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Companies in China

Ancient culture, traditions of their ancestors, the strength of spirit and clarity of mind. CHINA.

Huge territory, dominating population of the world, technological advances, dynamic GDP and unexplored potential.

China is becoming more and more popular and profitable region with its attractive investment climate.

Today China is a country with the most dynamic growth in the world economy.

Over the last 10 years there is a tremendous potential for cooperation and a considerable interest of Russian, Ukrainian and Chinese entrepreneurs in development of trade and economic relations.

In this direction there were made successful practical steps. There were implemented a number of industrial, energy and agricultural projects, projects in the sphere of development transport infrastructure, technology and equipment from China.

Corporate business management

Legal entities in China endowed with special limited capacity. Unlike Russia and other CIS countries, where business organizations can be engage in all kinds of business and perform any required transaction, in China the sphere of activity is strictly fixed in the statute documents and specified in a special certificate on doing business.

In China a foreign investor is proposed to establish a companyat the following law modes:

• Representative office

• A company with 100 % foreign capital (WFOE)

• Joint venture

Before choosing the form of the company in China you should definitely seek for advice of experts. China - is limitless market, but along withgetting to this market the investor faces different difficulties, which have to be settled beforehand. Any deviation from declared laws is illegal and strictly punished in accordance with established legal standards.
In most cases, representative offices can not conduct business activity in China, that is why companies with 100 % foreign capital and joint ventures are the main forms of total presence of foreign businesses in China.

Regardless of the organizational and legal form of the company you should have the physical office in China. The Chinese government can come with audits to the office, send documents and require all the written requests to be send from physical address of the company. The registered address of the company must match the physical location of the company. In China there the usage of virtual addresses is officially forbidden. Moreoveryou should provide a lease contract and other documents of the real office whileregistering a Chinese company.

Representative Office

Representative Offices in China are registered and used for market research and for establishing contacts in China. Representative Office is not a separate legal entity and it can notconduct any business activity.

Representative Office may operate the following activities

- Conducting researches and providing data to the potential clients and partners

- Research the local market for the parent company

- Communication with the localpotential partners

- Acting as a point for the parent company in China

- Representative Office must not: conduct any commercial activities, charge a fee for services rendered or/and conclude the contracts on behalf of the parent company.

The main advantages of Representative Office

- enables the right to conduct a thorough research before involving market capital for a certain period

- Representative Office provides a presence in China to develop a stable brand/product

- Confirms long-term investment in the Chinese market, thereby to gain the trust of potential business partners

The term of registration

Registration of a Representative Office consists of 2 levels and covers a period of 3 months.

Taxation

Representative Office should keep accounting records and pay taxes. Representative Officesare payers of the corporate income tax and tax on economic activity, and are the tax agents for its employees for the payment of income of individuals. In this case, the tax burden in paying taxes on economic activity and income tax is about 11 %.
According to the new rules the representative officesof foreign companies are required to file theannual report to registration authority. This report should include information confirming legality of a foreign enterprise, information on the activities of representative office, as well as information on income and expenditures of representative office, audited by accounting company.

Accordingly, the representative office is used for market researches, for promotional purposes and to create a presence in Chinese market. Creating a representative office in China is a prompt and convenient way to establish a presence in this country. Extremely popular way of entering the Chinese market is the entrance through a Hong Kong company.

Company with 100% foreign capital

Companies with 100% foreign capital in China are named WFOE (Wholly Foreign Owned Enterprise).

WFOE - is a limited liability company wholly owned by foreign investors. WFOE company are the primary means of investing in China, as well as legal entities, created exclusively with foreign capital.

WFOE were designed to increase the growth of western technologies and production activities, which were export-oriented. However, due to the liberalization WFOE currently are used as service providers (consulting and management services), as manufacturers of technologies ( software development) and as commercial enterprises.

WFOE declared authorized capital shall not be less US $ 140,000. Paid-in share capital may be paid at 20 % (approximately US $ 28,000-US $ 30,000) of full amount ofshare capital as the first payment, and then the remaining part should be paid within two years.

These funds should not be placed on deposit, frozen or otherwise withdrawn from the turnover - after transferring the share capital (fully or partially) Chinese accounting company conducts a simple auditon the payment, checking the payer, the recipient and the company's share capital. The test results are recorded in the foreign exchangeauthorities, and the share capital can be used.

Establishment of companies with foreign investment requires more settlements with the state authorities. The main difference from the registration of Chinese companies is that Chinese companies are registered at two levels, and enterprises with foreign investment –at 3 levels. There is additionally one more pre-approvalprocedure, which carried out the competent authorities of the Ministry of Commerce.

Among the documents to be submitted at the pre-approval procedureis a detailed business plan covering the period of the company for a period of 3-5 years development. It is less detailed document than the business plan usually submitted by the investor or lender, but the main figures on the planned expenditures, revenue and profit should be reflected there.

In WFOE from 1 to 50 number of shareholders are permitted. Public issue of new shares is prohibited.

The main advantages of WFOE

- Freedom strategies of the parent company without the consent of the Chinese partners

- Opportunity to realconducting business, and not just being a representative office

- Ability to convert earnings in any currency to transfer its parent company outside China

- Protection of intellectual property rights

- A license on export/import is Not required

- The investor is not obliged to conduct activity within two years, as opposed for creating a representative office

The terms of registration

Registration term of WFOE is 6 months; it includes:

- Prior approval by the Ministry of Commerce (3 months)

- Registration by administration of industry and commerce

- Post-registration procedures (registration with the various government agencies - police, Officeof quality control, tax authorities, office of statistical offices of the Ministry of Labor and Social Protection, Customs, manufacturing the seals and opening bank accounts)

Director

The legal representative of Chinese company (Legal Representative) is a company representative in Chinese authorities, is personally responsible for the legal issues of operation and management of the company.

Taxation

Corporate income tax - 25%

Tax on income of individuals - from 5% to 45%

Value added tax - 17%

Tax on economic activity - 5 % or 3 %

Joint venture

Joint venture - is a limited liability company established by a foreign investor, together with a Chinese investor. In some cases, WFOE can not be used for investment to some sectors of the market in China. In limited areas, such as mining, health, education and construction, the joint venture is the only way to invest. Even in the case when WFOE is possible, some companies choose to establish a joint venture for the reason that they are more predisposed to experience all the benefits of the local market in China and understand their standards and practices.

Joint venture operates by agreement of both parties with respect to a capital shares, distribution of costs, profits, and company management.

Advantages of joint ventures in China

- Joint venture gives access to a limited market sectors

- Joint venture reduces the risk by applying local market experience

- Low labor and goodscosts, and potential share in Chinese market

Terms of registration

Registration term of Joint Venture is 6 months. This period consists of three levels and includes:

- Prior approval by the Ministry of Commerce (3 months)

- Registration by administration of industry and commerce

- Post-registration procedures (registration with the various government agencies - police, Officeof quality control, tax authorities, office of statistical offices of the Ministry of Labor and Social Protection, Customs, manufacturing the seals and opening bank accounts)

Director

Directors are appointed by the parties in proportion to the equity investor.

Taxation

Corporate income tax - 25%

Tax on income of individuals - from 5% to 45%

Value added tax - 17%

Tax on economic activity - 5 % or 3 %

Our Services

We will kindly help you in registration a company in China, regardless the selected mode, consulting you in tax matters and financial records of Chinese companies, leasing offices cases in China (Beijing, Shenzhen 5-100 sq. meters),possibilities of enter into Chinese market and for any other issues.





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