Company registration in China

Registration a holding company in China in the province of Shenzhen

General information

To register a company in China, first of all, you need to decide on the province or city where the company’s employees will be located. This is extremely important, since the legislation in each province has its own characteristics.

• When registering a holding company in China, there are the following positive aspects:
  Chinese Registry of Companies https://www.gsxt.gov.cn/index.html. In practice, it is difficult to reveal and see the shareholder of a Chinese company. By default, information on shareholders is not issued. Information about the director and address of the company is given in hieroglyphs. The basic information of the registered company will be published on the website of the Bureau of Industry and Commerce, including: company name, registered capital, field of activity, registered office address, legal entity name, name of the general director, registered number.
• Information about the beneficiary is not published.
• Despite the fact that a WFOE (company with 100% foreign capital) is registered, it will have a Limited legal form, so it will not differ in name from local companies.

Taxation

China has successively entered into tax treaties with many countries.

The main features of taxation in China:

• Corporate income tax. A single tax rate has been established for Chinese enterprises and enterprises with foreign capital (25%). There is also a reduced rate for small unprofitable enterprises (20%), as well as enterprises of new and high technologies (15%)
• Business tax. This type of tax is introduced in China for those activities that differ from manufacturing activities. This includes the main types of services and real estate transactions. Tax is charged if the seller or buyer is located in China. The provision of services in the field of transport, construction, etc. is taxed at a rate of 3% to 20%.
• Taxation of dividends. Dividend income is taxed at a rate of 10%. When registering a company in China with a shareholder of a Hong Kong company, the tax rate on dividends is 5%. At the same time, taxation in Hong Kong is 0%, provided there is no activity in Hong Kong.
• Taxation of royalties. The income received from royalties is subject to income tax at the rate of 10%.
• Interest taxation. Subject to income tax at a rate of 10%.

Corporate requirements

The two most common legal forms for registering a company with foreign capital:

• Company with 100% foreign capital (Wholly Foreign Owned Enterprise — «WFOE»)
• Representation

Below we consider the features of these two structures and the conditions for registration.

A company with 100% foreign capital in China (WFOE). It is the most popular choice for foreign companies doing business in China. This Chinese limited liability company is formed in accordance with the laws of China and financed with 100% foreign capital and controlled by a foreign investor.

• The ability to legally conduct independent business activities in the PRC
• The ability to conduct import-export activities, carry out customs procedures, raw up import­-export documents on the territory of the PRC on behalf of your Chinese company (when registering a trading company)
• The ability to conduct trade operations (purchase, promotion of products, sale, resale of goods) in the domestic market of China (when registering a trading company)
• The ability to conduct international currency transactions using the account of a Chinese company, the ability to accept payments to an account in a Chinese bank in yuan and convertible currency
• The ability to return «incoming» VAT when exporting goods (after completing certain procedures, namely obtaining the status of a «regular taxpayer»), when purchasing goods on the domestic market, when VAT is included in the cost of goods (Chinese enterprises trading for export do not include VAT into the cost, since the VAT rate for export is zero)
• The possibility of obtaining loans from Chinese banks (when fulfilling bank requirements, namely the provision of collateral, usually in the form of real estate in China)
• The possibility of hiring employees (Chinese and foreign persons) and issuing visa documents for foreign employees (and members of their families) to work and permanently reside in the PRC

Disadvantages

• Income tax (25%)
• The need to maintain accounting records and undergo an annual audit
• Availability of currency, customs control
• The need to actually transfer the amount of the authorized capital to the account of the authorized capital of the company from the founder’s account (it is possible to pay in installments over a long period). These funds can be transferred to the current account and used in the course of business activities of the company

We recommend you to pre-register a Hong Kong company for use it as a founder of a Chinese company.

Advantages:

• Simplified legalization of documents for the subsequent registration of a Chinese company
• No need to go through licensing procedures for the transfer of funds for payment of the authorized capital of a subsidiary (Chinese) company
• No need to translate documents into Chinese
• The Hong Kong company will act as a «buffer» between the beneficiary (real founder) and the Chinese subsidiary, reducing possible risks, etc.
• In the event that it is still possible to obtain information about shareholders at the level of the company register in China, then it is necessary to take into account: The Hong Kong company register is open. Therefore, in order to increase confidentiality, we recommend registering a Trust in Hong Kong, in which you indicate directly the beneficiaries. In this case, the external stakeholder will not receive data on the ultimate beneficiaries

Wholly Foreign owned Enterprise («WFOE»)

Registration process

Services provided to create a WFOE:

• Interaction in the preparation of the necessary corporate documents for registration
• Acquisition of a Business license
• Company Seal, Public Security Bureau Financial Seal
• Registration of the organization code and obtaining the certificate of the organization code and IC Card
• Obtaining the Certificate of Registration of the State Tax Service and the Certificate of Registration of Local Taxation
• Obtaining a Foreign Exchange Certificate
• Obtaining a Financial Certificate
• Interaction in opening bank accounts in China
• Interaction in opening a bank account in Hong Kong for operations with foreign currencies.

Requirements

• Having 1-2 employees in China. We can help you get visas for citizens of the Russian Federation.
• Having an office / warehouse / factory in China. Maybe a lease. Local partners will be able to help you find an office.
• Authorized capital — at least CNY 100,000 (immediate deposit of these funds to the company’s account is not required). Capital can be used for everyday purposes — paying rent, salaries, goods, raw materials, etc.
• The founder of the WFOE is a GC company (then lowering the dividend rate — 5 percent from China). Maybe another company, but then the process of certification of documents will take longer (taking into account frequent errors in translations).
• Registration term — 1-3 months.

Documents

• Corporate documents for the parent company must be notarized by a China notary and certified by the China Law Office. It can also be done in Hong Kong.
• Letters of recommendation from the bank (preferably issued in Chinese) for the parent company.
• Individuals must provide a copy of their passport and proof of address issued within 2 months.
• Office lease agreement.

Director

A Corporate Director is not allowed in the WFOE. In order to register a WFOE, the corporate shareholder (parent company) must appoint a Director or Board of Directors, an executive or a supervisory board. And then the Executive Director will be appointed by the Board of Directors, who at the same time will become the legal representative of the WFOE. In addition, the board of directors may appoint a general manager, a financial director and a tax officer, respectively.

Legal representative

The director is usually nominated by the client.

Services and price

Our services

• Registration of a new WFOE company in Shenzhen (including legal address for a year) — 11 000 $
• Supervisor Services — 5 700 $ per year
• Annual renewal of the company (after the first year) — 10 900 $ per year

Additional services

• Legalization of corporate documents (for example, for Hong Kong company) — 1 300 — 2 000 $
• Accounting services and tax reporting — determined based on the number of transactions

To register a company in Shenzhen, you must provide the following documents:

• Passport of the shareholder / (s) (shareholders) (certified and legalized)
• Passport of the legal representative (certified and legalized)
• Copy of the manager’s passport
• Offer the name of the company (in Chinese, we can choose)