFOE is up to the amount of registered capital injected into the business. Although the capital may, in fact, be a combination of two assets, cash injection and equipment, the total value of these also represents the extent of the WFOE’s liability.
The international investors wishing to manufacture, process, or assemble in China consider WFOEs the best investment vehicle. To establish a WFOE in China you don’t need a Chinese partner.No paid-up capital is required for foreign investors to establish a Consulting, Trading or Information Technology business etc. in China. Also, there is no need for large amounts of registered capital to fund – Manufacture WFOEs.
Minimum Registered Capital Requirement
- Consulting WFOE RMB 100,000
- Trading WFOE RMB 500,000
- Manufacturer WFOE RMB 500,000
Suggested registered capital
- Consulting WFOE > RMB 300,000
- Trading WFOE > RMB 1,000,000
- Manufacturer WFOE > RMB 1,000,000
Registered Capital is the amount that is required by the business to operate until it can break even. The term “Minimum registered capital” is used by the local governments as a guideline only, and as mentioned, the WFOE needs funding via its registered capital until it is able to support itself from its own cash-flow.
Business Scope of WFOEs
WFOE can only conduct business within its approved business scope, which is ultimately mentioned on the business license. Any change in the business scope of WFOEs requires further application and approval. Generally, the business scope includes investment consulting, corporate management consulting, international economic consulting, trade information consulting, technology consulting, marketing and promotion consulting, manufacturing, etc. With China’s entry into the World Trade Organization, more and more business is open to WFOE, especially in Trading, Wholesale and Retail business.
- Foreign Invested Commercial Enterprise
Foreign Invested Commercial Enterprises (FICEs) are the establishments for the purpose of retailing, wholesaling, franchising or trading businesses in China. The regulation for registering a Foreign Invested Commercial Enterprise is comparatively quicker and enlarges the playground available for the foreign investor to conduct trading activities.
The minimum registered capital required
- Wholesale FICE RMB 500,000.
- Retail FICE RMB 300,000.
- Suggested registered capital
- Wholesale FICE > RMB 1,000,000
- Retail FICE > RMB 1,000,000
- Representative Offices in China
There is no minimum capital requirement for Representative Offices in China. Representative Offices are typically are non-legal entities, representing the parent companies in China and used for market research activity in China to access the scope and depth of Chinese Market, to consider the future investment scope, or to start liaison activities between China-based buyers of service or product sold by your international business. These representative offices can only work for Non-profit making activities like research etc.
Representative Offices are not allowed to be engaged in any business for profit, sign, contracts on behalf of the parent enterprise, receive revenue in China, issue official tax invoices, buy property or import production equipment.
China Tax Information
All expenses incurred by Representative Offices(including staff salary and rental) are taxable in China. The tax rate is approximately 10% of the total amount.
Representative Offices need to submit a monthly report to the Tax Administration Department in China.
Representative Offices are not allowed to recruit local staff in China by themselves. These offices need to turn to HR agents appointed by China government for the purpose of recruitment.
- Joint Ventures Company registration in China
Joint Ventures in China are of two types
- Equity Joint Ventures
- Cooperative Joint Ventures
Joint-Venture usually is an arrangement where both the domestic entity and international entity work together. It is a type of a company controlled by both foreign and Chinese partners.
A Joint-Venture usually is created for the purpose transfer of technology. Given the very usual problems of infringement associated with intellectual property that plagues China, foreign companies who intend to make or sell high value products (such as a patented product or software), often prefer to opt for a WFOE.
In case, that the international entity wishes to operate in a “restricted” industrial sector, a Joint-Venture is the only option. WFOE and Joint-Venture are very similar in nature.
China’s Labour Law, allows enterprises to decide for themselves the timing and means of recruiting staff as well as the relevant requirements and number.
If a company in China hires a foreign employee, the company needs to register this employee with the local social security authority within 30 days of the employee receiving their work permit.
China’s corporate tax rates range from15% to 25%. (The rate depends on the jurisdiction where the company is registered and the industry sector that a company is engaged in). All the enterprises in China are required to report to the Tax Administration Department monthly, quarterly and annually.
Any limited companies in China shall submit an annual audit report to the concerned authorities periodically or as may be prescribed. The annual audit cost is approximately RMB 6,000. If the Annual Audit Report is not submitted in a timely manner the company in default will be subject to a fine.
Profit repatriation is freely allowed by China Government. It allows Foreign Invested Enterprises to remit their profits out of the country and such remittances do not require any prior approval of the State Administration of Foreign Exchange (SAFE). However, dividends cannot be distributed and repatriated overseas if the losses of previous years have not been covered. Dividends, if not distributed in previous years may be distributed together with those of the current year. Repatriating the registered capital to home countries is not allowed by the Chinese Government during the term of business operation.
The Business duration for a manufacturing WFOE is typical of 15 to 30 years. This duration of WFOE can be extended by obtaining prior approval from the government. The projects in which the amount of investment is large, or the construction period is long and the return on investment is low, projects producing internationally competitive products, or the projects producing sophisticated products using advanced or key technology provided by the foreign partner, for the term of WFOE may be extended to 50 years. With special approval from the State Council, the term may be extended even longer than 50 years.
The process of Company Registration in China
To register a company in China, the applicant needs to submit an application for establishment registration to the relevant company registration authority in accordance with Chinese Company law. If the application filed satisfies the establishment conditions provided for herein, the company registration authority shall register the proposed entity as either a limited liability company or a company limited by shares; if the field application does not satisfy the required conditions, the proposed entity shall not be registered as a limited liability company or a company limited by shares.
Where laws or administrative regulations specify that the establishment of a company shall be subject to approval, the relevant approval formalities shall be gone through in accordance with the law prior to the registration of the
The general public may apply to company registration authorities to inquire on company registration matters, and company registration authorities shall provide the inquiry services.
Company registration authorities shall issue business licenses of companies to the companies established under the law. The date of issuance of the business license for a company shall be the date of establishment of the company.
The business license of a company shall state therein such matters as the name, domicile, registered capital, business scope, and the name of the legal representative, etc. of the company.
Where any of the matters stated in the business license of a company is changed, the company shall go through the formalities for the change of registration in accordance with the law, and the relevant company registration authority shall issue a new business license to replace the old one.