Company Registration in China- An Overview
China is the global power house when it comes to exports related to electronics and other products. It offers seamless manufacturing facilities which make it the best place in the world for manufacturing products. Till now, global companies such as Apple and Microsoft consider China’s resources for assembling their products. Apart from this, cheap labour is another advantage why companies prefer investing in China. Hence investors and entrepreneurs go for the process of company registration in China.
China is considered as the world’s second largest economy with a GDP about USD 14 Trillion. Apart from this, China has the largest population in the world accounting to 1.34 billion. The country is located within close proximity of emerging economies such as Indonesia and India. Hence an entrepreneur would want to go for the process of company registration in China.
Many companies want to set up local manufacturing units in China due to cheap labour. Apart from this sourcing different form of raw materials and supplies is cheap when compared to other countries. Hence companies prefer investing in China. The resources offered in China are highly competitive such as global infrastructure and research and development opportunities. All the above incentives are provided to investors who want to establish a business in China.
Benefits of Company Registration in China
- Emerging Hubs
China is the second largest economy in the world after America. This makes it a good place for carrying out different forms of investment activities for entrepreneurs and venture capitalists.
- Cheap Labour
Securing Labour is cheap in China. The daily wage provided in China is comparatively less when compared to other countries. Hence companies can carry out operations at a faster pace with less amount of investment in labour. Apart from this, workers carry out services round the clock, which provide ease in carrying out different operations.
- Largest Markets in Asia
China is the largest economy in Asia. It has achieved its place as the largest economy in Asia due to different incentives offered by the government. The government provides some form of leniency when it comes to foreign investment opportunities in China.
- Import Duties
When Chinese Companies import equipment there are lot of incentives related to import duties on products which are got into the country. This provides more opportunities for Chinese companies to have some added value related to their investments. American companies can invest in China without having any form of tax implications in America.
- Large Scale Availability of Resources
Manufacturing companies in China have access to electricity and water for carrying out different operations.
Types of Business Structures used for Company Registration in China
Though there are different benefits of setting up a business in China still company registration in China is not straightforward. This is due to the rapid and ever changing business environment which companies have to adopt. Apart from this, there are several sectors which have restrictions related to foreign investment. Hence it is important to first choose an appropriate structure for Company Registration in China.
The following are the types of business structures for company registration in China:
- Wholly Foreign Owned Enterprise
This is a Chinese limited liability company which is owned by foreign investors. One of the main benefits of forming this type of company is the principle of limited liability. The liability of the shareholders and directors is limited only a particular amount.
- China Free Zone Company
When forming a China Free Zone Company, the foreign investor can go for investing in special economic zones (SEZ). Usually foreign investors would consider forming this company if they have to set up an export oriented unit (EoU).
- China Equity Venture Company
Usually this company is also known as the EJV or equity joint venture company. Usually this form of company would be formed by a foreign investor. Apart from having a foreign investor, there would be a Chinese shareholder having certain percentage of equity interest in the company.
- Branch Office
Usually branch offices are not allowed for companies which are reregistered outside China. Only companies that are formed as a wholly foreign owned enterprise (WFOE) or a China Equity Venture company is allowed to establish a branch office in China.
- Representative Office
The government allows foreign companies to open different types of representative offices in China. Usually prior approval is required from the State Administration for Market Regulation (SAMR) for starting this form of office.
- Offshore Company
An Off Shore Company is a company which is formed in Hong Kong SAR. As Hong Kong is still a part of China, this company can be formed. However the tax levied in Hong Kong is different from the tax levied in China.
Eligibility Criteria for Company Registration in China
An applicant applying for the process of company registration in China has to fulfil the following eligibility criteria:
- Minimum Directors- The firm must have minimum 3 to 13 directors.
- Chairman and Deputy Chairman- The Company must have one chairman and deputy chairman.
- Registered Address for the place of Business- The Company must have a registered address for carrying out business in China.
- Legal Representative- A legal representative must be appointed in China to carry out the process related to company registration in China.
- Reserved Name- Apart from this, the name of the company must be reserved.
Procedure for Company Registration in China
There are different types of companies in China. Hence based on the requirements of the applicant an appropriate form of business must be selected for carrying out the process of company registration in China. Usually the process of registration would take between two to four months for registration.
The following procedure has to be adopted for company registration in China:
- Pre-Registration of Chinese Business Name
First and foremost, the applicant has to reserve a business name of the company. This is the first step which has to be carried out by the applicant. Hence the approval would be required from the Administration of Industry and Commerce (AIC) in order to see that the name does not come in conflict with any other name. The name approval process can be also carried out through the State Administration for Market Regulation (SAMR). Once the name is reserved by the applicant, then the application for securing the business license can be carried out by the applicant. Usually the name approval process would take about 15 business days to complete. After this is carried out the applicant would have to choose the place for having the registered office of the business.
- Legal Compliance
There are compliances which have to be carried out when the first step is complete. The following are the compliances which have to be carried out:
• Lease Agreement for the office in China must be pre-approved by a local government authority. This will also include municipal authorities.
• Minimum Paid up capital- The applicant for company registration in China does not need to have a minimum paid up capital. However, it is always beneficial to have specific amount of paid up capital for company registration in China. Depending on the type of business carried out in China the paid up capital would be usually more than USD 20,000. However the minimum paid up capital for a Chinese Business would vary depending on the type of business. If the business is manufacturing then usually the paid up capital would be more. Usually for this form of entity RMB 1000000 or USD 150,000 would be suitable.
• The Capital of the company must be certified by a public accountant in accordance to the requirements of the Companies Law of the People Republic of China.
• The Company has to appoint one shareholder, one director, one legal representative and the Board of Supervisors.
• If a foreign investor is registering the company as a Wholly Foreign Owned Enterprise, then the foreign investor has to get registered. This can be carried out through the foreign investor enterprise filing. This would be carried out through the Ministry of Commerce website ( http://english.mofcom.gov.cn/ ).
• As per Article 38 of the Companies Act of China, a legal representative must be mandatorily appointed for the company to carry out all the compliances. A board of supervisors must also be appointed to carry out the affairs related to the company. The board of supervisors are reportable to the directors of the company.
- Approval Certificate
Once the name of the business is registered, then the applicant for company registration in China would have to apply for a certificate of approval. In order to secure the certificate of approval the following documents must be provided:
• Name of the Business (As Approved)
• Registered Office Address of the Business
• ID of the Legal Representative
• ID of the Company Supervisor
• Shareholder and Directors Information
• Notary Documents of the Shareholders
• Articles of Association and Memorandum of Association
• Registered Capital of the Company
• Feasibility Study along with Budget.
Once the above documents are provided, the Ministry of Commerce (MOFCOM) will review the same.
- Business Licenses
In the next step the applicant would have to obtain relevant business licenses. A good initiative taken by the Chinese Government is the system related to ‘five in one filing’ where all business licenses can be granted to the applicant.
The following licenses would be issued to the applicant:
• Business License
• Organisation Code/ Organisation Registration Certificate
• Tax Registration Certificate
• Social Security Registration Certificate
• Statistical Registration Certificate.
- Company Stamp
After this is carried out, the company would have to create an official stamp for the company. This corporate stamp would be utilised in all official documentation.
- Corporate Bank Account
After all the above steps are carried out, the company would have to open a corporate bank account.
Compliances for Company Registration in China
The following compliances have to be carried out for a company which is incorporated in China:
- Financial Statements must be filed in Chinese Language. Such Statements must be filed monthly.
- Annual Report must be submitted to the SAMR. This must be carried out within the appropriate period (01 January to 30 June).
- Companies have to pay corporate tax. The rate of corporate tax is 25%. However for companies coming under the Chinese Government Business Scheme, the rate of corporate tax is 15%.
- All companies are required to conduct an annual general meeting. For private companies usually the period of holding the annual general meeting would be 9 months after the end of the accounting year.
- All companies must update their books of accounts as per the Chinese Accounting Standards. This must be carried out Monthly.
- A company must file corporate income tax return quarterly.
- VAT Returns must be filed monthly and before the 15th day of the following month.
The following documents are required for company registration in China:
- Name of the Business (As Approved)
- Registered Office Address of the Business
- ID of the Legal Representative
- ID of the Company Supervisor
- Shareholder and Directors Information
- Notary Documents of the Shareholders
- Articles of Association and Memorandum of Association
- Registered Capital of the Company
- Feasibility Study along with Budget.