Company registration,Corporate formation

 in China

Setting up a company in China can be very difficult if you are not familiar with the Chinese legislation and requirements of different authorities.  Our professional consultant will help you to set up company in China in the most cost effective way.  We will help you in every step to be successful in China.

We will assist you to form the most suitable presence of your company in China:

There are 3 types of organizations that can be set up and registered by foreign investors and companies in China: WFOE (Wholly Foreign-owned Enterprise), JV (Joint Venture) and RO (Representative Office)

Apart from special industries that are still protected by the government, major industries including trade, retail, manufacturing and consulting have already opened up to foreign FDI.  However, requirements on registered capital, documentation and time required for approval from the government, may differ across these industries.

Minimal capital requirement and mandatory items for FIEs in China

What is a Representative Office?

A representative office is an organization that carries out market contacts and research for its headquarters, and assists in developing its business in other countries.
In comparison with WFOE companies, representative offices can not issue any invoices, and therefore gain any income by itself. All expenses of a representative office have to be fully funded by the company headquarters. 

A Representative Office (RO) means a branch office of a foreign company set up in China.

RO make sense if

• The scale of operation is small.
• There is no need to have strong presence in China.
• Competitors are not here.
• Contribution of registered capital is a concern.
• A large sales team for domestic sales is not needed.

Limitation of RO

• In general, Representative Office is not allowed to earn income. The major problem with the RO is the restriction of issuing invoices.
• Representative Office pays tax on expenses.
• The tax holiday is not applicable to Representative Office.
• A Representative Office may only receive funds by transmission from its head office.  It is not even allowed to receive cash or funds transferred from a domestic company.

Operation Period

The general period of operation of RO shall not exceed 3 years.

General Requirement

No registered capital is required. 

Estimated Setup Time

About 2 months

Licenses and Certificates Obtained after Successfully Setup

1. Certificate of Approval for Establishing Representative Office
2. Business Registration License
3. Enterprise Code Certificate
4. Tax Registration Certificates
5. Certificate of Registration with the State Administration of Foreign Exchange
6. Statistics Registration License
7. Finance Registration License

What is a WFOE?

WFOE (Wholly Foreign Owned Enterprise) is the most direct form of investment and the easiest in terms of management in China. For the time being, foreign investors are allowed to set up WFOEs in many industries.

Hong Kong enterprises can have more advantages according to CEPA. In the step by step link, you can find the procedures for all types of WFOEs.

Types of WFOE

• If the WFOE is allowed to do consultancy service, we call it “Consulting WFOE”.
• If the WFOE is allowed to operate food and beverage business, we call it “Catering WFOE”
• If the WFOE is allowed to do manufacturing, we call it “Manufacturing WFOE”.
• If the WFOE is allowed to do trading, wholesale, retail or franchise, we call it “Trading WFOE” or “FICE” (Foreign-Invested Commercial Enterprise).

Advantages of WFOE

• Independence and freedom to implement the worldwide strategies of its parent company without having to consider the involvement of the Chinese partner;
• Ability to formally carry out business rather than just function as a representative office and being able to issue invoices to their customers in RMB and receive revenues in RMB;
• Capability of converting RMB profits to US dollars for remittance to its parent company outside of China;
• Protection of intellectual know-how and technology;
• No requirement for Import / Export license for its own products;
• Full control of human resources; and
• Greater efficiency in operations, management and future development.

General Requirements

• Business Scope
  
  Business scope needs to be defined and the WFOE can only conduct business within its approved business scope, which ultimately appears on the business license. Any amendments to the business scope require further application and approval.  Inevitably, there is a negotiation with the approval authorities to approve as broad a business scope as is permitted.

Generally business scope includes investment consulting, international economic consulting, trade information consulting, marketing and promotion consulting, corporate management consulting, technology consulting, manufacturing, etc.

• Registered and Paid Up Capital

As stipulated in China’s Corporate Law, minimum registered capital for limited liability corporations is based on the nature of the industry.  The minimum registered capital for various industries according to current laws is given below:

Consultancy WFOE     RMB 100,000
Trading WFOE / FICE   RMB 500,000
Manufacturing WFOE   RMB 500,000
Catering WFOE        RMB 500,000

• Terms
  
  In China, terms of 15 to 30 years are typical for a WFOE (although some may have a longer term).  It is also possible to obtain extensions of the WFOE's duration.  For projects in which the amount of investment is large, or the construction period is long and the return on investment low, projects producing sophisticated products using advanced or key technology provided by the foreign partner, or for projects producing internationally competitive products, the term of WFOE may be extended to 50 years.  With special approval from the State Council, the term may be even longer than 50 years.

Estimated Setup Time 

• About 3-5 months

Licenses and Certificates Obtained after Successfully Setup

1. Certificate of Approval for Establishing Foreign Invested Enterprise
2. Business Registration License
3. Enterprise Code Certificate
4. Tax Registration Certificates
5. Certificate of Registration with the State Administration of Foreign Exchange
6. Statistics Registration License
7. Finance Registration License

 For Trading WFOE/ FICE, you will obtain the following additional licenses:

• Customs Registration License
• Import / Export License
• General Taxpayer Status

 For Manufacturing WFOE, you will obtain the following additional permits:

• Environmental Protection Permit
• Fire Safety Permit

 For Catering WFOE, you will obtain the following additional permits:

• Environmental Protection Permit
• Health and Hygiene Permit
• Food and Environment Permit
• Fire Safety Permit

 Joint Venture in China

A Joint venture is a company set up and invested by Sino and foreign investors. It effectively uses the advantages of local enterprises.

However in China, some industries invested by foreign investors can only be in the form of joint venture, and the quantity of such limited industries is decreasing consistently.

Equity Joint Venture

A foreign company wishing to establish a business in the PRC can do so by means of a Foreign Equity Joint Venture Enterprise in partnership with a Chinese partner.

This is a form of Chinese limited liability company between a Chinese and a foreign party and is therefore a separate legal entity. Each participant contributes to the venture in financial terms by way of an investment of capital and therefore has a stake in the business. This is similar to the holding of shares in a limited company.

However the foreign participant is not able to recover the investment until the termination of the joint venture. The joint venture also brings together the respective skills and technologies of each party.

The participants share profits, risks, and losses in proportion to their respective contributions to the registered capital of the joint venture. All equity joint ventures are governed by the Law on Joint Ventures using Chinese and Foreign Investment promulgated in 1979 and amended in 2001. There are also a number of other laws and regulations which affect the joint venture's operations relating to such matters as taxation, employment and foreign exchange.

Co-operative Joint Venture

A more flexible way of operation with a Chinese partner is a Co-operative Joint Venture which is governed by the Law on Chinese Foreign Co-operative Enterprises promulgated in 1988 and amended in 2000. This legal framework allows individual agreements such as profit sharing, which need not be restricted to the equity contributions. It differs mainly with the equity joint venture in that the foreign investor may repatriate his original investment prior to the expiration of the joint venture.

This kind of partnership structure has limited applicability between foreign individuals or entities and Chinese entities.

Mergers & Acquisitions in China