How to register a company in China in 2019

As one of the most powerful economic players in the world and its largest manufacturer, China attracts many foreign entrepreneurs and investors. In this article, we will share with you the process of starting a business in China and how to register a company as an expatriate, taking into consideration factors such as formalities, procedures and the necessary documentation required.

If you wish to take advantage of the business opportunities offered by this country, you will need to create a legal entity from which to operate. This depends on factors such as the nature of your activity and your budget among others.

After discussions with Bridge To China(Shanghai Henghui Enterprise Development Ltd), a company that helps foreign companies deal with local government in Shanghai and its surrounding regions, we wrote this article to share with you the process of starting a business in China as an expatriate.

The Chinese market is a growing market attracting an ever increasing number of foreign companies. However, it is not so simple to establish a company or a branch in Shanghai for example as a foreign sole proprietor or as a foreign company. HI-COM has prepared the main steps and lead time for this with the help of Bridge To China.

Here are the steps of the process for forming a basic company that do not involve special approval from government:

1.  Name check with Business Bureau

The name of the companyin Chinese that you plan on using. Bear in mind that, in order to avoid using a name that is already in use or, for some reason, is unusable, you must ask for the name’s pre-approval from the AIC (Administration of Industry and Commerce) in the city in which you intend to open the company. This pre-approval may require between 2 and 15 days, depending on where you apply.

2.  Application to Commerce Bureau

All foreign investment into China is governed by the commerce bureau (商务委), which will issue you a Letter of Registration to be used when opening a bank account.

3.  Application to Business Bureau

All companies (both local and foreign companies) are registered with the Business Bureau (工商), who issues the business license and monitor the business operations. To obtain an approval certificate and business license, you will have to apply through two different government entities: The Ministry of Commerce (MOFCOM) and the State Administration of Industry and Commerce (SAIC) or most likely, in the event of a “modest” investment, with their local branches.

4.  Business License to be Issued

The founding date of the company will correspond with the day you are issued the business license.

business license, register a company, china

5.  Chops (authorisation stamps) to be made by the Police

Fourchops, Company Chop, Legal Representative Chop, Bank Chop and Accountant Chop will be issued and registered with the Police to detect any contract fraud.

6.  Open Bank Account (BoC)

Finding a suitable bank for your business is crucial when forming a company. It is there where your funds and your capital will be stored. You will need an international bank, which is able to carry out transactions with foreign banks in order to facilitate substantive exchanges with your country of residence. HSBCis generally the most popular bank because it is fully international and has its main offices in Shanghai and Hong Kong.

7.    Tax registration

Companies have to comply with China’s tax regulation by maintaining monthly bookkeeping, declaring taxes such as VAT, corporate income tax, personal income tax and filing financial reports and audit reports annually. Here is a list of taxes to consider for a WFOE or Joint-Venture:

  • Corporate Income Tax: This is a tax on profits (or the gross income minus company expenses) of 25%. However, there are various ways to receive a tax reduction on profits (for example if your industrial sector is “encouraged”, you will only pay 15%).
  • Turnover Tax (or Transaction Tax): This is a tax on sales that can vary between 3% and 5% depending on the type of business (the exception is “entertainment” firms, for which this tax varies between 5% and 20%).
  • Custom Duties: These are duties on goods imported to or exported from China (even in this case there are various ways to get a reduction or exemption from duties, such as if your firm is situated in a Free Trade Zone).
  • VAT: The VAT in China is usually 17%. As in Europe, this is a tax on consumption therefore companies can “unload” it.
  • Individual Income Tax: This is a tax imposed on dividends levied by the company partners and the tax on workers’ salaries.

 

8.    Registering for Import/Export License through the Custom Bureau

Register with the Custom Bureau and apply for an IC card.

Documents required for all these steps:Original Passports (3 working days needed to be verified by Commerce Bureau.) If the shareholder/investor is a “Legal Entity”, certification by Local China Embassy for the Legal Entity and a sound credit statement from the local bank for the business will be required.

Lead Time:

  • 12 working daysto obtain the business license
  • 1 dayto open a bank account
  • 1 dayfor tax registration
  • 15 working daysfor custom bureau registrationic card, register a company, china

 

Documents that Bridge To Chinacan provide:

Company Constitution, Shareholder/Director Appointment Letter, Biz Lease Contract, Im/Export etc.

 

Before registering your company, you must decide on the status that best suits your needs. The most common forms for foreign companies are the Joint Venture, the Representative Office, the Wholly Foreign Owned Enterprise (WFOE)and the Partnership Enterprise.

Each of these possibilities has advantages and disadvantages and it is important to choose the right entity because this is what will follow your business throughout your development on the Chinese market.

  • The Joint-Venture (JV):

Thisis an agreement between two partner companies from different countries co-operating long term. The joint venture is based on the pooling of traditional, commercial, technical, managerial and financial and human resources. The basic idea is cooperation and the sharing of risks, profits and losses.  The Chinese government encourages this form of establishment with the aim of transferring technology and knowledge to Chinese companies.

Procedure:

  1. Business Name Check/Registration
  2. Application for Certificate of Approval
  3. Application for Business License
  4. Business License Police Registration
  5. Make Company Chop
  6. Open Bank Account
  7. Capital Injection

* For Trading, Manufacturing, Food & Beverage and operating other special industries, additional approval is required from governmental bodies.

Creation time: 6 – 12 monthsupon receipt of all documents (depending on the sector of activity).

 

  • The Representative Office (RO):

A representative office is an organization that conducts market research and seeks contacts for its head office. It contributes to developing its activity in other countries (commercial audit, quality audit, etc.). It is a suitable choice if you would like to work with the Chinese market but you do not want to run the risk of setting up a company and remote commercial development is expensive and complicated: the representative office is an ideal development intermediary.

Procedure:

  1. Application for Business License
  2. Business License Police Registration
  3. Make Company Chop
  4. Open Bank Account

* The parent company has to be over 2-years old.

Creation time: 3 – 5 monthsupon receipt of all documents

 

  • The Wholly Foreign Owned Enterprise (WFOE):

This isa limited liability company in China wholly owned by a foreign individual or company. Liability is limited to the registered capital. The WFOE can generate income and pay taxes in China. A Chinese partner is not necessary for its creation. It offers all the possibilities of development, payment and recruitment with risk limited to the registered capital.

Procedure:

  1. Business Name Check/Registration
  2. Application for Certificate of Approval
  3. Application for Business License
  4. Business License Police Registration
  5. Make Company Chop
  6. Open Bank Account
  7. Capital Injection

* For Trading, Manufacturing, Food & Beverage and operating other special industries, additional approval is required from governmental bodies.

Creation time: 4 – 6 monthsupon receipt of all documents (depending on the sector of activity).

 

  • The Partnership Enterprise

This is a form of establishment in China on the basis of a partnership between two companies, or two (or more) individual investors. There are no nationality constraints for the partners. The objective is to enable entrepreneurs to carry out their projects without too much financial commitment. This recent form of establishment is ideal for entrepreneurs or small structures with all the possibilities of a WFOE without registered capital.

Procedure:

  1. Business Name Check/Registration
  2. Application for Certificate of Approval
  3. Application for Business License
  4. Business License Police Registration
  5. Make Company Chop

Creation time: 4 – 6 monthsupon receipt of all documents (depending on the sector of activity).

 

Administrative procedures in China can be long and complicated, so it is important to do your research well so as not to waste time. Consult the appropriate sites in order to know which documents you will need for the entitiy you have chosen.

It is also possible to use an agency who can speak Chinese to facilitate this often-painful process for foreign companies.

Which districts are more interesting in terms of incentives and subsidies(government funding, rent, entrepreneur subsidies, etc)?

Bridge To China is working with BaoShan SiTang Biz Park (Baoshan District), and ChongMing HengTai Biz Park (Chongming District).

Both offer free business registration, and tax incentives unto 20% (VAT & Income). Chongming is more generous regarding both the tax incentive and other supports for agriculture/environment related business types. Baoshan is close to the city center thus more convenient for the tax registration when the legal representative is required to be present.

Which kind of fields (IT, Manufacturing, service, etc) have access to more funds from the Chinese government?

All businesses registered in China with a sound standing are eligible to apply for all types of government funding and subsidies in addition to tax deductions and other incentives. This depends greatly on the business itself with its potential growth projection and items such as IP and TM.

 

For companies to succeed in China, it is important to offer something innovative that is different from the competition. For your establishment in China, you will have to promote your product via Chinese social media like Weibo, Wechat and Douyin.  Even if China tends to be improving in terms of respect for other commercial innovations, the country will not escape its reputation and the copy of the product is unfortunately always present.

This means that as soon as you know that you want to work in China, you must register your trademark, because the Chinese government applies the “first-to-file” principle.  Any applicant who registers the trademark first will be considered the true owner of the company. To register your trademark, you must work with an agent of the Trademark Office of the Public Administration of Industry and Commerce of the People’s Republic of China. For registration, you must prepare the Chinese name of your trademark.

Once your brand is registered, you should also consider registering patents and designs to protect the uniqueness of your products. To do so, you will need to contact the National Intellectual Property Office of China. The associated costs will depend on your product.

Good to know:

Depending on each particular case and the province or city where you have decided to settle, additional steps may be required.

Want to learn more? Shoot us a line!

Kate CHERNAVINAHow to register a company in China in 2019