Start Your Business In China

How Does The Incorporation Of A Company In China Work?

Company Incorporation in China - An Overview

The best way to start a company in China is through an Umbrella Company. An Umbrella company is a legal entity that works like your host in China. It takes care of your employees or operations( which usually your sales/marketing/import-export etc.) in China. Incorporating an umbrella company is extremely cost-effective and hence is one of the best ways to start a business in China.

If you are planning to hire local employees for your company in China, the umbrella company can help you in:

• Handling the work visa procedures for foreign employees.
• hiring employees depending on the need.
• salary, taxation, insurance and human resources management for your employees.
• Handling payments from chinese clients and making transfers to your bank accounts.
• Finding an office or location for your business office or warehouse.

What are the different business entities in China?

There are four kinds of business entities in China viz

• Wholly Foreign Owned Enterprise.
• Foreign Invested Commercial Enterprise.
• Representative offices in China.
• Joint Venture Company registration in China.

1. Wholly Foreign Owned Enterprises (WFOEs)

Wholly Foreign Owned Enterprise (WFOEs) is a limited liability company. In these type of companies all the shareholders can be foreign individuals. Only International business enterprises or foreign individuals can be the shareholders in these enterprises and a Chinese partner is not mandatory.

WFOE is the best investment vehicle if the investor is planning to get into manufacturing or processing business in China. Having paid up capital is not necessary for establishing a consulting, trading or IT firm in China. The foreign companies which are planning to sell their products in China or make high-value products generally prefer a WFOE. This is to resist any violation of intellectual property that has already cast-out China.

WFOEs can work within a limited approved business ambit which is mentioned on the business license. Further approvals from the authorities are required for changing the scope of business of WFOEs. The most common businesses include investment consultancy services, manufacturing, trading, retail etc.

Generally, the duration of a manufacturing WFOEs is 15-30 years which can be easily extended on the basis of prior approval from the government. The WFOEs term is extended to 50 years if the company has:

• a huge investment and a long construction period and
• manufactures internationally competitive products and used advanced technology for producing cultured products

The Corporate taxes in China differ from 15% – 25%, depending on the company’s jurisdiction and the nature of business. It is mandatory to submit tax reports to the Tax Administration Department regularly. The cost of an annual audit report in China is around RMB 6,000 and if the same is not submitted the company will be subjected to a fine. The company can easily repatriate the profits althoughIf a company wants to remit the profits out of the country, then the approval of the State Administration of Foreign Exchange is not required.

Registered Capital

Registered capital is the amount mandatory to operate any business until it arrives at the break-even point. A WFOE operates with a registered capital until it has its own cash- flow.

Minimum Registered Capital Requirement

• RMB 100,000 – Consulting WFOE.
• RMB 500,000 – Trading WFOE.
• RMB 500,000 – Manufacturer WFOE.

Advised Registered Capital

• RMB 300,000 < Consulting WFOE
• RMB 1,000,000 < Trading WFOE
• RMB 1,000,000 < Manufacturer WFOE

2. Foreign Invested Commercial Enterprise

The regulations for Foreign Invested Commercial Enterprise registration in China are relatively easy. These enterprises are established for the purpose of retailing, wholesaling, franchising or trading business in China.

The minimum registered capital requirement -

• RMB 500,000 – Wholesale FICE.