Company Formation and Incorporation - China
Background
China, (People’s Republic of China), is situated in eastern Asia, bounded by the Pacific in the east. The third largest country in the world, next to Canada and Russia. China’s soaring economy has been bringing confidence to investors for decades. Especially in recent years, few would disagree it is a leading choice for global business expansion. As the world’s most populous country and one of the largest markets in the world, the People’s Republic of China is an attractive place for business matters for foreigners.
Forming a company in China is however a complicated and time-consuming process as they are constantly changing their local rules and regulations and certain foreign investment restrictions. At Desfran, we have over a decade of experience in China’s company setup. When it comes to starting a foreign invested company in China, we can assist and make sure you experience a hassle-free China company formation and registration.
Types of Entities in China
WFOE
WFOE stands for ‘Wholly Foreign-Owned Enterprise’, as indicated, it is a company wholly owned by foreign investor(s). WFOE is established under the form of a limited liability company (LLC), local partnerships are not required. It was designed as a vehicle for foreign investors to carry out commercial activities in China and allows investors to retain control of their capital and company management.
Foreign investors can consider having access to the Chinese market through the following vehicles: WFOE, sales office, representative office or a joint venture.
China Representative Office
A Representative Office (often shorted to Rep Office or RO) is the simplest option for overseas businesses to set up an operation in China. To put Rep Office definition in the simplest terms, it allows a foreign company to engage in market research or business operations in China, but not to make a profit.
A foreign company can use a representative office in order to carry out certain operations in China. While the scope of activities for this type of office may be limited, opting for this separate legal entity offers a simple and low-cost solution for operating in China.
Incorporation Process and Timeline
| WFOE (LLC) | Free Zone (LLC) | China Representative Office | |
| Minimum number of directors | 1 | 1 | Parent Company |
| Minimum number of shareholders | 1 | 1 | 1 |
| Local Presence (director/ shareholder/ officer) | No | No | Yes |
| Maximum Foreign Shareholding | 100% | 100% | 100% |
| Physical registered office address requirement | Yes | Yes | Yes |
| Office Lease Agreement Requirement | Yes | Yes | Yes |
| Minimum Paid Up Share Capital | USD 1 | USD 750,000 | USD 1 |
| Incorporation Timeline | 2 – 3 months | 2 – 3 months | 2 – 3 months |
Public Register of Shareholders and Directors | Yes | Yes | Yes |
Preference Shareholders | Yes | Yes | No |
Regulator | MOFCOM | MOFCOM | MOFCOM |
Taxation and Accounting
| WFOE (LLC) | Free Zone (LLC) | China Representative Office | |
| Corporate Tax | 25% | 25% | 10% |
| Auditor Requirement | Yes | Yes | Yes |
| VAT Payable | 17% | 17% | N/A |
| Capital Gain Tax | 0% | 0% | 0% |
| Double Taxation Treaties | Yes | Yes | No |
| Annual Tax Return Filing Requirement | Yes | Yes | Yes |
| Annual Financial Statement Filing Requirement | Yes | Yes | Yes |
| Tax Incentive from Local Government | Yes | Yes | No |
| Withholding Tax on Payments to Foreign Shareholders | Yes | Yes | No |
| International Currency Control on Remittance | Yes | Yes | Yes |
Others
| WFOE (LLC) | Free Zone (LLC) | China Representative Office | |
| General Activity | Products and Services | International Trading | Marketing and Research |
| Physical Presence for Incorporation | No | No | No |
| Expatriate to Local Staff Ratio | N/A | N/A | N/A |
Corporate Bank Account
| WFOE (LLC) | Free Zone (LLC) | China Representative Office | |
| Corporate Bank Account Available | Yes | Yes | Yes |
| Bank Account Opening Timeline | 2 – 4 months | 2 – 4 months | 2 – 4 months |
China offers the following benefits:
There are many benefits to establish a company in China, but we would also like to advise on some of the disadvantages that registering a company in China can bring.
WFOE benefits:
- The business is allowed to engage in profit-making activities. Most of our clients who established a company in China had recorded high sales from the access to customers in Asia due to China’s proximity to emerging economies including Pakistan and India;
- Access to progressively competitive and futuristic research, science and technologies.
- Manufacturing businesses are often located in China due to the lower average wage for locals, lower operations cost due to cheaper equipment and raw materials. Heavy industry businesses are able to experience affordable electricity and water for their industrial use;
- It is a perfect way to protect your trademark in China;
- It can be formed without a Chinese partner;
- Availability of a massive service industry with a myriad of shipping agents, banks and financial institutions.
WFOE disadvantages:
- Incorporating a WFOE can take several months and a lot of bureaucracy is involved;
- Starting a company in China is more complex and changing business scope can take several months;
- Mandatory monthly financial statements, tax and payroll reports;
- Stringest banking requirements including bank forms to be “stamped” by company chop and company’s legal representative chop.
- Lack of local expertise to handle the company registration
China Company Registration Guide
The Ministry of Commerce of the People’s Republic of China (MOFCOM), is a Cabinet-level executive agency of the State Council of China. It is responsible for formulating policy on foreign trade, export and import regulations, foreign direct investments, consumer protection, market competition (competition regulator) and negotiating bilateral and multilateral trade agreements. It is in charge of the administration of foreign trade pursuant to the Foreign Trade Law.
Desfran Services in China
With more than a decade of experience, our team at Desfran is here to meet your business needs beyond just company formation. We also provide the following services in China:
- Company formation
- Assistance in Business Management
- Corporate Management advisory
- Provision of registered agent and registered address
- Provision of company management, directorship, and shareholding services
- License application assistance
- Onshore/ Offshore bank account introductions and applications
- Virtual office services and other corporate services
- Nominee services
Application Process:
- Submit your interest here
- Our Offshore Formation Specialists will reach out to you for an in-depth discussion
- A customised proposal will be sent to you upon uncovering your needs,
- Upon the proposal confirmation, we will require the of the following information for the application
- Proof of Identity
- Proof of Residence (within the last 3 months)
- director(s),
- shareholder(s) and
- beneficial owner(s)
Once the above has been approved, we will send you an invoice for payment.
The incorporation process will commence upon receiving payment
Desfran deals directly with the authorities instead of the use intermediaries in your application process. In this way, we are able to ensure our prices remain competitive while you are ensured of utmost privacy and care in your application.