Company Formation in China
Updated on Tuesday 14th November 2023
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The largest manufacturing economy in the world, as well as the second largest importer of goods and largest exporter, China rejoices in an incredibly fast-growing economy that has been attracting foreign investors from all over the world for years now. In order to set up a company in China, you should contact a team of company formation specialists so that you can start your business as soon as possible.
Types of companies in China
As a foreign investor, you first need to choose which business entity type is best to establish in China. Some of the possibilities of entering the Chinese market are: the limited liability company, the joint venture company or you can decide to opt for creating a branch office, a representative one or a wholly foreign-owned enterprise (WFOE).
The limited liability company is the most popular one amongst foreign entrepreneurs and below you have a list of the demands to be met when opening a company of this kind in China.
- minimum one shareholder;
- at least one director;
- one company secretary who needs to be a resident.
Why set up a WFOE in China?
The WFOE is a type of company that is very advantageous to foreign investors, considering that they do not need to partner with a Chinese resident/national. This entity operates as a limited liability company in which the shareholding can be completely foreign.
In most of the world’s countries, foreign investors have the right to set up a company in those countries without including a local resident in the shareholding structure, and this can be the case of investors interested in offshore company formation, where the investors are free to set up their own businesses.
However, in many countries there can appear the need to register the company with a local resident/citizen as a shareholder (this requirement can vary based on the industry of interest).
The advantage of this structure is that it can be set up with only 1 shareholder and 1 director. The obvious advantage is that foreign investors can have full control over the decision-making process, as they do not need the participation of a local investor.
This company type can easily engage in most of the economic activities regulated by the Chinese law. Additionally, it must be noted that the profits obtained from the economic activity of the WFOE, carried out in China, can be easily repatriated to the country of residence of the investor/of the parent company.
This can be done by converting the profits obtained in China into certain foreign currencies. As mentioned above, the company requires 1 director. Please mind that the director does not have to be a resident in China.
However, we mention that in certain cases, during the process of company formation in China, the investors will be required to appoint more than 1 director. Through this legal entity, the investors can sell their products and/or services in China, but also on international markets.
It is necessary to have a business address registered in China and it is also mandatory to open a corporate bank account at a local bank. These requirements are part of the company formation process at a global level - for instance, in offshore jurisdictions, investors must set up an offshore bank account.
Steps in registering a company in China
The first thing you need to do is to obtain a notice of pre-approval of the company's name. This is done at the Administration of Industry and Commerce. The name must be checked for uniqueness first. You have to register with the local and state taxes authorities. Along with a tax registration form, you will submit other papers like the business license, the company's seal or the land use approval certificate.
Another step is obtaining clearance to make a seal for the company. You need to present some documents, such as a power of attorney issued by the company itself and a copy of the company's representative ID. An important phase of the company formation in China is the opening of a bank account and our specialists can assist you with this procedure as well.
Then you must apply for authorization to print/purchase financial receipts. Last, but not least, is the filing for a recruitment registration. This has to be done by all new companies at the Ministry of Human Resources and Social Security. Then, at the Social Welfare Insurance Center, you must register for the social insurance of your employees.
Although the process can be tedious at times and can take up to three or four weeks to be completed and our company incorporation agents can guide you through and offer assistance and information on how to register a company in China.
What are the taxes charged to businesses in China?
Chinese businesses and those who are owned by foreign investors, but which operate in China, must pay taxes in accordance with the tax regulations available in this country. China imposes the same types of taxes applied at a global level, such as the corporate income tax, the value added tax, employment taxes, etc.
Therefore, this country can’t be used as a way to reduce the overall tax burden which can be generally associated with offshore company set up, where businesses are exempt from the payment of most taxes. Currently, China charges the following:
- the corporate income tax, imposed at the standard rate of 25%;
- a reduced rate of 15%, for certain qualified companies (operating in the high tech manufacturing);
- withholding taxes charged on royalties and interest – applied at a rate of 10%;
- personal income tax (known as Individual Income Tax) – charged at progressive rates ranging from 3% to 45%;
- value added tax, imposed at the standard rate of 13% (reduced rates are also available).
The legislation prescribes other types of taxes, such as the property tax. Our consultants can provide an in-depth presentation on the Chinese tax system and can also advise you on how to initiate the process of offshore incorporation, if you are interested in starting a business in an offshore jurisdiction.
Tax matters fall under the supervision of the State Taxation Administration of the People’s Republic of China. You can rely on our team of more details on your tax reporting obligations (we can help both individuals and companies that need to submit tax reports).
Therefore, feel free to contact our specialists, not only for establishing a business in this country, but also in many others.