Steps to form your Chinese company

Chinalyze can assist you to setup and upkeep your company in China.

The process of registering a business in China is quite different from what you are used to in other jurisdictions, and each stage is prone to mistakes.

Correcting any mistake later might be very expensive and time consuming and can expose you to serious liabilities.

Below you will find a complete list of each step and decision you will have to take, as well as the potential mistakes, and how we can help you to complete the project timely and successfully.

1 - Deciding how to enter China.

The Chinese market is very different from anything else you have experienced, and not all companies can succeed here, even if they were successful elsewhere.

Entering China without proper study and planning, or just because “my competitors are here”, or “it is a huge market”, or “we cannot fail”, or “we have a proven expansion model” or “my friend did it and said I should not worry”.

We can provide Market Research, Strategic Consulting, and any kind of advice you might need including SWOT analysis and planning your entry.

2 - Finding the right firm to assist you.

Due to the complexity of the matter, usually foreigners never do this alone and they engage a professional firm. Picking the right firm is essential.

A cheap agency will tell you whatever you like to hear, but then they will register a crooked company. A law firm is expensive and might provide only answers “by the book”: they might say you cannot run a certain activity just for the sake of providing a safe answer.

We have fixed many “horror stories” caused by cheap local agencies.

We also helped clients to find creative ways to carry out their business.

3 - Choosing the right Company type.

You might need a Wholly Foreign Owned Enterprise (WFOE) for Manufacturing, Trading, or Consultancy, a Representative Office (RO) or a Joint Venture (JV).

It is a very common mistake to decide between WFOE and RO just based on guts and first opinions. However, some projects intended for a RO are often much better served with a WFOE (for tax efficiency, HR requirements, and other reasons).

We will be happy to explain pros and of each choice in relation to your specific plan and guide you towards the best solution.

4 - Deciding your business scope.

This is the most important decision you must make when registering a WFOE, because it must include any activity you intend to carry out in the future.

China does not have a generic business scope option. And you should not register an “easier” business scope to be quick, otherwise you will find yourself in trouble when the company becomes operative. It is better to negotiate a decent business scope.

We will “form” a business scope for you, based on your intended activity, and will advise on the chances of success.

5 - Checking if more licenses are needed.

Depending on your activity, you might need additional licenses or permissions (import-export, food, alcohol, retail, financial services, and so on).

Potential mistakes might happen when picking a license or understanding its requirements, and that they must be met even before you apply for the license. For example, you might have to hold on a ready restaurant or warehouse for over 6 months.

License requirements change over time and might differ based on the province you register in. We will advise on the updated requirements

6 - Choosing a city and district.

Picking a City is not a complete decision: each district of that City might have different requirements in relation to your company type and business.

Different districts of the same city might have different requirements in terms of registered capital, type of office space required, corporate tax and incentives, required documentation, and more.

We can advise on the different requirements, including options in Free Trade Zones (FTZs) for you to pick the right destination.

7 - Choosing the right ownership structure.

Should the WFOE be owned by your parent company, or by a holding, or a SPV, or an individual? Should the RO be “linked” to your HQ or to another entity?

Often the most natural choice is not the best one. You should consider factors like tax efficiency, liability control, brand exposure, ease of management and preparation for the future (e.g.: transferring the entity or onboarding new shareholders).

We can advise on the different options to guide you towards the choice that makes more sense.

8 - Choosing the Legal Representative.

You need to name a legal representative (LR) and a supervisor before you can start registering your business. It is important to pick the right person.

The LR is the most important person in your Chinese company, is the person the company stamps are attached to (more on this below), and shares liabilities with the owner of the WFOE. You must make the right choice, for example: local or foreigner?

We can discuss with you the options based on the management style and risk profile of your company and on your availability of staff.

9 - Selecting the right office option.

Most districts of most cities will expect that you lease an office for at least 12 months before you apply to register your business.

This is one of the major cause of delays and misunderstandings between applicants and authorities. Both the office (or warehouse, or retail space) and the lease agreement itself must meet specific requirements to be eligible for company registration.

Not only we can advise on the best solution for your case, but we might even be able to help you source the right space for your specific project.

10 - Choosing a Chinese name for the WFOE.

Before applying to register your WFOE, you must apply for a name that represents your brand properly. ROs will use the name of the parent company.

The authorities will reject any name that reads, or even sounds, like existing companies. You might need to prepare over 20 names to get one approved. And you might want a name which sound or meaning recalls your English name, and that can be trademarked.

This step requires a deep knowledge of the Chinese language. Our Chinese team can prepare a list for you, adopting the best practices, and can explain its meaning.

11 - Setting the registered capital amount.

You need to declare the intended registered capital of the WFOE, which must be approved by the authorities. ROs do not have capital requirement.

China does not have a set minimum capital requirement for foreign owned companies. Instead, there are only generic guidelines. Requirements change drastically based not only on the type of WFOE, but also to your business plan.

We can help you to assess the right capital amount that might be deemed acceptable and explain how and when it should be injected.

12 - Preparing forms and documents.

The list of required forms and documents varies depending on company type, ownership structure, and directorship of the parent company.

A common issue with unprofessional agencies is that, to play it safe, they might ask you to prepare many more documents and legalizations than what is required, thereby increasing considerably the total application costs and timing.

We will prepare a precise list of documents and forms based on your specific case. However, do note that authorities can always ask more.

13 - Signing the forms in the right way.

It might sound strange, but China has very specific requirements about how application forms should be signed, down to what kind of pen should be used.

Applications might be delayed because the signature does not match perfectly the one on the passport, because the wrong type of pen was used, or more simply because the forms are in Chinese and were signed in the wrong position.

We will indicate clearly how to sign and where, and we will pre-check the forms before submitting them to increase the chances of success.

14 - Understanding the taxpayer classification.

WFOEs can be classified by the Tax Bureau as either small-scale or ordinary tax payer, based on thresholds. This impacts on the tax applied to the WFOE.

Depending on your specific business and projected financials, you might not be in the position to choose your own classifications, while in some cases you can. In either case, it is very important that you understand the difference and your expected tax liabilities.

We will explain the differences and which classification might apply to your specific case, and we will deal with the tax bureau on your behalf.

15 - Registration with the SAIC.

The most important authority to register a business with is the State Administration for Industry and Commerce (SAIC). Each district has its own office.

The government has merged functions of different bodies in one: the so-called “5 in 1 business license”.  It covers the following certificates: main business license, tax registration, organization code, social security and statistical registration.

After assisting you in collecting all required documents and forms we will take care to file the application and follow-up until approval.

16 - Obtaining the company chops.

In China the so-called company chops (corporate seals) are the main tool to represent a company and authenticate all the agreements signed by it.

At this stage you will assign an English name for the WFOE, which will only appear on the chops but not on the certificates. The chops carved for the company and its legal representative must be used to validate each document signed by the company.

As part of the registration process, we will take care of carving all the required chops for you and explain their importance.

17 - Opening the bank accounts.

In order to operate the company, you will need to open at least 2 different accounts (usually with the same bank), each with a specific function.

This stage might have to be carried out in two different instances: one is to open the capital contribution account, which is used for capital injections only, and one to open the operating account. You might need more accounts for additional currencies.

We will guide you to apply for a corporate bank account with a major bank, typically ICBC or Bank of China.

18 - Registration with other authorities.

Typical examples include registration for VAT, import-export registration with Customs (for trading WFOEs), food or alcohol licenses, and so on.

It is important that the registrations are executed properly and that you know what to expect before you start your project. For example, VAT registration requires a dedicated, sealed computer and printer; a food license might require a warehouse.

We usually inform you of these requirements during the planning stage, and of course will help you to apply with the right authorities.

19 - Preparing to hire personnel.

A WFOE can hire personnel directly, and must register for social security, housing fund, and more. A RO can only hire personnel through an HR agency.

The biggest challenge of hiring is not the bureaucracy (that can be outsourced), but rather dealing with the mindset and the expectations of the Chinese workforce. Very expensive mistakes can be done not only during the startup stage but also later.

We can help you with initial and ongoing HR filings, running search for personnel (headhunting) and drafting employment contracts for you.

20 - Up-keeping the company.

Chinese companies must file monthly and yearly accounts, tax and VAT declarations, auditing, as well as monthly filings in relation to human resources.

Once your entity is ready, you will want to be focused on developing this new fascinating market. The last thing you need is worrying and losing time with periodic filings, audit reports, tax reconciliations, and other read tape that can be outsourced to us.

We can keep your books and carry out periodic accounting and tax filings and other corporate services, like processing trademark registrations.

!!! - Bonus step: helping you grow in China.

Here are some other services we provide to help you in China: executive search, M&A, translation, setting up an online store on Tmall, planning and executing marketing campaigns, IP protection.

China differs wildly from other countries in many aspects, not just company formation. For example, digital marketing in China uses completely different channels and logics (there is no Google, Twitter or Facebook here, but rather Baidu, WeChat and Weibo).

Our group operates several brands who can help you in China: APACMC, AdsWarrior Chinalyze APAC Talents Swissfort. Check out our services to know more!