Doing business in China is a good choice for foreign investors as the country further open up. This exposition provides an overview of registration, compliance and reporting requirements for corporate coming inbound into China for the first time. The information provided is general in nature and should not be relied upon as professional advice.
Requirements on Approval and Registration
When establishing a business in China, it is crucial to obtain the necessary approval and complete all required registration processes with various Chinese authorities. Subsidiary companies in China are often times referred to as Foreign Invested Enterprises (FIEs). The key approval and registrations for FIEs in China include:
1. Approval from Ministry of Commerce or Local Commission of Commerce (MOC or Local COC) for the issuance of Approval Letter and Approval Certificate;
2. Registration with State Administration of Industry and Commerce or local Administration of Industry and Commerce (SAIC or Local AIC) for the issuance of Business License;
3. Registrations with State and Local Tax Bureaus (State and Local TBs) for the issuance of Tax Registration Certificate.
Choice of Business Presence
Foreign investors have been setting up their establishments in China for years. The two major forms of vehicle foreign investors uses are FIEs and representative offices (RO). With the market opening up to foreign investors and the limited allowable activities of ROs in China, FIE is a much more popular choice these days. The forms of a FIE may fall into:
1. Sino-foreign equity joint ventures (EJVs)
EJVs are limited liability companies with joint PRC and foreign ownership. The share of results is proportional to the equity contribution of each party.
2. Sino-foreign cooperative joint ventures (CJVs)
CJVs are based on contracts between venture partners. CJVs are typically formed to develop projects that have a limited duration and a specific objective, such as the development of a building, hotel or service project. CJVs offer greater flexibility in structuring capital contributions, profit and loss sharing and investment recovery.
3. Wholly foreign-owned enterprises (WFOEs)
WFOEs are legal entities in China and are wholly owned by one or more foreign investors. The foreign investor has full autonomy over the management and operation of the company. A WFOE is the preferred vehicle for foreign investors if there is no compelling business reason for having a Chinese partner.
Compliance Operation and Management
1. Accounting & Reporting
China’s fiscal year follows calendar year i.e., starts on 1 January and ends on 31 December of the Gregorian calendar. All Foreign Invested Enterprises (FIEs) in China are required to prepare annual financial statements, including balance sheets and income statements, and all are subject to statutory annual audit by a CPA firm registered in Chinese. Chinese Yuan (CNY) is the recording and reporting currency. Furthermore, all accounting records have to be maintained in Chinese language.
2. Tax Filing
The taxing regimes in China are complex and the tax practice varies from location to location. Enterprises incorporated in China and foreign enterprises with effective management located in China are treated as tax resident enterprises (TRE). Taxation permeates business transactions in China, and a strong understanding of tax system enables foreign investors to maximize the tax efficiency of their foreign investment while ensuring full compliance with all tax laws and regulations.
Doing business in China is a big project itself, which requires the commitment of funds and time, the knowledge of enterprise management and the professional knowledge of China. Choosing a competent agent to manage those complex processes will be a cost-effective and time-saving way to avoid potential pitfalls.
Contact Us
If you have further inquires, please do not hesitate to contact Tannet at anytime, anywhere by simply visiting Tannet’s website english.tannet-group.com, or calling Hong Kong hotline at 852-27826888 or China hotline at 86-755-82143512, or emailing to tannet-solution@hotmail.com. You are also welcome to visit our office situated in 16/F, Taiyangdao Bldg 2020, Dongmen Rd South, Luohu, Shenzhen, China.
Previous：China Manufacturing Company Formation
Next：China Company Articles of Association