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Setting up a Company in China: 8 Steps

by | April 18, 2019

Setting up a Company in China: 8 Steps

April 18, 2019

People who consider registering a company in China are often conditioned to believe setting up a company is fast and straightforward around the world. Registering can be done online and is processed in the same day. That is the main reason why many people often wonder why a WFOE registration is such a long and relatively costly process. Why is the process is so complicated and time-consuming?

China is by some considered as the birth place of bureaucratism. Over the long existence of the country, centralised government has always played an important role. With this centralised government, China has developed a love for paperwork and stamps. An interesting fact on paper, however in practise often very frustrating. The frustration starts when setting up a company in China.

Ten years ago, setting up a company in China required about 600 signatures and 300 stamps. Through digitalization and adaptation, the process improved here and there, however the core still requires a lot of documents and work. Before sharing the eight steps, it is important to consider different important aspects of setting up a company in China.

 

Important information before setting up a company in China

There are four important topics to consider before the registration of a company. Firstly, the parent structure is crucial to consider for a registration. The more complicated it is, the more delays it will cause during the process. Secondly, it is important to consider the registered capital. This is the amount of money you promise to invest in the organization. Always determine your registered capital on your plans. Thirdly, the location where you register is important. The location determines the necessary steps, the lead-time and the minimum required registered capital. Finally, you need extra licenses in certain industries. For example, you need an import/export license, if this is the industry your company operates in. Thus, it is very important to research what extra licenses you might need beforehand. Now we take a closer look at the eight steps for setting up a company in China.

 

Preparation Phase

After having done enough research and having taken all aspects mentioned in the previous paragraph into consideration, the preparation phase starts. The preparation phase of a Chinese company registration is perhaps the most important phase of all. During this phase, the person or company interested in setting up a company in China is prepared for all the following steps. Furthermore, all the necessary documentation such as shareholder documents of parent structure are prepared, Chinese names are selected, and an office address is chosen.

A clear step by step explanation of the process after the preparation is crucial. Especially in the beginning of the registration process, there is as much work for the client setting up a  company in China as for the company that provides the registration service.

 

Company name application

Picking the right name is an important process. Besides preventing mistakes like Mercedes Benz and Nike, you want to make sure you have different options in case your initial application is rejected. Therefore, you should prepare at least six different company names.

Each official company name in China is setup in the same way and order. First the city of registration is mentioned, followed by the chosen company name, the industry, and the company type. For example, the official 1421 company name in Beijing is: Beijing 1421 Business Consulting Co., Ltd., More importantly, the name would be as follows in Chinese: 北京一四二一商务咨询有限公司

 

Certificate of approval

After the registration of the company name, you have to apply for the certificate of approval. The commission of commerce is the organization which will issue the certificate of approval. The process of application at the commission of commerce is very straightforward, however it requires a lot of documentation.

Apart from a company name, the company needs to have a valid office address. Moreover, it is necessary to provide identification details of the legal representative, the supervisor, and the contact person of the company to the commission of commerce. Furthermore, a description of the business scope, the amount of registered capital, shareholder information, notarization documents of shareholder, estimated operation time of the company, as well as article of association need to be disclosed to the commission.

All of these documents and information need to be provided online to the commission of commerce. Afterwards, the commission of commerce will provide the WFOE receipt, which is used to pick up the certificate of approval later.

 

Business license application

The business license is the most important document of a company. Officially, after this step, you have the basic framework of a company. Although it is still non-operational, the company does exist. For this step the administration for industry and commerce (AIC), is the governing body.

At the AIC you will have to hand some original documentation you have acquired during the previous steps. Examples of these documents are the a original certificate of approval, office renting agreement, notarization documents of the shareholder and article of association. More documents might be requested by AIC specifically, however these depend on each individual case.

 

Company stamps

There is a solid difference between a signature and a company stamp. A crucial component in running your WFOE is maintaining your company stamp. Therefore, this step is very important in setting up a company in China. The stamps have to be made at the agencies registered at AIC. After receiving the stamps from these agencies, they need to be registered with the AIC.

For the stamp agencies to provide you with a company stamp, several documents need to be handed in. These include the certificate of approval and business license.

 

Organize the company bank accounts

Having a Chinese bank account is important in order to deposit your registered capital, be able to pay your employees, and run your company smoothly. Therefore, applying for a bank account is important. There are several steps needed to apply for a bank account in China.

First of all, you have to select a fitting bank. Selecting your bank in China is important in terms of costs, international experience and time efficiency. After selecting the bank the original documents of your company need to be submitted to the bank. When all documents are received and approved by the bank, the company will receive both a basic account and a capital account.

 

Tax bureau registration: VAT & Fapiao

It is important if you are setting up a company in China to register as a VAT taxpayer with the tax bureau. In China there are two types of VAT tax payers: small scale tax payers and general tax payers. Small scale tax payers pay a 3% VAT rate, and general taxpayer either pay 6%, 8%, or 13% depending on the industry they operate in. If you want to find out more about which taxes apply to your company in China, read our article on this topic here.

Furthermore, when doing business in China you will hear “Fapiao” all the time. A fapiao is a tax receipt, which is printed by a machine called the fapiao machine. Having a fapiao machine as a company in China is crucial, since it is needed for Chinese clients who wish to receive a fapiao for their administration.

To receive a fapiao machine, it is important to submit the original company documents at the tax bureau. After approval, you will receive both the fapiao and other tax supplies.

 

Foreign funds license

The final step of setting up a company in China is the registration of foreign funds. The registration is important to be able to receive foreign funds in the company’s capital account. As an international organization it is a necessary step, since your company probably will receive foreign funds in the company capital account.

After submitting the original company documents, the registration approval is straightforward. You will then receive the foreign fund license. Finishing the foreign fund registration and receiving the license means the company is fully setup and operational and can be funded from outside of China.

 

Setting up a company in China is a lot of work and can be a tedious process. The process can be made easier with the help of service company that can do a lot of this work for you. 1421 Consulting Group can help you with this process. If you want more information about this process or advice on setting up a company, feel free to contact us anytime! We are here to help.

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What happened in the year 1421?

From 1421 to 1423, during the Ming Dynasty of China under Emperor Zhu Di (朱棣) the fleets of Admiral Zheng He (鄭和), commanded by the Chinese captains, discovered Australia, New Zealand, the Americas, Antarctica, the Northeast Passage; and circumnavigated Greenland.

Due to this endeavour we can conclude that “1421 is the year that the Chinese discover the world”.