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.
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 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
Advised Registered Capital
RMB 100,000 – Consulting WFOE.
RMB 300,000 < Consulting WFOE
RMB 500,000 – Trading WFOE.
RMB 1,000,000 < Trading WFOE
RMB 500,000 – Manufacturer WFOE.
RMB 1,000,000 < Manufacturer WFOE
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.
RMB 300,000 – Retail FICE.
Representative Offices (ROs) in China
Representative offices work for market research activities and for understanding the scope and depth of Chinese Market for future investments. They are not allowed to perform any business for profit-making. They cannot sign contracts on behalf of the parent company , receive any revenues, issue official tax invoices, deal a property or import manufacturing equipment. They also cannot recruit any staff themselves and need to seek the advice of an HR agent who is appointed by the Chinese government for recruitment purposes. In case of a foreign employee, he/she is required to register with the local Social Security Authority within 30 days of employment.
Representative offices in China are liable to pay taxes on all the expenses incurred by them. It includes the salary of the staff and office rentals. Approximately 10% of the total amount is payable as the tax. A monthly report of the same is submitted to the Chinese Tax Administration Department.
Joint Ventures Company
Joint Venture is a collaboration of both domestic and international entities. It is secured by both, foreign as well as chinese partners and is built for the purpose of transfer of technology.
How to incorporate a company in China?
For registering a company in China, one needs to follow the below mentioned steps:
Submit an application for company registration to the company registration authority as per the law.
Once registration is completed, the company is registered as a limited liability company or a company limited by shares. Although the application for registration might be rejected if the concerned authority feels that the required conditions have not been fulfilled. In case where your application has been rejected, you can easily reach to the authorities to make an inquiry regarding the status of your application.
Only the company registration authorities have the power to issue the business license to you. The date of setting up of the company and the date of the issue of license remains the same.
The license contains details such as- name, domicile, registered capital, business scope and the name of the legal representative of the company.
If you want to change any information mentioned in the license, you need to make an application for amendment of the license.. The company registration authority after verifying the information will issue you a fresh license.