With over 1.3 billion citizens and a GDP of over $14 trillion USD, China is one of the world’s biggest and most powerful economies.
That’s why, for international businesses, the Chinese market offers an unprecedented opportunity to attract more customers and increase profits.
But how do you set up a company in China, exactly?
In this guide, we’ll be breaking down the China company registration process, and unpacking what’s required to establish a business in one of the world’s most important markets.
China company registration: What company types are available in China?
There are three company types available for foreign invested enterprises (FIEs) in China:
1. Representative office (RO)
A representative office is the simplest and fastest way to set up a Chinese branch of a foreign company before it starts selling in China.
For that reason, an RO is ideal for foreign companies looking to investigate the Chinese market and understand its potential. This might include:
- Carrying out marketing activities
- Building brand awareness
- Liaising with suppliers
- Renting out commercial premises in China
Ultimately, a representative office is exactly that — it’s a way to represent your foreign company in China, without doing direct business.
2. Joint venture (JV)
A joint venture in China is a limited liability company that’s owned by both foreign investors and Chinese investors.
They are, in short, a foreign-owned company and a Chinese company in one, which gives them far less restricted access to the Chinese market than a representative office.
There are two, main types of joint ventures available for FIEs:
- Foreign invested company limited by shares (FICLS) — a FICLS is a joint Chinese and foreign-invested company owned by shareholders. If you want to list your company on the Chinese stock market, you’ll need to be a FICL.
- Foreign invested partnership enterprise (FIPE) — a FIPE functions under the same rules as domestic partnerships, and doesn’t differ too much from what you’d expect from a joint venture in the west.
A joint venture is a great (and relatively fast) way to start making money in China, but there are always risks involved when working with external partners. As such, this business type probably isn’t suitable for larger foreign businesses looking to expand.
3. Wholly owned foreign enterprise (WOFE)
If you’re looking to register a foreign enterprise in China without having to partner up with a Chinese investor, a WOFE is the way forward.
These are the closest you can get to running a Chinese-owned business as a foreign investor. You’ll be able to hire local residents, sell to consumers, send invoices to Chinese clients, and enjoy nearly all the same rights as a local business.
The only drawbacks of registering as a WOFE are that…
- The process can be very time-consuming and expensive
- You’ll need to generate around $50,000 a month to qualify
- Your business will be subject to all Chinese taxes
Despite that, WOFEs are the best (and only) structure suitable for operational, fully-owned foreign businesses in China.
How to register a business in China — a step-by-step guide
Since a WOFE is the closest you’ll get to fully establishing a business in China, let’s break down the steps you’ll need to take to register one.
Step 1. Partner up with an agency
Foreign company registration in China isn’t easy.
That’s why it’s almost always best to hire an agency to help you get up-and-running — they’ll save you a whole lot of time, and make the process far less stressful than it would be if you did it on your own.
Popular agencies for China company registration include:
Step 2. Choose your business category and scope
The first task your company registration agency will help you with is defining your business category and scope. This is important, as you’ll need to register your company within a specific category so that it can be correctly regulated.
In this stage, you’ll also identify what incentives your company might be eligible for, based on the Catalog for the Guidance of Foreign Investment Industries. The manufacturing industry, for example, is actively encouraged by the Chinese administration via tax incentives.
Pro tip: make sure your business category and scope don’t limit you from expansion, but are specific enough to prevent your application from being rejected for being too broad.
Step 3. Prepare the required documents
To obtain approval for your WOFE, you’ll need to be able to provide extensive documentation to support your application. This will include:
- Certificate of Incorporation, certified by the Chinese embassy
- Copies of the passport of each investor, certified by the Chinese embassy
- Bank statements from each investor
- Copies of the passports of the parent company’s director, the Chinese company’s legal representative, and the Chinese company’s CEO
- Photos of the Chinese legal representative, along with a CV
- Evidence of registered capital to meet the WOFE requirement
- Documentation relating to business scope and category
- 8 proposed Chinese names for the company in China
- The Chinese company address
- All documentation relating to ownership or lease agreement of Chinese address
- A letter of authorization
- A feasibility study that outlines why and how the company will succeed
- Articles of association that specify company regulations, managerial structure, and financial management processes
If your WOFE is in the manufacturing industry, you’ll also need documents concerning:
- Purpose and estimated investment
- Operational structure
- Number of those employed
- Permission for use of land
- Environmental protection measures
- Details of products being manufactured
- Size and scope of production
- Equipment required
- On-site utility requirements, such as water and electric
Step 4. Apply for an approval certificate
Once you’ve got your documentation in order, it’s time to apply for an approval certificate from the Ministry of Commerce and the State Administration of Industry and Commerce.
This is required before you can obtain a business license to register your WOFE.
If your business falls within one of the ‘encouraged’ categories identified in step two, you’ll also need approval from the National Development and Reform Commission. This will verify whether or not your business is eligible for certain incentives.
The approval process can take up to 90 days and can be extended if there are any problems, along the way.
Step 5. Apply for a business license
After you’ve received approval from the relevant bodies, you then have 30 days to register for a business license from the Chinese Administration for Industry and Commerce. You’ll need this before you can start operating in China.
To issue a business license, the AIC will need:
- The license application form signed and completed
- Articles of association
- Approval certificate
- Company name approval documentation from the AIC
- Letter of recommendation from the company’s bank
Business licenses are usually issued within a week, depending on your industry.
Step 6. Register with the Public Security Bureau (PSB)
Registering with the PSB will give you your company chops, which is a mandatory stamp that replaces signatures on any business contracts in China. Without one, your business won’t be able to function within PRC law.
Step 7. Open a Chinese bank account
Once you have a business license and company chop, you’ll then be able to open a Chinese business bank account for your company. You’ll need this to get paid and to be able to pay any bills.
Step 8. Register at the State Taxation Administration
The final stage of setting up your WOFE in China is registering with the STA to comply with tax regulations and file the necessary tax returns in accordance with the law.
Remember, every WOFE will need to pay all business taxes in China, as they are separate entities from your foreign business.
Advantages of setting up a company in China
There are many reasons why the China company registration process is so worth it — no matter how daunting you might think it looks. These include:
1. Increased access to the Chinese market
Without setting up a company in China, it can be extremely difficult to do business in the region.
If you’re a retail company looking to sell on e-commerce sites in China, for example, your options will be very limited. While cross-border platforms like JD Worldwide will be available to you, you won’t be able to sell on their main Chinese sites, which attract more users and generate more sales.
Ultimately, if you want maximum access to the Chinese market, it makes sense to register a Chinese business entity. Otherwise, you’ll be reducing your chances of success.
2. Lower manufacturing and supplier costs
Chances are, your business already outsources manufacturing to China — right?
So, if you start selling to Chinese consumers, your landed manufacturing costs could be significantly reduced, thanks to lower delivery and shipping fees.
If, by registering as a Chinese business, you can secure new customers that are cheaper to sell to, setting up in China is surely a no-brainer.
3. Increased trust from Chinese consumers
Registered Chinese businesses are more trusted by Chinese consumers than cross-border companies, especially in e-commerce. There is less uncertainty around deliveries and returns, and the overall customer experience is better.
What’s more, Chinese businesses can issue formal receipts (fapiao) to customers and clients, which adds a sense of much-needed authority and trust.
4. You’ll have full control over your Chinese business operations
If you register as a WOFE in China, you’ll be able to take full control over every part of your Chinese business. There will be no third-party that can crush your margins or distract from your vision, and no (or less) red-tape that holds you back from expansion.
Ultimately, foreign company registration in China is the only way to retain full ownership of your international business model.
How to make your Chinese business boom…
Once you’ve registered your business in China, you’ll then need to make the most of the country’s huge digital marketing sector.
To do that, sign up for your free AdChina.io account to get prepared.
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