Table of Contents
How to Open a Company in China
China offers great opportunities for those seeking to open a company. As the world’s largest economy, the Chinese market is growing rapidly and offers significant opportunities for businesses. In addition to this, the Chinese government actively encourages foreign investment and offers a number of incentives to businesses that open a company in China.
Deciding whether to open a company in China, therefore, is an important decision. There are many things to consider, and the process can seem overwhelming. But with the right information and guidance, it can be a relatively easy process. In this article, we will outline the steps you need to take to open a company in China. These include how to pick the right business entity, what are the requirements for opening a business in China, and what to do once you’ve successfully opened your business.
Step 1: Choosing How to Register a Company in China
When opening a company in China, you will need to figure out whether you are going to register the company on your own or with the help of an agency.
Although the process of opening a company in China has been facilitated by the Chinese government, it still remains a daunting task to face on one’s own. Complying with local regulations, preparing the necessary paperwork, and understanding China’s complex company laws can be intimidating tasks. As such, many prospective business owners opt to use the help of an agency.
Agency professionals know exactly what steps to follow and can help make this process as efficient and smooth as possible.
Step 2: Selecting Company Scope
The Chinese government actively encourages foreign investment in certain sectors of the economy, as it believes these sectors will help the economy grow faster. These include high-tech industries, new energy, and services. Similarly, some sectors are restricted or prohibited to foreigners. For a complete and updated list, however, you should consult the Catalogue for the Guidance of Foreign Investment. If the industry you plan to open a company in is not on this list, it is classified simply as “permitted”.Once you have determined the business scope in which you plan to operate, it is important to stick to it. This means that if the Chinese government catches you conducting business outside of your business scope, you may face penalties or be forced to close your company.
Therefore, if you are thinking of opening a company in China it is important to research the specific industry in which you would like to operate.
Step 3: Understanding China's Requirements for Registration
Once you have determined the specific industry in which you would like to open your company, it is important to understand the registration requirements. To open a company in China, you will need to comply with local regulations and meet certain requirements. This includes preparing the following documents:
Company Name
The name should be in Chinese. To make sure that no other company is using the name you plan on selecting, you should seek approval from the Administration of Industry and Commerce (AIC). Approval may take up to 15 days depending on the area in which you plan to operate.
List of Controlling Partners
This list catalogs the shareholders who hold the majority of the shares. If they are foreign investors, it is important to ensure that they all have the appropriate approval to own shares in a Chinese company. If this step is skipped, you may encounter problems later on.
Managerial Structure
This is a document outlining your company’s business operational profile. It includes the board of directors, supervisors, general managers, and legal representatives. Attached in this document should also be a copy of the directors’ passports.
Legal Address
This includes the name, email, and phone number of the owner of the land or building. The address should be “exclusive”, meaning that sharing an office with other companies or having a “virtual” office is not permissible. The legal address should also reflect the business scope of your company. Also, it is important to present a regular rental contract (or acquisition).
Articles of Association
The Articles of Association (AOA) contain information about the company’s name, ownership, business scope, and registered capital information In the document, core details of the business are outlined such as the managerial structure and the methods to be used for returning profits.
Registered Capital and Total Investment
Registered capital refers to the resources dedicated to running the company (the expenses). Total investment, instead, is the sum of registered capital and future loans from investors. This can come from third parties, such as banks.
Feasibility Study
The feasibility study proves beyond a doubt that the business is a feasible endeavor. To prove this, the feasibility study should include a detailed business plan and budget. If the authorities do not find your feasibility study compelling, your application may be thrown out altogether. Therefore, this is a critical step.
Step 4: Applying for Approval Certificate and Business License
After you have met all the required registration criteria, it is time to apply for your approval certificate and business license.
To apply for your approval certificate, you will need to deal with the Ministry of Commerce (MOFC) and the State Administration of Industry and Commerce (SAIC). These agencies will review your application and notify you when it gets approved or declined.
To apply for a business license, on the other hand, you will need to go through the Local Administration of Industry and Commerce (LAIC). The LAIC will issue your business license once you have been approved by the MOFC. Additional licensing may be required depending on the scope of your company.
Step 5: Registering with the Public Security Bureau
Once you have received your approval certificate and business license, it is time to register with the Public Security Bureau (PSB). This is a mandatory step for all companies operating in China.
The PSB is responsible for issuing work permits and residence permits to foreign employees working at companies in China. To register with the PSB, you will need to provide a range of documents including copies of your approval certificate and business license, passport photos of all directors and shareholders, as well as copies of employee IDs or work permits.
By registering with PSB, you will obtain company chops. Chops are best interpreted as company signatures. Without it, no document or contract can ever be validated.
Step 6: Opening a Corporate Bank Account
After registering with the PSB, the next step is opening a corporate bank account. This is necessary for all companies operating in China in order to conduct transactions such as paying taxes and salaries, as well as invoicing customers.
If you are a foreign company, you will need to open a bank account with the Bank of China or another bank designated by the SAFE, or the State Administration of Foreign Exchange.
For the company to become active, you’ll have to pay a corresponding amount to the registered capital in the company’s bank account. The difference between the total investment and registered capital can be paid off in the future and, as noted above, can come in the form of a third-party loan.
Step 7: Understanding Tax Requirements
Now that your company is active, it is time to understand the Chinese tax requirements your company will face.
In China, all companies (including foreign-owned businesses) must comply with tax regulations. To achieve this, you should register your company’s essential financial and operating information (including CFO verification and scope). There are also different tax obligations you should be aware of.
- Corporate income tax: This is a tax of 25% on profits. However, if your business belongs to one of the “encouraged sectors” you may enjoy lower corporate income taxes.
- Transaction Tax: Otherwise known as a turnover tax. It is taxed at a rate of 3-5% of the business sales.
- Custom duties: Taxes charged on goods that are exported from or imported to China.
- VAT (Value added tax): There are different tax rates in China: 3%, 6%, 9%, and 13% in terms of industries.
- Individual Income Tax: Tax imposed on dividends that are imposed by company partners and staff salaries.
To Sum Up
In conclusion, there are a number of reasons why you might want to open a business in China. The country offers a number of advantages for businesses, including a large market, low labor costs, and favorable tax policies. However, it is important to understand the process of setting up a company in China before making the decision to do so.
