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Mainland China

MAINLAND CHINESE COMPANY

If you or your company require a business presence in mainland China, you have three different possibilities: A representative office, a joint venture (JV) or a wholly owned foreign enterprise (WFOE).

Representative Office

Same as WFOE, a representative office is established and fully controlled by foreign investors without Chinese partner participation. However, the business nature of a representative office and its key concept is confined to liaison purposes. Direct trading, manufacturingand receiving business revenue are not allowed. Investors can use a representative office for such activities as marketing products and services, sourcing of suppliers, quality control, market research, logistics control, technology exchange, etc.
Setting up a representative office in China is the cheapest and quickest solution of establishing a presence in China.

A representative office is required to pay business tax and foreign enterprise income tax at a rate of 15% on the total expenses such as rent, staff salary, electricity, management fees etc. Once a representative office is officially registered, it needs to maintain proper accounting records in accordance with accounting standards in China and report taxes on both a monthly and quarterly basis.

In general, we would suggest our customers set up a Hong Kong company for invoicing to their non-China customers and place orders to China suppliers. A representative office can provide a supportive role and liaison with suppliers in China.

Since January 2010, it is a requirement that the applicant company of a representative office must have been set up for a minimum of two years. In addition, the business registration certificate and bank reference letter of the applicant company must be notarised by the China Attested Officers and legalised by the China Certification Office in Hong Kong or Chinese embassy in the recognised countries. Time for registration will take around 2–4 months, subject to the provincial government and nature of business.

Same as WFOE, a representative office is established and fully controlled by foreign investors without Chinese partner participation. However, the business nature of a representative office and its key concept is confined to liaison purposes. Direct trading, manufacturingand receiving business revenue are not allowed. Investors can use a representative office for such activities as marketing products and services, sourcing of suppliers, quality control, market research, logistics control, technology exchange etc.

Setting up a representative office in China is the cheapest and quickest solution of establishing a presence in China.

A representative office is required to pay business tax and foreign enterprise income tax at a rate of 15% on the total expenses such as rent, staff salary, electricity, management fees,etc. Once a representative office is officially registered, it needs to maintain proper accounting records in accordance with accounting standards in China and report taxes on both a monthly and quarterly basis.

In general, we would suggest our customers set up a Hong Kong company for invoicing to their non-China customers and place orders to China suppliers. A representative office can provide a supportive role and liaison with suppliers in China.

Since January 2010, it is a requirement that the applicant company of a representative office must have been set up for a minimum of two years. In addition, the business registration certificate and bank reference letter of the applicant company must be notarised by the China Attested Officers and legalised by the China Certification Office in Hong Kong or Chinese embassy in the recognised countries. Time for registration will take around 2–4 months, subject to the provincial government and nature of business.

Joint Venture ("JV")

A JV company allows Chinese partner participation. In the past, the Chinese Government mainly encouraged this type of company to be setup as it could bring in new technologies, skills, management and knowledge to China. In general, JV is the fastest way to set up a company in mainland China. As for WFOE and a representative office, the business nature needs to be approved by the Government before registration.
There are two types of joint ventures in China: (1) Equity Joint Venture and (2) Cooperative Joint Venture.

(1) Equity Joint Venture

Mainland China Company Registration

This type of joint venture is commonly used in manufacturing industry, whereas a limited liability company is set up for such purpose in general. In essence, the distribution of profits of equity joint venture is subject to the percentage of total capital invested. If the foreign partner invested 49% of total invested capital into JV, it will receive 49% dividends.

(2) Cooperative joint ventures

Cooperative Joint Ventures are more flexible. They can be established either as a limited liability company or as a non-legal person; whereas subject to unlimited liability. If it is not a limited liability company, the JV partners will be liable for any losses that the JV has incurred. We highly recommend Cooperative Joint Ventures to be established as limited liability companies.

Before the registration of a JV company, a Joint Venture Agreement must be in place, specifying the scope of business, total capital investment amount, share percentage, period of licence, distribution of profits and termination arrangements. All the JV companies contain a period of licence. If the JV company has achieved the date of completion and the JV licence is not renewed, the JV parties are required to follow the Joint Venture Agreement to distribute the profits.

Wholly Foreign Owned Enterprise ("WFOE") or Foreign Invested Commercial Enterprise ("FICE")

WFOE or FICE is a limited liability company formed in China entirely by foreign investors. It is totally under foreign control and it does not involve any Chinese partner participation. It allows foreign investors to manufacture, process, assemble, trade, distribute, deliver services in mainland China. The nature of business must be registered and approved by the mainland China Government during the process of registration and it can be changed in later days with the prior approval of the Government.

WFOE or FICE can generally control their own governance through the by-laws approved by the Government. The initial investment capital for setting up a WFOE is RMB100,000 (US$?) to RMB500,000 (US$?) for consulting industry field and RMB1,000,000 (US$?)for trading and manufacturing industries. In recent years, it has been the Government policy to encourage businesses with specific business natures to be setup in some second- or third-line areas and cities of some provinces. These provinces may offer lower investment capital requirements. Corporate income tax rate is generally 25%.

WFOE is the most popular corporate entity for non-PRC investors owing to their versatility and some unique advantages:

  • The ability to uphold a company's business strategy free from interference by Chinese partners
  • Total management control by investors within the laws of the Government
    the ability to both remit and receive Chinese official currency Renminbi(RMB) to and from the overseas parent holding company
  • Increased protection of trademark and intellectual property, in accordance with international law
  • Shareholder liability limited to original investment
We offer one-stop services for corporate documents notarisation and legalisation by specified organisations such as the China Appointed Attested Officers, the China Legal Services (HK) Limited in Hong Kong as well as Chinese embassies of recognised countries. We also provide such services as:
  • Preparation of bank reference letters;
  • Translation of documents;
  • Review of business proposals;
  • Leasing of office and factory; and
  • Other requests and requirements.
Time frame for registration is around 2–4 months, subject to the different provincial governments' practices and the nature of business of the applicant companies.
WFOE or FICE is a limited liability company formed in China entirely by foreign investors. It is totally under foreign control and it does not involve any Chinese partner participation. It allows foreign investors to manufacture, process, assemble, trade, distribute, deliver services in mainland China. The nature of business must be registered and approved by the mainland China Government during the process of registration and it can be changed in later days with the prior approval of the Government.
If you require further information, or you are interested in proceeding, please contact us either by phone or email. Phone London: +44 20 3239 1425, Hong Kong: +852 8170 1463. E-mail: info@lpoffshore.com