The simple and better way for China company registration
08 April 2020 | Insights
China is, without any doubt, a global economic hub and an investors’ paradise. Starting with its economic reforms of the 70s, the country has been experiencing exponential growth that makes it the perfect launching pad for businesses that want to expand and invest globally.
To take advantage of this tested and proven offshore investment destination, you need to follow the right steps for China company registration.
Benefits of Registering Your Company in China
Before we proceed to look at the details of China company registration, you might want to check the additional benefits of taking your business there. Here are some of the unique advantages that you cannot afford to miss:
- Almost every Fortune 500 firm, from Apple to Nokia and Oracle, among others, has its operations based in China. These brands are attracted to this fast-growing economy and use it to expand globally. If the most respected multinationals used China as a launching pad, following their footsteps means one thing for your enterprise: success will be only a few steps away.
- China has many positives that work towards anchoring businesses for success. With its 1.3 billion people, your business is assured of a ready market. Furthermore, China is strategically located in the Far East so you can also easily access markets in neighbouring countries such as India, Japan, and Thailand, among others.
- Rated the fastest growing economy in the world, China is one of the largest importers and exporters. Therefore, your China company registration will perfectly thrust your business into a functional chain that will easily propel it to success.
- The Chinese economy is very diverse and, therefore, offers opportunities in different sectors. Therefore, whether your business is in agriculture, technology, manufacturing, automobile, hospitality, or oil & gas, among others, you are sure of growth and ultimate success. With opportunities easily available, China company registration will be the best idea for success.
China Company Registration: Business Formation Options for Foreigners
Now that you know the benefits that come with China company registration, you better grab the opportunity to utilize this potent opportunity. There are three main business formation options that you can use:
Wholly Foreign-Owned Enterprise (WFOE)
The obvious business format for foreigners looking forward to starting businesses in China is a wholly foreign-owned enterprise (WFOE). According to Chinese law, WFOE is a limited liability company that is 100% owned by a foreigner or run by a foreign company. Since you fully own the business, it implies that you have greater control over its operations, profit targets, and revenue.
As a limited liability company, it also means that it is a separate legal entity and limits your liability to the contributed share capital. This is the most favourable option for an overseas business that targets entering the Chinese market.
Benefits of a Wholly Foreign-Owned Enterprise:
- The business is allowed to engage in all activities it is registered for in China.
- You have total control over the decision-making system of the company.
- It is a perfect way of protecting your trademark when expanding operations to China.
- You have total authority over the hiring of staff.
- It is ideal, particularly when targeting to establish a long-term presence in China.
A joint venture is another type of business that takes the form of a limited liability company. Under this business format, you are required to identify and register a company with a Chinese partner. Another remarkable thing about JV is that the Chinese partner must have controlling shares (over 50%) in the company. This implies that, unlike the wholly foreign-owned enterprise, your partner will have greater control of the daily operations of the company.
The main advantage of going for a joint venture is that you can rapidly grow into the Chinese market by using the already established firms to tap into their know-how, distribution networks, and sales channels. Furthermore, you do not have to worry about the entry challenges that characterize new businesses.
While these benefits are amazing, it is important to note that with limited control, you are simply trusting the investment into the hands of another person. For many investors, this is too big a risk to take. This is why you should go for WFOE as your first choice.
This is the simplest type of business formation that you can open in China. But unlike China company registration for a WFOE or joint venture that allows you to engage in profitable activities, a representative office comes with major limitations. The office is only allowed to engage in non-profit making operations such as offering customer support and market research.
The Best Time for a Representative Office:
With all the limitations that come with running a representative office, it becomes less desirable for investors looking forward to growing their companies rapidly. So, what is the best time to open a representative office?
- During the market exploration phase, especially if your company is small and has a restricted budget.
- If your company is looking forward to expanding to the Chinese market, but the final decision is yet to be made.
- When a company simply targets to get a simple presence in the Chinese market for some activities like quality assurance and liaison with suppliers.
The Complete Procedure for China Company Registration
As we have mentioned, the best legal company formation in China is a wholly foreign-owned enterprise (WFOE). So, here are the steps to follow for registering a limited liability company in China.
1. Choose an Agency to Help You with the Registration
While the Chinese administration has put a lot of effort into supporting businesses, we must indicate that registering a company is not a simple task. From the interpretation of the company laws to prepare the required documents, the process can be overwhelming. But this should not dampen your resolve to expand to China. The best and sure option is using an agency.
Agencies are run by professionals who have helped other investors with China company registration. So, they know the best steps that you should follow, and the mistakes to avoid. Well, if you want to complete the registration faster, professionally, and enjoy every step, work with the best China company registration firm.
In addition to helping you with company incorporation in China, the expert firm will also come in handy to assist you with the following:
- Tax advise
- Tax minimisation methods
- Support for the annual financial statements
2. Select the Preferred Company Scope
In China, the government has categorised its sectors and put emphasis on areas with the potential to grow the economy faster. To learn about the categories, you should check the Catalog for the Guidance of Foreign Investment Industries. It is updated regularly, with the government encouraging investors who are focusing on innovation. For example, if you are in manufacturing, the business venture will be greatly supported by the administration. Well, this is the reason why Chinese manufacturing has exploded in a way never seen anywhere in the recent past.
3. Prepare the Required Documents
In order to get authorised to start operating your company, you need to prepare an assortment of documents and submit them for approval. Here are the documents that you need:
- The company name. To get the company name, you should seek approval from the Administration of Industry and Commerce. This is very important to ensure that your name does not conflict with others already in operation. Note that this approval can take between two and fifteen days depending on where you want to open the business.
- The list of controlling partners. These are the shareholders who hold the majority of shares in the company that you are incorporating. To avoid getting into trouble later, it is advisable to confirm that the business partners are allowed to hold shares in China.
- The managerial structure. This is the complete business operational profile that includes the board of directors, supervisors, general manager, and legal representative. This structure should be accompanied by copies of the directors’ passports.
- The legal address. This is the official headquarters of the company where the authorities can seek answers to any issue about the company. The address should include details such as the phone number and email of the house or landowner.
- Articles of Association. This is another crucial document during the China company registration process. It contains important information on the business description, including the scope that you intend to operate in. In the document, you outline the core details of the business, including the managerial structure and the methods to be used for returning profits.
- Registered capital and total investment. The registered capital denotes the resources dedicated to meeting the expenses of running the company. On the other hand, the total investment is the sum of registered capital and future loans from investors. It can also be from third parties like banks.
- A feasibility study. To prove to the authorities beyond any reasonable doubt that the company is feasible, you need to provide a comprehensive business plan and a budget. Here, you need to demonstrate the registered capital can finance the operations. If the authorities are not convinced of the feasibility study, your company registration will not be approved. So, make sure to work with a professional agency to craft a convincing feasibility study document.
4. Apply for Approval Certificate
In order to get issued an approval certificate and operating license, you need to deal with two entities. One, the Ministry of Commerce (MOFCOM) and the State Administration of Industry and Commerce (SAIC). These authorities will review your application and notify you if the certificate has been approved or declined.
5. Apply for Business License
Once issued with a business certificate, you will need additional license/s depending on the niche you are operating in. In China, businesses in manufacturing, food, beverages, construction, and telecoms require additional licenses.
6. Register with the Public Security Bureau (PSB)
This registration helps you to get the company chops. In China, company chops are equivalent to the value of a signature in western countries. If you do not have a chop, it is impossible to validate any contract.
7. Open a Bank Account
For your business to start operating, it must have a bank account. A Chinese bank account allows the company to get paid and be able to pay bills. The bank account will also come in handy when filing returns.
8. Register at the Tax Bureau
In China, all companies, including the wholly foreign-owned enterprises, are required to comply with the Tax regulations. Therefore, you should first register the business's basic financial and operating info such as CFO verification and category, among others. When still at this, you need to note different taxes obligation. They include:
- Corporate income tax: This is a tax on profits of 25%. However, if you are in the “encouraged sectors” you can enjoy lower corporate income taxes.
- Transaction Tax: This tax is also known as turnover tax, which is 3-5% of the business sales.
- Custom duties: These are charged on goods that are exported from or imported to China.
- VAT (Value added tax): There are different tax rates in China: 3%, 6%, 9%, and 13% in terms of industries. Check China VAT reform in 2019 to learn more about VAT in China.
- Individual income tax: This tax is imposed on dividends that are levied by company partners and staff salaries.
As we pointed out earlier, starting a business in China is a monumental task. Therefore, it is a great idea to have a professional holding your hand all the way. Note that working with an expert agency means that you have a partner to walk you through, even during the early days of company operations. So, do not wait any more; it is time to identify a great agency and take advantage of the high-potential Chinese market.
Q. How Do I Register A Company In China?
Registering a company in China is a process that requires you to prepare the right documents and seek approvals from various departments. The best way to register a company in China is using an expert agency. Registering a company in China requires you to follow these steps:
- Choose an Agency to Help You with the Registration
- Select the Preferred Company Scope
- Prepare the Required Documents
- Apply for Approval Certificate
- Apply for Business License
- Register with the Public Security Bureau (PSB)
- Register the Company at the Tax Bureau
- Register at the Tax Bureau
Q. What Are The Main Documents That I Need To Incorporate A Company In China?
There is a whole array of documents that you must prepare in the process of registering a business in China. Here are some of them:
- The company name
- The list of controlling partners
- The managerial structure
- The legal address
- Articles of Association
- Registered capital and total investment
- A feasibility study
Q. Can Foreigners Own Companies In China?
The answer is, “yes.” They can own companies by incorporating them in China. For example, a foreigner can incorporate a wholly foreign-owned enterprise (WFOE), open a joint venture, or start a representative office.
Q. How much Corporate Income Tax Reduction do Wholly Foreign-Owned Companies in “encouraged” sectors in China get?
If your company is in the “encouraged” sectors, the Chinese administration cuts the corporate income tax from 25% to 15%.
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