Business Registration in China

Since the founding of the People’s Republic of China, especially after the Reform and Opening up, with the continuous efforts of we Chinese people of all ethnic groups, China become the second economy of the world and one of the most potential economies. In the year of 2020, the global economic developments were severe impacted by the coronavirus epidemic which spread all over the world. China was the world’s only country to achieve growth. It is not only a proof of China’s powerful and stable capacity of development, but also a favourable place for enterprises all over the world to operate.

Foreign investment into China can be done through various types of entities, for instance, wholly foreign-owned enterprise (WFOE), Representative office (RO), Joint venture (JV), Variable interest entity (VIE), and so on. Choosing the right entity will depend on a number of factors, like the business activities, the industry and the investment size.  However, the most common entity is the WFOE, which we discuss in different sections below:

The information and documents for registration
B.  The registration timeframe and procedures
C.  The compliance work

Pre-Set Up Documents Checklist

A corporate shareholding might be recommended due to tax reasons, for instance, a lower withholding tax rate will be applicable for profits repatriation to an overseas corporate shareholder as compared to an overseas individual.

The standard set of documents required from the shareholder are as follows

–  Individual shareholder- Notarised and authenticated passport of the shareholder

–  Corporate shareholder- Certificate of Incorporation, Register of shareholders and directors, Directors’ resolution and Bank reference letter from investor’s bank

Information required for the new WFOE set up application

–    Shareholder of WFOE
–    Passport of new company’s key positions

–    3 or more company name choices (Chinese name only), for example, XXX + Trading + Shanghai + Co Ltd
–    WFOE’s business scope*
–    WFOE’s office address
–    Registered capital
–    Choice of bank

* For foreign businesses especially, it is imperative that company operations be reflected accurately in the business scope, as this is connected to the “Catalogue for the Guidance of Foreign Invested Enterprises”, a policy document governing foreign investment into China.  The Catalogue divides industries into three categories: those encouraged, restricted, and prohibited for foreign investment. Industries not listed in the Catalogue are generally permitted. Please note that different rules may apply in certain special areas; for example, in China’s Free Trade Zones, foreign investment is permitted in any industry not expressly prohibited within the “negative list” of that zone, allowing for somewhat relaxed rules.

Registration timeline and procedures

The total time required for the full operation of the company will be around 2-3 months. The company set up procedures can be referred to in the table below:

• Obtain the Company basic certificates in 1-1.5 months

Note: The company is now  officially registered. However, the company cannot receive payments, issue  invoices, file taxes and so on

• Tax registration in 1 week to 1 month(depending on the type of  taxpayer)

Note: The company can now  issue invoices, make and receive payments and so on.

• Social security registration in 10 working days

Note: The company can now  hire and employ staffs

• Import and export registration (if involved in trading activities) in 20 working days

Note: After this step, the company can now engage in import and  export transaction

Please note that special license/permit might be required depending on the specific service or product engaged in, for instance 

–    Food/beverage products

–    Nutritional products

–    Medical equipment

–    Travel agency

–    Finance

The main Chinese departments involved during the process are

–    Ministry of Commerce (COC)
–    Administration of Industry and Commerce (AIC)
–    State Administration of Foreign Exchange (SAFE)
–    State Administration of Taxation (SAT)
–    Customs Office

Compliance work
After the company is set up, the company will have to arrange the following monthly, quarterly and yearly compliance work:

–    Bookkeeping and accounting, based on China GAAP

–    Filing of taxes (corporate income tax- CIT, value added tax- VAT, surtaxes)

–    Payroll- Filing of individual income tax- IIT and declaration of social insurance

–    Issue of annual financial audit report

–    Issue of CIT tax audit report
–    File the CIT reconciliation report (annual tax returns)
–    Annual reporting (annual returns) to the Administration for Industry and Commerce(AIC) and other departments
–    Annual foreign exchange reconciliation to the State Administration of Foreign Exchange (SAFE)