Can foreigners set up companies and start business in China?
Of course the answer is YES!
Foreigners can not only own a company in China, but also have a variety of options, namely wholly foreign-owned enterprise, foreign invested partnership, Sino-foreign joint venture, and representative office in China (for foreign companies only).
Among them, the most popular is undoubtedly the WFOE, because unlike a joint venture, a WFOE, referring to a limited liability company wholly owned by one or more foreign investor(s), does not require the support of Chinese investors. Most foreign businessmen are new to China and have not yet established much contact with the Chinese market. It is not easy for them to find an ideal Chinese partner. It just so happens that a WFOE helps them to avoid such embarrassment.
Advantages
Apart from this, a WFOE can make profits and issue local invoices in RMB to its suppliers. A WFOE can employ local staff directly, without any obligations to employ the services of an employment agency. A WFOE can also expand to create subsidiaries in China.
Such advantages have enamored many foreign businessmen to enter the Chinese market, which has also led China to update the Catalogue for the Guidance of Foreign Investment Industries, which lifts regulatory thresholds for certain industries such as the energy and finance sectors, affects the record filing process with MOFCOM. But at the same time, in order to encourage foreign investment into China, the Chinese government has launched the "five-in-one" license, which eliminates the previous need of applying for five licenses in different departments. It helps to simplify the application process and expand the scope of foreign investment.
Originally, WFOEs were most often used for manufacturing activities without partnering in China. As the nature of business in China has changed, and restrictions on foreign companies have lessened, the number of WFOEs operating in other areas, such as trading, consulting and high-tech, has grown.
WFOEs can be registered as one of three main types – manufacturing WFOE, trading WFOE and consulting WFOE. The main difference these days is in the Business Scope of each. WFOEs are restricted in their permitted activities by a succinct Business Scope definition.
All WFOEs are full legal entities in China and are governed by Chinese Company Law. so they need to complete certain registration steps before they can be operated legally and make profits legally.
1 Name Approval and Registration
It is regulated that a company’s name shall consist of the name of administrative division, business name, industry or characteristics of business, and form of the company’s organization. Besides, the name shall use standard Chinese characters.
Example：
Guangzhou (name of administrative division) AABB (name) Business Consulting (Industry) Co., Ltd. (form of organization)
A company can only have one name, and the name should not be the same as other registered and approved enterprises in the same industry. Because once the name is successfully registered, the company has the exclusive right to use it, protected by laws.
2 Securing Premises
A company must own or lease business premises to operate legally in China, and details of the space must be submitted with applications for registration of a WFOE, such as lease contracts, housing ownership certificate, etc.
Companies registered in some major cities or free trade zones in China can also rent virtual offices.
3 Obtain Five-in-One License
Companies must obtain this comprehensive license, which covers business license, organization code, tax registration certificate, social security certificate, and statistical registration certificate.
4 Acquire a Company (Official) Seal
All businesses operating in China must have an official seal, which must be round in shape and bearing the official company name in Chinese and English (where applicable).
5 Opening Bank Accounts
A WFOE generally has a foreign exchange account and a local Renminbi (RMB) account for their daily cash and other business transactions in China.
6 Registering as a Taxpayer
Depending on the situation, companies must register either as small-scale taxpayers or as general taxpayers by filing the relevant documents with the local tax bureau, for VAT payments. Also, a trading WFOE will need to carry out customs and import-exit registration.
The establishment process of a WFOE can vary somewhat depending on its associated business scope. For instance, a trading WFOE also needs to register with authorities such as Customs after obtaining a business license, while a manufacturing WFOE must complete an environmental impact evaluation report. Other issues, such as bank accounts with different currencies and official company seals, may also affect the business operations in China.
Therefore, it is advisable for potential investors to enlist professional assistance, like an agency, when navigating the establishment procedures in order to ensure the venture’s success and to guard against any future issues.
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