What’s the most frequent status for companies in China?

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What’s the most frequent status for companies in China?

13 一月 2015

Indeed, China is a country with outstanding opportunities in which many foreigners would like to participate and implement their company.The most important question remains to know what kind of legal status you are going to use to settle your company. What’s going to be the advantages and inconvenience for each different legal status?

The five most frequent kind of companies:

  • Hong Kong Company
  • Joint Venture
  • Representation Office (R.O)
  • Foreign Investment Partnership Enterprise (F.I.P.E)
  • Wholly Own Foreign Enterprise (W.O.F.E)

Hong Kong Company

Hong Kong is a good way for companies to reach the Chinese market.

If it’s for commercial ends or as a financial operation headquarters, Hong Kong represents many advantages especially for tax dodging.The creation of a Hong Kong company allows corporations to be billed under the Hong Kong Company and take advantage of the Hong Kong local tax jurisdiction.Ideal for trading activities, Import-Export, Financial department.

Advantages:

Taxation: Revenues and Profit out of HK not taxable

Tax: 0% VAT and professional tax or managerial

Discretion and Confidentiality

No minimum capital (1hk dollar)

Virtual address: low administration cost

10 to 15 days to register the company

Inconvenience:

Difficulty of obtaining a Working visa for China or Hong Kong

Impossible to recruit Chinese employees in China

Jurisdiction entity not recognized in China

Joint Venture

The Joint Venture is an agreement between two partners from 2 different countries to create a company together. It’s a long-term cooperation, based on common skills such as commercial, technical, managerial and financial.The partners share profit, loss and business risk. The Joint venture allows the partners to share technology transfer and knowledge.

Advantages:

Market penetration efficiency

Costs divided, commercial risk diminished

Visa available

Recruiting process is easy

Limited risk depending on the venture capital registered

Allows foreigners to enter limited and difficult markets.

Ideal for Heavy industries, manufacturing, import foreign products to china

Inconvenience:

Control of the company is shared,

Minimum Capital investment (100 000RMB minimum depending on the business sector)

6 to 12 months to register a Joint Venture

Representation office (R.O)

A representative office is an organization that leads market studies and seeks contacts for its headquarters.It contributes to develop its business in new countries (Commercial audit, quality audit…). If you wish to enter a new market without take the risk to implement your company directly, this is the ideal solution for you.Ideal for quality audit, commercial audit, discover a new market, adapt to a market with independence.

Advantages:

Direct presence in the country

No minimum capital

Multi entry visa for 1year

Recruitment possible thanks to agencies (FESCO, CIIC etc..)

Inconvenience:

No legal tax or commercial status

Rent of an office mandatory

Billing to clients is forbidden

To receive money is only possible with local headquarter of your country

Tax are paid on all R.O charges (office renting, employees salaries, all purchasing costs)

2 year headquarter minimum

3 to 5 months to create a R.O

Foreign Investment Partnership Enterprise (F.I.P.E)

Since 2010 this is a new legal status for registration of a company based on the partnership of 2 companies or 2 individual investors. There are no constraints regarding nationalities of the companies or individuals. The objective of the F.I.P.E is to allow 2 entrepreneurs to realize their project without having to invest too much financially. This recent company status has all the advantages of a WOFE without any minimum capital investment.This legal form is ideal for small companies or single entrepreneurs.Ideal for entrepreneurs who do not have the necessary investment capital for a W.O.F.E, for consulting, trading and import-export

Advantages:

No Corporation Tax for FIPEs

No minimum investment capital necessary

Possibility to convert RMB into Dollars

Ideal for single foreign investors without Chinese investors

Working visa under a FIPE structure

Easy recruiting process

Recovery of Chinese VAT

Inconvenience:

Unlimited Risk

Restrictions on company names

Rights of ownership difficult to transfer

Credibility towards clients (no minimum investment capital registered)

4 to 6 months to create an FIPE

Wholly Own Foreign Enterprise (W.O.F.E)

A WOFE is limited liability Company in China held 100% by a foreign individual or company. The limited liability depends on the minimum investment capital.WOFE receives its income and pays its taxes in China. It offers all the possibilities of development, payment and recruitment of a Chinese company.

Ideal for entrepreneurs willing to develop their commercial activity in China limiting their risks depending on the capital invested.

Business sectors allowed: Consulting WOFE, Services WOFE,  Hi-Tech WOFE, Trading WOFE, Food & Beverage WOFE, Manufacturing WOFE

Advantages:

Working Visa provided

Easy recruitment process

Autonomy and independence

Limited Liability Company

Protection of patents

Possibility of handover

Inconvenience:

Minimum capital important : 100 000RMB

Managerial costs important

Business sectors limited

At least 6 months to create a WOFE.