What’s the most frequent status for companies in China?
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.
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
Difficulty of obtaining a Working visa for China or Hong Kong
Impossible to recruit Chinese employees in China
Jurisdiction entity not recognized in China
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.
Market penetration efficiency
Costs divided, commercial risk diminished
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
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.
Direct presence in the country
No minimum capital
Multi entry visa for 1year
Recruitment possible thanks to agencies (FESCO, CIIC etc..)
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
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
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
Working Visa provided
Easy recruitment process
Autonomy and independence
Limited Liability Company
Protection of patents
Possibility of handover
Minimum capital important : 100 000RMB
Managerial costs important
Business sectors limited
At least 6 months to create a WOFE.