Business Establishment in China

Legal persons in China have special limited legal capacity. Unlike other European countries, where commercial structures have rights to perform any activity and carry out all required transactions, in China direction of work is clearly indicated in Statute and enterprise’s operational certificate. However, business establishment in China is promising and lucrative as it is a progressive global market that has become the focus of successful projects and innovative business models.

In China, an investor from another country can pass registration for organization under three possible regimes:

• representation;
• full foreign equity firm (WFOE);
• joint enterprise.

Before choosing a direction of activity for company in China, it is imperative to consult with professionals in this field. China is a huge market, however, merging into this environment, the investor faces a number of difficulties that require a quick solution. Deviating from the law is strictly prohibited – illegal activities are punishable in accordance with the regulatory framework of the jurisdiction.

1. Often representatives are not eligible to become entrepreneurs in China, thus, firms with 100% foreign means and joint ventures are the main forms of activity that foreigners choose when starting commercial projects.
2. Regardless of enterprise’s legal form, it’s mandatory to have a physical presence in the country.
3. The Chinese bodies may check the availability of an office, request that any additional documents be sent, and require that all requests and documents be sent from a physical address.
4. The legal address of companies in China must be the same as the physical one. The use of virtual addresses is prohibited by law.
5. When registering firms in China, you must have a lease arrangement and other papers confirming your real physical address.

Representative form

Representatives in PRC are registered and mostly used as a legal form in order to investigate markets and establish partnerships in China. Representativity form isn’t a separate entity, therefore it cannot perform any economic operations.

Such organization has official rights to choose next-mentioned areas for its activities:

• information research and provision to potential clients and partners;
• assessment of the local market for maternal enterprise;
• doing activities with local potential partners;
• work as a point of contact for maternal organizations in China.

Representatives don’t have rights to perform commercial deals, receive money for the services provided and conclude transactions for maternal enterprises.

Main advantages of representation as a legal form

1. You can explore all the nuances in detail before raising market capital for a certain period.
2. Such organization provides a presence in China for the stable promotion of the brand.
3. The ability to make long-term investments in the development of a certain niche in the PRC market, gaining the trust of potential partners.

How long does it take to register a representativity?

It consists of two stages and takes a total of about 90 days.

Taxes

Representativity pays tax on company income and fees for economic activity, and acts as a tax agent for their own employees in paying income to individuals. At the same time, the tax burden on paying commission on economic activity and income tax is approximately 11%.

Under the new laws, representativity of foreign firms must make an annual report and send it to local authorities. Such a document includes data proving the legality of a foreign company, information about the work of representativity, as well as data on profit and expenses, which are verified by an accounting firm.

Thus, representativity is most often selected as a structure for market validation, for additional distribution of brand influence, and for establishing a presence in PRC market. Establishing representativity in China is a quick and easy option to secure a pre-platform in that country. A very good option to enter the Chinese market is to enter with the help of a Hong Kong firm.

Benefits of WFOE

1. Implementation of strategies of maternal companies without requesting additional consent of partners from China.
2. Running a real business, not just a representational role.
3. Convert profits into any currency to send to your maternal organization abroad.
4. Intellectual rights security.
5. No need to obtain a license for import and export.

How to register WFOE?

Registration process lasts six months, which includes the following steps:

• organization approbation by Ministry of Commerce;
• registration in Industry and Trade Department;
• registration in government agencies, creation of invoices and seals.

Our specialists will be happy to help you to buy business in China, regardless of the form of business you need. We are also ready to provide you with comprehensive advice on tax and other issues being interesting for you. Contact us right now to choose appropriate company in China for sale.

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