Throughout two decades, with a GDP of $13.1 trillion, China has climbed to No. 2 globally and keeps getting closer to the forefront of the global economic power structure. With the Foreign Investment Law coming into force last year, foreign investors play on a more even ground with domestic competitors. If China is the next destination for your foreign market expansion, here’s a guide for China company incorporation to help you get started.
- Why is China an attractive market for foreign business expansion?
- What types of business entities are available for a foreign company in China?
- Is there any step-by-step guide to registering for China company incorporation?
- What is the estimated cost and time needed to expand business to China?
- Is there any tip to ease the incorporation process in China?
- What are the essential requirements to prepare for China company formation?
- What are the COVID-19 implications, new opportunities, and challenges on business opportunities in China?
Why is China an attractive market for foreign business expansion?
China is, without any doubt, a global economic hub and an investors’ paradise. Meanwhile, our partner CEO Suite has identified some reasons why international companies should consider expanding the business to China:
- Availability of capital
China has surpassed the United States for over two decades as the world’s largest beneficiary of foreign capital.
- Political and economic stability
China’s environment for law and order promotes more efficiency in trade activities as well as long-term growth.
- Regional and international trade
Besides China’s free-trade zones, other advantages for investors include tax exemptions and free conversion of Chinese currency to any international currency.
- Large local market
As the country’s large population continues to evolve and mature, investors can expand and profit in many high-end industries.
- Infrastructure and workforce
China’s vastly-developed infrastructure and university-educated, competent workforce enable investors to spend less and make more.
What types of business entities are available for a foreign company in China?
Essentially, there are three most common options for a foreign company to incorporate a business in China, depending on your business purpose, type of industry, and level of engagement:
- Representative Office
The Representative Office is the easiest, inexpensive type of business formation that you can open in China. This type of company is not allowed to engage in profit-making operations. Instead, you can utilize this for your market research and exploration phase.
- Wholly Foreign-Owned Enterprise (WFOE)
According to Chinese law, WFOE is a limited liability company with 100% foreign ownership and management control. Therefore, the business can have greater control over its operations, profit targets, and revenue.
- Joint Venture
Under this business format, you are required to identify and register a company with a local partner who will own controlling shares of over 50%. The advantage is you can enter restricted industries, get local insights, and share assets, risks, and costs.
|Type of Entities||Common Purpose||Taxation||Advantages||Consideration|
|Representative Office (RO)||- Market Research
- Branch Office
|Based on expenditure||- Easiest and inexpensive to setup
- No registered capital required
|- Restriction from profit related activities in China. For example, invoicing needs to be issued from HQ instead of RO
- No contract signing. Contract needs to be signed by the parent company
- Restriction on hiring. RO can only hire local staff thru an authorized Chinese agency
|Wholly Foreign-Owned Enterprise (WFOE)||- Manufacturing
|Based on revenue||- 100% ownership and management control
- Greater freedom in business activity compare to RO
|- Registered capital required for selected industries
- Restricted from access to certain industries
|Joint Venture (JV)||- Enter into restricted industry||Based on revenue||- Allow foreign company to enter into restricted industry
- Local & foreign partner can share assets, resources, risk & cost between them
|- Profit sharing
- Share ownership and management control
- Inheriting partner liabilities
Is there any step-by-step guide to registering for China company incorporation?
Above all, incorporating a company in China is complicated and time-consuming as regulations from the central and regional Chinese governments are rapidly evolving. Hence, staying up to date with the current processes and regulations is critical. Here is a step-by-step guide you can follow:
- Choose a trusted, expert agency to help you with the registration
- Select the preferred company scope from the Chinese government guidance
- Prepare the required documents from several administrative departments
- Apply for approval certificate and operating license
- Apply for a business license
- Register with the Public Security Bureau (PSB) for the company chops
- Open a Chinese bank account
- Register the company at the Tax Bureau
What is the estimated cost and time needed to expand business to China?
- Estimated cost
Generally, China company formation services require 4,950 - 6,450 USD as an opening cost. Subsequently, the cost structure depends on the type of industry and consists of registered address, registration fees, courier deliveries, bank opening, permits, and annual tax & audit. Here is a breakdown of the costs for WFOE or joint venture type of company:
|Pricing Items and Description||Service Industries||Trade Industries|
|Yearly registered address (12 months)||600 USD||600 USD|
|Register fee (documents / government cost)||1,800 USD||1,800 USD|
|Courier delivery||50 USD||50 USD|
|Local bank account opening||300 USD||300 USD|
|Import and export permits||None||500 USD|
|Annual tax return, first year, 12 months||1,500 USD||2,500 USD|
|Annual Audit, Government Inspection||700 USD||700 USD|
|Total (first year, each 12 months)||4,950 USD||6,450 USD|
- Estimated time
On average, the process of China company formation takes 12 to 26 weeks, depending on the type of business entity you would like to incorporate. To sum up, the timeline structure consists of the planning, entry registration, banking approval, and completion. So, here is a breakdown of the time estimation for each stage:
Is there any tip to ease the incorporation process in China?
Incorporating a company in China is more difficult compared to other countries. It requires you to follow specific steps that may result in delay if not correctly followed. Here are some tips to ease your actions:
- Be accurate with the scope and definition of your business
- Do your market and industry research to choose the right location in China
- Be knowledgeable with requirements and responsibilities as a company in China
- Do your due diligence and be very thorough in every contracts and partnership you’re about to do
- Create a simple and understandable employee management system in China
- Secure and protect your company’s intellectual property
- Learn the culture in China and build a connection with the local network
- Be clear, concise, but respectful in every negotiation
What are the essential requirements to prepare for China company formation?
There is a whole array of documents that you must prepare when incorporating a Chinese company. Here are some of them:
1. The company name
Get approval from the Administration of Industry and Commerce. Take 2 - 15 days, depending on your company location.
2. The list of controlling partners
To avoid getting into trouble later, for a joint venture company you should confirm your business partners can hold shares in China.
3. The managerial structure
Provide the complete business operational profile accompanied by copies of the directors’ passports.
4. The legal address
The address should include details such as the phone number and email of the house or landowner.
5. Articles of Association
In the document, outline the business's core details, including the managerial structure and the methods to be used for returning profits.
6. Registered capital and total investment
Provide the resources dedicated to meeting the expenses of running the company and the sum of registered capital and future loans from investors or bank loans.
7. A feasibility study
Provide a comprehensive business plan and a budget, make sure to work with a professional agency to craft a convincing feasibility study document.
What are the COVID-19 implications, new opportunities, and challenges on business opportunities in China?
Having suffered through the worst of the outbreak in the initial months of 2020, China emerged more robust and more resilient as an investment destination. Last year, we invited experts to discuss the topic through a webinar, and here are the insights:
1. COVID-19 Implications on business opportunities
The Chinese government lowered the barrier of entry for foreign investments to focus on inbound investment. Also, they incentivize investment to sectors that have significant opportunities for growth, such as:
- IT field
- High-tech industry
- Technology company
2. The Chinese government’s support in light of COVID-19
- Free trade zones
- Lower interest rates for SMEs
- Tax incentives in the Greater Bay Area
- Subsidizing firms to avoid employee lay-off
- Minimize bureaucracy, more legal protection for foreign enterprises
- Digitizing incorporation process
3. Main capital requirement and expected investments for foreign business
No minimum capital is required for foreigners instead of the previous 500,000 RMB or 80,000 USD requirement before the pandemic.
4. The challenges of incorporating a company in China
- Manual bank account opening
- Time-consuming company handling and employee engagement
- Less transparency and mixed-up rules
- Lack of physical office space availability
- Finding local partners
- Travel restrictions
5. The top fast-growing industries in China
- Digital economy
- High-end electronic hardware
- Cloud computing and AI
Are you looking to expand your business to China? Greenhouse connects you to reliable service providers for your China company incorporation. Fast and in full transparency.
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