China company formation is popular with foreign investors looking for a foothold in the world's second largest economy. Incorporating a company in China assists global entrepreneurs legitimately conduct business in one of the world’s fastest-growing economies. The following information will help you determine whether a Mainland China company is the optimum corporate structure to fulfill international business objectives:
Wholly Foreign Owned Enterprise (WFOE/WOFE) is a limited liability company wholly owned by the foreign investor. A WFOE requires registered capital. A WFOE can generate income in China, must pay tax in China and profits can be repatriated to the investor's home country. Incorporating a WFOE in China allows the entrepreneur to undertake trading, consulting and manufacturing. Approximately 60% of our Clients request this Mainland China entity setup.
A China Representative Office (CRO) is an ideal way for entrepreneurs to market a foreign parent company’s services in China. A Representative Office does not require capitalization, however, a CRO cannot i) directly engage in operational activities, ii) issue official invoices or sign customer contracts, or iii) receive payments from customers. A China Rep Office is typically used for market research, promotion, and establishing or maintaining China business contacts. The Parent company of a Rep Office in China must be established for over 2 years. About 20% of our Clients choose a CRO as their preferred China business entity because it requires no paid up share capital. A Chinese sponsor is necessary for the formation of a representative office in China.
A Joint Venture in China is a partnership entity between a foreign company and a local partner. Joint Ventures are sometimes the only way to complete China company registration as certain business activities are still controlled by the government. e.g. Restaurants, Bars, Building and Construction, Car Production, Cosmetics etc. Profit and risk sharing in a joint venture are proportionate to the equity of each partner in the joint venture. Equity can include cash, buildings, equipment, materials, intellectual property rights, and land-use rights but cannot include labor.
Outlined below are the most important steps in China company incorporation:
1.
Prior to the China company setup, our client a) settles Healy Consultants' fees and b) signs and returns our Client Engagement Letter and c) provide us all the required due diligence documents. Shareholder documents must be certified by Chinese embassy or Chinese consulate overseas;
2.
Healy Consultants provides our client a detailed and comprehensive engagement plan, outlining a roadmap for the upcoming engagement, thus minimising unwanted surprises and meeting client expectations;
3.
From the China Government, Healy Consultants obtains a notice of pre-approval of the company name and the company business activities;
4.
Our Client signs a lease agreement for local premises;
5.
Healy Consultants opens a preliminary bank account to receive the deposit of paid up capital;
6.
Healy Consultants applies for a business license with SAIC;
7.
Our Client registers for both state and local tax;
8.
Our Client receives approval to make a company seal from the police department;
9.
Healy Consultants obtains formal bank account approval post company formation;
10.
Our Client applies for Government authorization to print or purchase financial invoices/receipts;
The activities of a company doing business in China are restricted to those on its business license, issued by the provincial government. Consequently, it is critical for a foreign investor doing business in China to carefully prepare incorporation documents. Healy Consultants handles all pre-incorporation documentation for clients to ensure the scope of business license matches the planned activities of the company.
2.
Although 100% foreign ownership is permitted, the China business activities and minimum startup capital varies by geographical region. Paid up share capital approximates US$100,000 within 2 years.
3.
China company offices must be located in a prime office premises pre-approved by local government and municipal authorities. Consequently, office premises eligible for foreign-invested companies are expensive to rent.
4.
China company incorporation takes up to 4 months due to inefficient bureaucracy and complex licensing procedures involving local and provincial authorities. To highlight this, China ranks poorly as the world’s 91th easiest place to do business in the 2012 Doing Business Survey by the World Bank, which takes into account China company set up procedures, time, cost and minimum capital required to start a business. China also negatively ranks as the world's 136th freest economy in the Heritage Organisation’s 2013 Index of Economic Freedom, a measure of freedom enjoyed in business, trade, monetary, financial, investment and labour markets.
5.
China's legal system has a poor international reputation, for example the enforcement of intellectual property rights. As evidence of this, China ranks as the world's 80th-least corrupt country in the 2012 Corruption Perceptions Index by Transparency International, a global measure of corruption amongst public officials and politicians.
6.
Leakage of the foreign firm's intellectual property and the potential for joint venture partners to set up in competition against the foreign firm is reason to protect intellectual property when doing business in China.
Mainland Chinese companies suffer a 33% national tax on worldwide income. This China business tax rate is reduced to 15% for entities established in the Special Economic Zones (SEZs) of Guangdong, Fujian and Hainan Provinces.
2.
China companies are required to collect 17% VAT on goods and services sold to customers. PRC Customs is required to collect VAT at the applicable rate at the time of importation of goods.
3.
A Chinese company accesses double taxation treaties with 95 countries including Australia, France, Germany, India, Singapore, the UK and the US;
4.
There is no China withholding tax on dividends to parent companies.
5.
All enterprises are required to report to the Tax Administration Department monthly, quarterly and annually. Any limited companies in China should summit annual audit report to the relevant authorities. Healy Consultants assists our Clients minimize China business taxation, including providing the following services.
No.
Services
Period
1.
Update the books in accordance with the Chinese Accounting Standards;
Monthly
2.
Prepare monthly financial statements for tax filing purpose;
Healy Consultants can open a corporate bank account with one of the world's leading retail banks, including HSBC, Standard Chartered and Citibank. Opening a corporate bank account in China can be a lengthy process as there are many documents required, translated into Chinese. Healy Consultants will open a China corporate bank account on our clients' behalf without any need for our client to visit China. Healy Consultants Fees to help our Client open a China corporate bank account amounts to US$4,950. This fee includes:
1.
Healy Consultants' international banking team completing the China corporate bank account application form on behalf of our client, and obtaining our client’s signature.
2.
To receive the best internet banking and customer service, Healy Consultants recommends using the services of international banks HSBC, Standard Chartered and Citibank for most corporate bank account solutions. Local banks can be used where appropriate for the China company.
3.
Healy Consultants' international banking team submitting the China corporate bank account application form and business plan to the bank, together with the personal and corporate information outlined above.
4.
Healy Consultants Compliance Team can open an international corporate bank account within 3-4 weeks of China company registration. There is 50% chance that the Client will need to travel to China to complete the bank account opening process, though Healy Consultants makes every effort to minimize this possibility. Following bank account approval, the preferred bank will directly and independently email our Clients the corporate bank account number.
5.
Paying the initial bank deposit to the Chinese bank on our client's behalf. A scanned copy of the bank deposit slip is emailed to our client as verification of the payment.
6.
On behalf of our client, Healy Consultants applies for internet banking facilities to accompany the China corporate bank account, along with an ATM card, a corporate credit card and a cheque book to support the new company registration in China.
7.
China banks will provide finance to locally-registered companies provided the following conditions are met i) good Business-plan ii) availability of security iii) experience of business owners iii) last 3 years audited financial statements iv) realistic feasibility study v) project strength and weaknesses analysis (SWOT).
8.
To support their new business in China, Healy Consultants assists clients with trade finance tasks including i) bank guarantees ii) letters of credit iii) finance against trust receipt iv) document against payment and against acceptance.
9.
Securing corporate finance in the form of a loan, overdraft or simply preferential credit terms are other corporate banking related aspects of doing business in China.
10.
China-based banks provide the full range of corporate bank account facilities including multiple currencies, internet banking, telephone banking, checking accounts, savings accounts, debit and credit cards, fixed term deposits and wealth management services.
11.
Healy Consultants' international banking team receiving approval from China for the opening of the China corporate bank account.
12.
Healy Consultants receiving the China corporate bank account Internet login and password information in a sealed letter that is passed directly to our client.
13.
Healy Consultants receiving a corporate cheque book in a sealed letter that is passed directly to our client.
14.
Healy Consultants receiving credit and ATM cards in a sealed letter that is passed directly to our client.
Healy Consultants' fees to register a China WOFE entity amounts to US$11,500, including company formation, bank account opening, tax registration and virtual office address for the first three months. Engagement timeline is:
Government agencies play an important role in all sectors in the Mainland China economy. All businesses deal with government agencies on a regular basis. This is where foreign companies should be patient and show restraint until decisions are made. Understanding the correct business etiquette in China is important to success.
Because not all local China companies are well versed with international trade, we encourage our Clients to consistently use and sign contracts of service.
Healy Consultants offers a range of services to facilitate China business registration. Following China incorporation, our clients often request additional Healy Consultants services including:
Accounting and taxation services to support China incorporation including i) corporate structuring ii) minimising withholding tax iii) tax returns and financial statements iv) payroll and investments.
Human resource support such as i) visas for employees and entrepreneurs ii) staff recruitment iii) payroll support local business address details for invoicing purposes, together with telephone, fax and email to support China incorporation.
Trademark Registration Services for entrepreneurs wishing to protect ownership rights.
Managing the process of finding office space. Considerations can include size, internal design and layout requirements and proximity to desired infrastructure.
Healy Consultants consulting services including i) merger and acquisition advisory ii) business due diligence iii) internal audit support iv) business process re-engineering to support China incorporation.
Most clients require a virtual office for invoicing purposes, and Healy Consultants offers a range of tailored packages;
Grants and other funding programs are available from the China, state and territory governments, and in some cases from local councils. There are grants and other assistance available in many categories, including developing your business, innovation and exporting. Healy Consultants assists our Clients locate the grants and assistance programs most relevant to your business.
Entrepreneurs completing business formation in China can benefit from China's numerous Intellectual Property laws. Healy Consultants will assist our Clients with trademark and patent registration. Registering your brand, trademark and designs is particularly important in China. Note that brands and trademarks can only be registered in the name of China residents or China registered companies (see above).
Healy Consultants offers a comprehensive range of China research services including i) industrial or business analysis ii) economic and political overview iii) competitor analysis iv) customer analysis v) regulation analysis vi) market entry strategies vii) business partner matching
Government agencies play an important role in doing business in China. All businesses deal with government agencies on a regular basis, and foreigners setting up a business in China should exercise restraint and be patient as much as possible, despite having to potentially deal with extensive red tape, as authorities will always have the final say in any administrative matter.
2.
As not all local China companies are well-versed with international trade, we encourage our Clients to consistently use and sign contracts of service with their suppliers and counterparties in China.
3.
Your joint venture partner or China shareholder must not merely be a nominee for the sake of meeting the rules of foreign company incorporation. You should choose a partner that actually brings a lot to the table, including knowledge which would help your company succeed in China.
4.
When you’re starting a new business it’s important to find out which of China’s registrations and licenses apply to your Firm. Navigating this system can be a complex task, as different branches of the government will handle registration and licensing for various aspects of your business.
China averages 274 protests per day, although the vast majority happens in rural areas and are quickly suppressed and censored.
2.
Chinese GDP could overtake the US as soon as the early 2020s due to its emerging market economy, which will account for about 70% of the global GDP growth.
3.
China has surpassed the UK and Japan, becoming the third largest export market.
4.
After Canada, China has become America’s second largest supplier.
5.
By 2015, China will be the world’s second largest consumer market. Currently, China is behind America and Japan.
6.
Both the world’s tallest man (8ft 1 in) and woman (7ft 8 in) are Chinese.
7.
China overtook Italy in 2000 to become the world’s sixth-biggest economy.
8.
After overtaking the US in 2009, China is the world’s biggest energy consumer. However, the US is still the biggest per-capita energy consumer – the average American uses five times the amount of energy as the average Chinese.
Contact Us
For more information on doing business in China, contact email@healyconsultants.com or telephone us at (+65) 6735 0120.
Image by yakobusan
