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Starting a Company in China FAQ: Here’s Everything You Need to Know
Company formation in China is a hot topic these days. In 2018, the Chinese Ministry of Commerce recorded that over 960,000 foreign companies have been registered in the country with over ¥750 billion CNY direct investment.
While the country has introduced a number of reforms that have made the process to do business in China relatively easy, the country’s jurisdiction and legal structure are still very enclosed. And especially for foreigners, there are a lot of legal hurdles that must be jumped over before being able to function in the jurisdiction smoothly.
We’ve compiled a list of problems most foreigners face while doing business in China and their solutions. Keep reading our FAQ guide below.
Company Formation in China: FAQ
Part 1: General Questions
Q#1: What are the company types available to foreigners?
A: There are a number of structures you can apply for. However, the main types are Wholly Foreign-Owned Enterprise (WFOE), Joint Venture (JV), and Representative Office (RO).
Q#2: What are the main requirements when picking a company name of a foreign-owned enterprise?
A: The following requirements must be kept in mind when choosing a company name:
The name of the company cannot be the same as that of other registered companies in the same industry or companies operating in unspecified industries.
It cannot be the same as the original name of another company that changed its name to another one in the past year.
It cannot be the same as the name of an enterprise whose registration has been canceled or whose business license has been revoked in the past 3 years.
If the words “China”, “Province Name” and “International” are to be used in the name, the applicants need to get approval by relevant departments first.
Chinese pinyin and Arabic numerals are not allowed to be included in the name.
Q#3: What methods can be used by foreign investors to inject capital into their foreign-owned company?
A: Investors are allowed to use cash to contribute capital to the company. Other methods to inject capital include use of property, factory building, machine equipment or other material, industrial property rights, and even special technology.
Q#4: Do foreign-owned companies need to apply for import and export rights exclusively?
A: Not necessarily. You only need to apply for an import/export license if you wish to directly carry out import and export in China.
Q#5: What is the general process of establishing a foreign-owned company?
A: The application for the establishment of a foreign-owned enterprise is made in the following order:
Submission of application for company name approval by the local foreign trade department.
Application of a business license sent to the Industrial and Commercial Bureau.
Issuance of the official company seal by the Public Security Bureau.
Publishing of the organization’s articles of association certificate.
Bank account opening.
Tax certificate registration of both national tax and local tax.
Registration of Financial Certificate.
Registration of Foreign Exchange Certificate
Registration with the Customs.
Q#6: Who can be the legal representative of a foreign-owned company?
A: Usually, the Chairman of the Board of directors can act as a legal representative of the company. You can also appoint other Chinese citizens for the role, however, there are no strict rules that must be adhered to when picking a legal representative.
Q#7: What are the conditions for the deregistration of foreign-funded companies?
A: The conditions are as follows:
The enterprise is dissolved due to a merger, division or if the enterprise is declared bankrupt or ordered to close down according to law.
A resolution is made by the board of directors.
A liquidator is hired.
The company has published at least three announcements for liquidation in the newspaper.
The liquidator has prepared a liquidation report which is approved by the board of directors, shareholders, and relevant competent authorities.
You can read more about company deregistration in China/Hong Kong here.
Q#8: Can already-established foreign-owned companies reinvest in China?
A: Yes.
Q#9: Can newly established foreign-owned companies enjoy preferential tax treatment if their business scope includes both production and trade?
A: If the company’s productive operating income exceeds 50% of the total business income, the enterprise can enjoy tax exemptions and reduction in overall taxes for the year after applying and being approved by the competent tax authority.
Other than that, there are a number of other tax benefits available to trading and high-tech companies that were recently announced by the government. You can read more about those below.
New Policy: Gov Announces Latest Tax Benefits for Foreign Companies in China
Q#10: Can foreign companies established in the Free Trade Zone apply for distribution rights? Can they set up a branch outside the district?
A: The answer is yes, foreign enterprises registered in all areas in the Mainland can apply for distribution right. After approval, the enterprise can go through the formalities of customs declaration and foreign exchange verification.
After the legal proceedings, the company can sell goods both inside and outside the Zone. With the approval of a competent department, an operational branch may also be established outside the bonded area.
Q#11: What is the minimum registered capital for setting up a foreign trading company in China?
A: Usually, there is no “minimum” capital requirement for setting up a trading company in China. It could be anything, even an amount as low as ¥100 is accepted for registration purposes. However, the recommended amount is ¥100,000 or greater.
For companies operating in other industries such as wholesale, the minimum registered capital of is ¥500,000. For setting up a manufacturing company, you will also be required to have a registered capital of ¥500,000 or more.
Part 2: Joint Ventures
Q#12: What is the recommended shareholding structure for Joint Ventures as exercised by the government?
A: The most important requirement is that in a Joint Venture the foreign party’s investment should not be lower than 25% of the entire shareholding.
Q#13: Can Joint Ventures be changed into Wholly Foreign-Owned Enterprises after incorporation?
A: Yes. An approval letter for the decision from all board of directors and must be formed. This letter will be required to be submitted to the original Registrar to fully transform a company’s status from JV to WFOE.
Q#14: Are foreign companies established in Hong Kong given the same benefits of a Chinese company when doing business in the Mainland market?
A: If the subsidiary meets the CEPA’s definition of a Hong Kong service provider, it can enjoy the same benefits as specified by the CEPA.
Part 3: Operational FAQs
Q#15: Do foreign companies need to be assessed by Chinese authorities while investing equipment into the company?
A: Yes, all equipment is required to be approved by the examination and approval authority before being injected as capital into the company. The value of the equipment is calculated by the Commodity Inspection Bureau, and the owners might also be required to pay a tariff according to the equipment’s value.
Q#16: Can foreign companies get export tax rebates?
A: For goods within the scope of production and export of a foreign company, you can apply for tax refunds (exemptions) on a monthly basis with the State Administration of Taxation. You will be required to submit relevant certificates and follow the procedure of the tax authorities accordingly.
Q#17: Can the profits made by a foreign company be remitted outside China?
A: Yes, after paying the taxes (and showing a tax-paid certificate), a foreign company can easily move its profits abroad.
Q#18: What are the benefits for foreign companies to reinvest their profits in China?
A: If the foreign investors use the profits they have made for reinvestment, the government will refund any tax paid on that profit before the reinvestment. More details here.
Q#19: Can foreign companies get financing or loans from banks in China?
A: Yes, financing and loans are available to foreign companies just like any Chinese entity. As per the needs of business operations, non-Chinese companies can apply for loans in both foreign currencies or RMB.
