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Setting up an entity in China is a major decision that comes with serious liabilities. Deciding to register an entity should come after thorough evaluation. Based on our experiences, most activities in China can be accomplished without a local entity by using outsourcing companies. For pre-establishment solutions please visit: Market Entry Operational Support
Assessing the need
We ask the following questions:
- What is the entity’s purpose?
- What are the entity’s licensing needs?
- Where would be the best place to establish an entity?
- Who would manage the entity?
- What type of entity is required?
Once these questions are answered, PTL Group assists its clients with the entire establishment process, until the company is fully operational (including all necessary financial and HR aspects).
Types of entities that can be registered in China
Wholly Foreign Owned Enterprise (WFOE): A limited liability company wholly owned by the foreign investor/s.
- Requires registered capital and its liability is limited to its equity.
- Can generate income, issue local invoices.
- Can employ an unlimited number of foreign and local employees.
- Pays tax in China and its profit can be repatriated back to the investors’ home country.
Representative Office (RO): Also known as REP Office, a RO is a liaison office that belongs to a parent company.
- No registered capital required.
- Limited to promotion, market research and quality control activities.
- Prohibited from any business activity; import, export, generating revenue or entering into contracts with any local businesses.
- Limited number of foreign and local employees, that can be hired only through a 3rd party HR agency.
- Heavily taxed based on the RO expenses.
- Requires regular bookkeeping, and annual tax audits.
Joint Venture (JV): A limited liability company formed between a Chinese company and a foreign investor. The parties agree to create an entity by mutually contributing equity and sharing revenues, expenses and enterprise control. A JV presents various challenges that requires from the foreign party extra caution and preparation.
Hong Kong Subsidiary: Foreign companies can choose to establish any of the above mainland Chinese entities as a subsidiary of a Hong Kong company, thus serving as a buffer between the China entity and the foreign company and taking advantage of Hong Kong’s corporate law. However, due to the recent difficulties in opening a bank account in HK, this option may not be suitable for every scenario.
Registration Process
Registration of any of the above entities requires thorough preparation. The registration process may take several weeks to several months, depending on entity type and required licenses.
A few milestones that require consideration and planning:
- Choosing a Chinese name for the new entity.
- Preparing, translating and notarizing all relevant documents from the parent company.
- Deciding on company structure and role distribution: GM, Directors, legal representatives, supervisor, CFO, etc.
- Planning the annual budget and matching registered capital to the entity’s needs.
- Opening a bank account in China (normally requires the attendance of the legal representative).
Business System set up in China
Once the entity acquires its business license, several set-up steps need to be implemented, such as:
- Tax and financial software purchase and implementation
- Tax registration account opening at the tax bureau
- Social benefit account registration
- HR procedures set up (employees handbook)
- Financial accounting system set up
PTL Group’s professional team provides complete management support services from the assessment stage, through the registration all the way to the systems set up and the ongoing support for the entity, including: payroll, bookkeeping, accounting, tax planning, compliance and other advanced HR and financial services. Read more about our Operational support for registered entities.
Considering company registration in China? Here are a few recommendations:
Timing: before initiating a company registration in China, ask yourselves whether you are ready to make a long-term commitment. Also, make sure that your product, sales channels and teams are ready for business initiation and growth in China.
Location: Two location-based factors should be considered when deciding on a business set up in China. First, you’ll need to secure a physical location from which you can conduct your business, employ personnel and establish your facilities. Second, it is recommended to choose a registered address that your appointed accounting firm can use to conduct all your relationship with the local tax office.
Total Investment and Registered Capital: Setting up a company in China? We recommend setting aside an amount that will cover the expenses of the WFOE for the first 1-2 years.
Nominating Key Positions: Some of the positions you must fill include the Board of Directors, GM, Legal representative, and Supervisor.
Name: China company registration regulations require that your WFOE has a Chinese name that meets specific requirements.
Conducting business before and during the China company set-up process: While waiting for your business licenses, you can conduct most of your business activity via the trusted PTL Group platform. This includes employing local and foreign employees, issuing RMB invoices, importing/exporting products, obtaining VAT refunds, conducting local purchase and sales, repatriation of funds outside of China, and more.