With a population of approximately 1.4 billion people, China is a dynamic market with immense potential. In recent decades, China’s business environment for foreign investors has continued to improve, and China has been one of the most favored investment destinations for companies from around the world for many years. Going forward, China’s policies to create a favorable environment for foreign companies will continue to develop positively. Therefore, foreign investors will have many opportunities to share a slice of the economic cake.
Despite its huge market potential, China is still a complex market for foreign investors considering legal and cultural challenges. Choosing the right company structure, when incorporating a company in China, is essential for smooth business operation as well as for time and cost management. The three main company types in China for foreign investment are outlined hereunder:
– Representative Office (RO) – An RO serves as a liaison office representing its parent company overseas, and does not have its own legal entity. The function of an RO is limited to nonprofit-generating business activities such as marketing and research. While ROs are not permitted to hire local staff directly, a qualified labor dispatch agency may be engaged accordingly.
– Wholly Foreign Owned Enterprise (WFOE) – Owned by one or more foreign investors, a WFOE has its own legal entity. It is often established as a limited liability company, where each investor bears the liability limited to the amount of capital contributed. A WFOE is more flexible in terms of business activities engagement, foreign ownership and management control.
– Sino-foreign Joint Venture (JV) – A JV is a company formed by at least one foreign investor and one Chinese investor. It is a new legal entity with the structure of Equity Joint Venture (EJV).
The registered capital of an EJV shall keep consistent with the scale and scope of production and operation of the company. The parties shall share the profits and bear risks and losses according to the proportion of registered capital. Foreign investors who want to invest in restricted industries or those who aim for Chinese partner’s channels often choose to form a EJV. According to the World Bank, China ranks 27th from 190 worldwide economies for starting a business, which indicates that the country offers relatively convenient and fast procedure for foreign businesses to enter the market. The most common legal form for foreign investors is limited liability companies which require registered capital only; no paid-in minimum capital is required. Each city across China has different requirements for company incorporation; however, below are the basic documents to be submitted to local Administration for Market Regulation (AMR):
– Application form;
– Articles of Association;
– Shareholder’s personal IDs;
– Authorization Letter;
Copy of real estate certificate for the office / lease agreement (signed and sealed by the property owner); Other supplementary materials required by AMR. After all materials are submitted, it takes between 2 to 4 weeks for AMR review before the investor can obtain a business license and company seals, following with tax registration and the opening of a bank account, which may take between 1 to 2 months. It is also worth mentioning that since 2020, China made paying taxes easier by implementing a preferential corporate income tax rate for small enterprises, reducing the value added tax rate for certain industries and enhancing the electronic filing and payment system.
With an office in Shanghai, Eldib & Co would be happy to assist your plan to enter the country. For more information and inquiries, please contact us at firstname.lastname@example.org.
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