Incorporation of Company In China

China represents a competitive and appealing country on an international scale from an investment point of view, and a major force of the worldwide economy. Being a stable business partner in many fields of interest, China is recognized as a fast-growing economy and a global influence, with connections to powerful financial centers. China attracts investors from abroad to place their operations and to generate profits in the most prolific and appreciated industries of this country. In this article, we shall study about the various aspects of incorporating a Company in China:

DIFFERENT BUSINESS ENTITIES IN CHINA: –

1. Wholly Foreign Owned Enterprises (WFOEs): 

Wholly Foreign Owned Enterprise (WFOEs) is a limited liability company. In these types 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.

2. Joint Venture Entities: 

It is a Collaboration Agreement whereby the foreign party and the resident investors from Mainland China are a part of the contract to create an organization for long-term value creation. However, in some restricted industries, such as media, operating as a Joint Venture is the only resort for foreign companies looking to get into Chinese Territory.

3. Foreign Invested Commercial Enterprise:

 Foreign Invested Commercial Enterprises (FICEs) are the establishments for the purpose of retailing, wholesaling, franchising or trading businesses in China. The regulation for registering a Foreign Invested Commercial Enterprise are comparatively quicker and enlarge the playground available for the foreign investor to conduct trading activities.

4. Representative Offices (ROs)

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.

Accordingly, on comparison, China market being a manufacturing market, Wholly Foreign Owned Enterprises (WFOEs) is the best solution for any individual/entity looking to invest in China. 

INCORPORATION OF WFOE IN CHINA: – 

Basic Initial Requirements 

• At least 1 investor (from any country except China, including Hong Kong, Macau and Taiwan regions);
• 1 director or a board of directors. The investor can be the director as well;
• 1 legal representative;
• 1 general manager;
• 1 supervisor (a supervisor cannot be a director, legal representative, or senior executive of the WFOE);
• Registered company address (can be a virtual office address);
• The business scope of the new company to be established.

Registered Address in China

Two copies of notarizations of investor’s certificates of identification or registration. The notarization must be issued by a local public notary, and verified by the Embassy of China in the home country of the investor.

Other Documents 

• The original ID card of the legal person (if it is a foreigner, provide the original passport and copy of the passport and the translation of the passport requires the signature of the legal person).
• A copy of the ID card of the general manager/supervisor/recipient of the mainland document, the legal person is required to sign the name of the legal person on the copy. (If the general manager or supervisor is a foreigner, a copy of the passport is required and a legal person’s signature and a passport translation is required for the legal person’s signature).

However, it is important to note that the documentation requirement may vary from city to city in which the Company is being incorporated in China, although there are no such major differences.

• Name of WFOE

At least ten Chinese names for the new company to be established can be applied to the government; the name should take the following form: AB (i.e. First Name – the name given to the company) + Shanghai + Trading/International Trading + Limited Company. Therefore, for instance, the name of your Company in China can be “AB Shanghai Sales Limited Company”.

• Bank Account 

Bank Account can be opened with minimum capital, however bank fees has to be paid on setup and on an annual basis. 

• Taxation

The Corporate taxes in China differ from 5% – 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.

In more brief, for Company having less than 300 employees and annual turnover of less than 5 million RMB are considered small Companies and are subject to 5% taxation only or otherwise, the Company shall come under the slab rate of 25%.

{The author i.e. Kajal Goyal is a Company Secretary in Practice at Kajal Goyal and Associates and founder of Alliance Professionals and can be reached at (M) +91-9999952595 and (E) [email protected]}