New Company Setting Up

Source: Xinhua | 2016-12-13

Your problem:

when your business is booming up and has a bright future in China, it's time to set up an office or a company here. But the process is very complex, and many fields are prohibited or limited by government, how can you make this much easier and quicker? Now, you need a local professional partner to help you to finish all the works.  

What we can provide you:

The scope of our service is: Trading Company, Foreign Representative Office, Consultant Company, Manufacturing Company, Logistics Company, Branches of Foreign Enterprises,Registration of Trade Mark and Logo, etc.                      During setting up a new company, we can provide the services including:office and tax registration, all official applications ie, bank account opening, bank account application, work permit, residence visa, tax consulting service, tax application, business license application, etc. 

How we do:

All our partners in this field are specialized Business Registration agencies certified by the Chinese business bureau. We offer courteous Business Registration service to private foreigners and staff of business organizations. After many years of operations, our company is familiar with the application procedures and the applicable domestic law. Now we are the expert of arranging business registration and related services.
Setting up a company in China can be very difficult if you are not familiar with the Chinese legislation and requirements of different authorities. Our professional consultants will help foreign companies to set up company in China in the most cost effective way. 

Representative Offices in China

Representative Offices (ROs) are established by foreign companies to engage in business liaison, product promotion, market research, exchange of technology and other permitted activities in China.

ROs are not allowed to directly engage in operational and revenue related activities. The AIC usually specifies in the Business Scope, as shown in the Business License of ROs, that a RO should not engage in direct operational activities. Therefore, ROs are not a form of foreign investment in China. However, some ROs are engaged in operations in a lawful or tacitly permitted way and constitute one of the direct foreign Investment forms in China.

The tacitly permitted way is applicable to those industries that do not require special material conditions or environment for their operations. For example, a consulting business does not need manufacturing equipment and raw materials. It only needs offices, employees and office articles. These physical conditions are necessary for other ROs as well. In practice, many ROs that are established by foreign consulting companies directly engage in consulting activities. Chinese government does not prohibit them in practice and this is reflected by the fact that the tax authorities collect business tax from these Representative Offices (RO).

The lawful operational activities engaged in by Representative Offices (RO) refer to those business activities permitted pursuant to the bilateral treaties between China and other countries. In the event that a bilateral treaty provides that certain types of Representative Offices (RO) are permitted to engage in operational activities, these bilateral treaties should prevail over Chinese domestic law. For example, according to the Sino-US Civil Aviation Transportation Agreement, ROs established by American civil airlines may sell civil air transportation services provided by American civil airlines, as well as engage in administration, inquiry and other business activities.

It should be noted that up to now, only Representative Offices (RO) of foreign airlines are allowed to engage in direct operational activities in China under bilateral treaties. No other ROs of foreign companies are so permitted.

Representative Offices (RO) are important means by which foreign companies conduct business liaisons or engage in business and operational activities in China. In this respect, foreign companies refer all companies incorporated outside China, and those incorporated in Hong Kong, Macau and Taiwan.

A Representative Office may only engage in non-profit making activities, It can carry out the following functions: 

1. Conduct research and survey for its parent enterprise in the local market; 
 
2. Liaise with local and foreign contacts in China on behalf of the parent enterprise; 
 
3. Conduct research and provide data and promotional materials to potential clients or trading partners; 
 
4. Act as a coordinator for the parent enterprise's activities in China; 
 
5. Make travel arrangements for parent enterprise representatives and potential Chinese clients; 
 
Under no circumstances may a Representative Office do the following: 

01 Directly engaged in any business for profit; 

02 Sign contracts or deals on behalf of the parent enterprise; 

03 Represent any firm other than its parent enterprise; 

04 Collect money or issue invoice within China for services or products; 

05 Buy property or involved in import trading
 

Features of a Representative Office 
 
1.1 Legal Status of a Representative Office

The Representative Office is a non-legal entity operating representing its parent company. A representative office is not allowed to engage itself in business activities, issue invoices on its own, remitting outward, signing sales or purchase contracts, or receiving income from services performed but may act as a liaison and promotion office for its parent company.

1.2. Name
The name of the Representative office should be in the form of "Name of the Enterprise + Name of the City + Representative Office (or Office)".

1.3. Business Address
At the beginning of setting up the Representative Office, it is advised to decide the place and building where office is going to be located first, as the address of the proposed office will have to be mentioned in the application for approval. 

Note: the business address must be located in commercial buildings approved by the government. 

Feel free to contact us if you have any question or need of any assistance as Busiunion is the expert in setting up of Representative office.

Joint Venture

A Joint Venture (JV) is a business arrangement in which the participants create a new business entity or official contractual relationship and share investment and operation expenses, management responsibilities, and profits and losses. 

The Chinese authorities encourage foreign investors to use this form of company in order to obtain exposure to advanced technology and new management skills. In return, foreign investors can enjoy low labor costs, low production costs and a potentially large Chinese market share. Joint Ventures are sometimes the only way to register in China if a certain business activity is still controlled by the government. e.g. Restaurants, Bars, Building and Construction, Car Production, Cosmetics etc. There are 2 types of Joint Venture:

1- EJV (Equity Joint Ventures)

Equity joint ventures are the second most common manner in which foreign companies enter the China market and the preferred manner for cooperation where the Chinese government and Chinese businesses are concerned. Joint ventures are usually established to exploit the market knowledge, preferential market treatment, and manufacturing capability of the Chinese the technology, manufacturing know-how, and marketing experience of the foreign partner.
Normally operation of a joint venture is limited to a fixed period of time from thirty to fifty years. In some cases an unlimited period of operation can be approved, especially when the transfer of advanced technology is involved. Profit and risk sharing in a joint venture are proportionate to the equity of each partner in the joint venture, except in cases of a of the joint venture contract.

Share holdings in a joint venture are usually non-negotiable and cannot be transferred without approval from the Chinese government. Investors are restricted from withdrawing registered capital during the live of the joint venture contract. Regulations surrounding the transfer of shares with only the approval of the board of directors and without approval from government authorities will probably evolve over time as the size and number of international joint ventures grow.

There are specific requirements for the management structure of a joint venture but either party can hold the position as chairman of the board of directors. A minimum of 25% of the capital must be contributed by the foreign partner(s). There is no minimum investment for the Chinese partner(s).
It is preferable that foreign exchange accounts are balanced in order to remit profits abroad so that the repatriated foreign exchange is offset by exports from the joint venture. With the elimination of foreign exchange certificates and the further opening of the China market, this requirement is becoming more and more relaxed.

The permissible debt to equity ratio of a joint venture is regulated depending on the size of the joint venture. In situations where the sum of debt and equity is less than US$ 3 million, equity must constitute 70% of the total investment. In joint ventures where the sum of the debt and equity is more than US$ 3 million but less than US$ 10 million, equity must constitute at least half of the total investment. In cases where the sum of the debt and equity is more than US$ 10 million but less than US$ 30 million, 40% of the total investment must be in the form of equity. When the total investment exceeds US$ 30 million, at least a third of the sum of the debt and equity must be equity.

Equity can include cash, buildings, equipment, materials, intellectual property rights, and land-use rights but cannot include labor. The value of any equipment, materials, intellectual property rights, or land-use rights must be approved by government authorities before the joint venture can be approved.

After a joint venture is registered, the entity is considered a Chinese legal entity and must abide by all Chinese laws. As a Chinese legal entity, a joint venture is free to hire Chinese nationals without the interference from government employment industries as long as they abide by Chinese labor law. Joint ventures are also able to purchase land and build their own buildings, privileges prevented to representative offices.

2- CJV (Cooperative Joint Venture)

In a Sino-Foreign Cooperative Venture (also known as Contractual Joint Venture), the parties involved may operate as separate legal entities and bear liabilities independently rather than as a single entity. A cooperative venture may also be registered as a limited liability entity resembling an equity joint venture in operation, structure, and status as a Chinese legal entity.
There is no minimum foreign contribution required to initiate a cooperative venture, allowing a foreign company to take part in an enterprise where they preferred to remain a minor shareholder. The contributions made by the investors are not required to be expressed in a monetary value and can include excluded in the equity joint venture process can be contributed such as labor, resources, and services. Profits in a cooperative venture are divided according to the terms of the cooperative venture contract rather than by investment share, allowing a more flexible schedule for return on investment in cases where one investor provides cash while the other party's investment is primarily in kind.

Greater flexibility in the structuring of a cooperative venture is also permissible including the structure of the organization, management, and assets. There is no term for unlimited terms in cooperative ventures, but also no provisions for the term of the duration. The term of the cooperative venture contract may be renewed subject to the consent of the parties involved and approval from the examination and approval authorities. The foreign investor is permitted to withdraw their registered capital or a portion thereof from the cooperative venture during the duration of the cooperative venture contract.

Because of the unique privileges and added features offered to the foreign party in a cooperative venture, trade unions must be allowed to represent the employees in employment matters to protect the interests of the employees.
Feel free to contact us if you have any question or need of any assistance.

Wholly Foreign Owned Enterprises

The Wholly Foreign Owned Enterprise (WFOE) is a Limited liability company wholly owned by the foreign investor(s). In China, WFOEs were originally conceived for encouraged manufacturing activities that were either export orientated or introduced advanced technology. However, with China's entry into the World Trade Organization, these conditions were gradually abolished and the WFOE is increasingly being used for service providers such as a variety of consulting and management services, software development and trading as well.

The registered capital of a Wholly Foreign Owned Enterprise (WFOE) should be subscribed and contributed solely by foreign investor(s). A WFOE does not include branches established in China by foreign enterprises and other foreign economic organizations. The Chinese Laws on WFOE do not have a clear definition of the term of "branches". The term of "branches" should include both the branch companies engaged in operational activities and representative offices, which are generally not engaged in direct business activities. Therefore, branches and representative offices set up by foreign enterprises are not WFOE. 

DIFFERENT TYPES OF WFOE 

Following are different types of WFOE. Commonly:

(1) If the WFOE only be allowed to manufacture here, we can say it's manufacture WFOE.
(2) If the WFOE is allowed to do Consultancy & Service, we call them Consultancy Service WFOE.
(3) If the WFOE is allowed to do Trading, Wholesale, Retail or Franchise in China, we call them Trading WFOE or FICE (Foreign-Invested Commercial Enterprise). 


ADVANTAGES OF WFOE

The advantages of establishing a WFOE, compared with other types of enterprises, include, but not limited to: 
(1) Independence and freedom to implement the worldwide strategies of its parent company without having to consider the involvement of the Chinese partner; 
(2) Ability to formally carry out business rather than just function as a representative office and being able to issue invoices to their customers in RMB and receive revenues in RMB; 
(3) Capability of converting RMB profits to US dollars for remittance to its parent company outside of China; 
(4) Protection of intellectual know-how and technology; 
(5) No requirement for Import / Export license for its own products; 
(6) Full control of human resources 
(7) Greater efficiency in operations, management and future development. 

BUSINESS SCOPE 

One of the most important issues in WFOE application is business scope. Business scope needs to be defined and the WFOE can only conduct business within its approved business scope, which ultimately appears on the business license. Any amendments to the business scope require further application and approval. Inevitably, there is a negotiation with the approval authorities to approve as broad a business scope as is permitted. 
With China's entry into WTO, more and more business is open to WFOE especially in Trading, Wholesale and Retail business. 

REGISTERED AND PAID UP CAPITAL

Investment Capital: USD$140,000 is a good idea for all kind of WFOE, it's easy to get approved.

GENERAL TAX INFORMATION 

The corporate tax rates range from15% to 31%, depending on the places where the company is registered. Shanghai is among the lowest in the region. All enterprises are required to report to the Tax Administration Department monthly. You are welcome to contact us for more information.

ANNUAL RETURN 

Any limited companies in Shanghai should submit annual return to the relevant authorities. The annual cost is about USD300. Any company will be subject be to a fine if the Annual Return is not submitted in a timely manner.

TERMS AND TERMINATION

In China, terms of 15 to 30 years are typical for a manufacturing WFOE (although some may have a longer term). It is also possible to obtain extensions of the WFOE's duration. For projects in which the amount of investment is large, or the construction period is long and the return on investment low, projects producing sophisticated products using advanced or key technology provided by the foreign partner, or for projects producing internationally competitive products, the term of WFOE may be extended to 50 years. With special approval from the State Council, the term may be even longer than 50 years.

The WFOE may be terminated under certain conditions. For example, the inability of the WFOE to operate due to heavy losses, or in the occurrence of an event of force majeure, etc. 

Feel free to contact us if you have any question or need of any assistance.

Documents required for Registration

Documents required for WFOE Registration:

1. Copy of Business License of parent foreign company which was certificated by Chinese Embassy (if it's personal investor, then passport copy certificated by Chinese Embassy is enough) 
2. The last annual audit report from the parent foreign company. The audit report should be in the format as prepared by a Certified Public Accountant (CPA) 
3.2 Credit letters from foreign company banker to declare a good credit within at least current 6 month 
4. The resume, copy of the passport and 8 pieces of passport size photos of the Legal Representative of the WFOE 
5. The parent company's legal representative's passport copy 
6. Business scope and how long the WFOE is going to do business in China 
7. Brief introduction of the foreign investor(s) including name, address and telephone number 
8. Total investment and registered capital and the make up of investment 
9. Registered address, leasing contract, certificate of real estate, and certificate for leasing ( We can provide free virtual address for the registration upon your request, no need to rent an office in advance) 
 
The above document is enough to register a Trading & Consulting WFOE, but if you want to register a Manufacture WFOE, you have to prepare following extra documents:

1. Purpose and estimated investment 
2. WFOE's operational structure and number of employees 
3. Permission for land use, environment evaluation report 
4. Products, size of production, detailed list of equipment, and business plan 
5. Environmental protection measures 
6. Requirement for utilities such as power and water supply 
 
Documents required for Joint Venture Registration:

1. Project Proposal and Application Form for Project-Establishment
2. The Credit Certificate given by the bank where an investor has opened an account
3. 2 copies of the IDs of the Chinese and foreign investors
4. 2 copies of the investors' legal Certificates of Business (Business License)
5. Contract and appendix
6. Constitution of the company and the appendix
7. Name list of the directors of the board
8. List of equipments and accessories need to be imported
9. Other documents are subject to the requirement of the government

 
Documents required for Representative Office Registration:

You are responsible for the preparation of the following information and documents:

1. A set of incorporation documents of the applicant company, including Certificate of Incorporation and Business Registration Certificate, if any; The whole set of incorporation documents together with the bankers' reference letter shall be legalized by Chinese Embassy or Consulate General in the country where the parent company is incorporated; 
2. Original copy of bankers' reference letter issued in the name of the applicant company and addressed to Shanghai Industry and Commerce Administrative Bureau 
3. 2 copies of original Tenancy Agreement (lease agreement) of the office premise to be used by the Representative Office; the lease term should not be less than 12 months; the tenancy agreement should be registered with Shanghai House Management Bureau; 
4. Photocopy of the Certificate of Property Owner evidencing the landlord owning the property; 
5.A brief summary of the operations and business of the applicant company, such as the principal business activities, registered address, contact phone number, name of the applicant company; the address and contact number of the managing director of the applicant company; 
6. The resume, 8 pictures, passport copy, contact number of the Chief Representative and the address where the Chief Representative will be staying while she/he is China; 
7. If there is(are) Representatives to be stationed in China in addition to the Chief Representative, the resume, 2 pictures, passport copy, contact number of the Representative and the address where the Representative will be staying while she/he is China.