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Types of business entities in China

Before you embark in the incorporation of a business it is important to first know the type of business entities that you are entitled to open as a foreigner and also as a local investor. This will; help you analyze the advantages and disadvantages of each hence enabling you to make the right decision.

Types of business entities

Fully owned foreign enterprise is whereby a foreigner owns the company fully; this is most preferred mode of investment for international investors that are planning to invest in China. It entails manufacturing processing and assembling of parts in China. This type of enterprise does not require huge registered capital. This business is means for productions lines but with time it has proved itself that it can be of use for service a service industry. A manufacturing business entity stands to enjoy tax and incentives on export processing zones or free trade.

Representative offices (RO)

A representative office generally means that production takes place in a different place and this office is used as distribution point of these products in China. However, such offices have their own disadvantages such as:-

  • They are not allowed to issue official invoice or receive revenue
  • It cannot be termed as a legal entity operating in China
  • It is not allowed to hire local Chinese staff
  • The representative’s salary is taxed on a monthly basis
  • All of their expanses are taxed.

Joint Venture

This is whereby two different parties come to an agreement of development at a given time, they establish a new entity, purchase new assets to develop an equity. Unlike other type of business, in joint venture both parties invest their money, effort and time to establish the original business goal. Joint venture is usually used for small projects but there are major corporations who prefer this method for diversification.

While working with joint ventures it is important to come up with a strategy on how you can sustain the future of this partnership. Most people focus on the short term benefits ignoring that the long term success is what really matters. It is vital for all the partners of the joint venture to have a common goal which is success; they should be honest, clear communication and integrity to achieve these goals.

Having had a review of the company’s that China allows for operation, it now become easier to make a decision on which one will best suit you and your time of business.

China Company Formation – Factors to put into consideration

China company formation might seem as an impossible task, this is with the consideration of how much China is developed, the number of products they manufacture and produce. However, note that they cannot be master of all trades there will also be basic products they do not manufacturer locally hence giving an opportunity to for international investors to establish a company.

There are various ways that one can go about in the incorporation of a company in China, you can either appoint an agent to do it for you or you can appoint a company that specializes in establishment of business to do it for you. Here are the benefits of hiring a qualified company to do it for you:-

Efficiency

If you hire a business that have been in operation for many years hence garnered enough experience, everything would be smooth from how to go about, the necessary documents required and how much it would cost you. Their experience in Chinese economy will help you analyze what business will be or not of relevant to establish on China.

Affordability

Get a company that offers affordable prices, it is important to ensure that you are not exploited by getting quotes from similar company’s thereafter analyzing which one is cheaper and still provides quality services.

Reliability

It is also necessary to ensure that the companies you opt to go with can be relied on, hence they should be able to answer all unclear questions and advice you as and when something is required from you. It is important to have close collaborations in the initial stages of company formation to allow the investor to understand all that is required of them as investors and the Chinese government.

Effective

Such companies should be able to meet the deadline and should have formed the company within the stipulated period, an effective company fully aware of the rules governing company formation in China should not have any problems in meeting the deadline.

All these should be factors that should be considered before choosing a company that will help you incorporate a business in china, it is important to take your time, do your research on the requirements of company formation so that you do not get cheated along the way, consult other investors that have already established their businesses in China and pay attention to their advice, this will help come to the most crucial conclusion of how you want to go about while opening your business.

 

How to Registered Wholly Foreign-owned Enterprise in Mainland China?

China’s huge market and increasingly sophisticated economic and political system has attracted a large number of foreign investors to invest. At present, the main foreign investments in China include foreign joint ventures, Sino-foreign cooperative, wholly foreign-owned and foreign-invested. The wholly foreign-owned enterprise has been favorite by the foreign investors with its simple management and self-financing.

What is a wholly foreign-owned enterprise?

Wholly foreign-owned enterprise (WFOE) is the corporate setting up in China according to relevant Chinese laws, which capital is invested by foreign investors, but does not include branches of foreign companies, enterprises, other economic organizations in China, such as branches, offices, representative offices and so on. In general, the organizational form of WFOE is a limited liability company. The liability of foreign investors for the enterprise is limited by the subscribed capital contribution amount, but WFOE can also be other forms of liability of certification, in which case, the responsibility of foreign investors on corporate is applicable Chinese laws and regulations.

Application requirements

According to the Implementation Rules for Enterprises with Foreign Investment Law of People’s Republic of China, the registered capital of the WFOE must adapt to its business scale, the proportion of registered capital and total investment shall comply with the relevant provisions of China. Investors of applying for a wholly foreign-owned enterprise can be a foreign enterprise legal person, also a foreign natural person. Conpak CPA has set up offices in Shenzhen and Shanghai, and has a thorough understanding of the Mainland’s foreign investment policy. In particular, we remind investors to apply for the establishment of wholly foreign-owned enterprises must be conducive to the development of China’s national economy. The Chinese government welcomes in particular the export of goods and technology advanced foreign-funded enterprises.

Providing information

Foreign investor establishes a foreign-owned enterprise should apply for the examination and approval authorities, and submit the following documents:

1. Legal business (personal investment passport) certificate by the local notary office and local foreign consular (Hong Kong company can be without certification);

2. Credit certificate issued by the Bank (including the number of corporate deposits and funds between settlement credibility);

3. Copies of proof of identity of the directors and others;

4. Delegate book of directors;

5. A copy of proof of identity, resume and photos of legal representative;

6. Proof of the use of company property (including a rental agreement, proof of ownership, etc.);

7. Application for the establishment of foreign-funded enterprises;

8. Feasibility study report;

9. The articles of association of the enterprise;

10. Other Information.

Registration Process

WFOE registration process involves multiple departments :

Company name search -> Prepare and send documents -> Handling PREPAID code ->Bid for business license – > Apply for organization code -> Apply for tax registration to IRD -> Handle other registration

Note: IRD = Inland Revenue Department

It should be reiterated that except for land, all of the investment of foreign-owned enterprise is privately owned by the foreign investors. The incomes of enterprise operations and management activities in accordance with the approved articles of China’s association, which are wholly owned and disposable by the investors after tax. In addition, when the enterprise is terminated, should be timely noticed to be liquidated in accordance with the statutory procedures. If you desire to set up a wholly foreign-owned enterprise registration in Mainland China or need more information, please contact us at any time.