The majority of foreign investors find China incorporation difficult, not least because of the unclear incorporation procedures, high minimum capital requirements in some provinces and the time taken to obtain a business license. Below is an overview of of the different types of Chinese entity available to foreign investors, as well as the laws governing their registration:

Of the many legal entities permissible in China, the wholly-owned foreign enterprise (WOFE) is the preferred investment vehicle. In 2007, the total number of new WOFEs incorporated amounted to 29,543 (30,164 in 2006).

Through a WOFE, an entrepreneur can i) take 100% ownership and control of the company following China incorporation ii) open a local foreign currency corporate bank account iii) obtain local residence and employment visas after China incorporation iv) obtain business licenses from local governments v) lease office or factory premises and land and vi) obtain government tax incentives.

WOFE incorporation procedures include: i) Completing an incorporation application; ii) Submitting a feasibility study; iii) Submitting Articles of Association of the foreign enterprise (if applicable); iv) Submitting details of the legal representative; v) Providing a bank reference letter; vi) Submitting a lease agreement for the company’s office in China; vii) Providing notice of company name approval from the Administrative Bureau for industry and Commerce. All documents are submitted in Chinese. China incorporation approval is granted within four to six months.

A Foreign Invested Commercial Enterprise (FICE) is incorporated through the Foreign Economic Relations & Trade Commission in the city or province of incorporation. A FICE is a limited liability company which is similar in most respects to a WOFE. However, unlike a WOFE a FICE can open branch offices anywhere in China, and its activities are restricted to i) wholesale activities and ii) retail activities.

Because a FICE is not permitted to carry out manufacturing activities in China, the majority of foreign investors set up a FICE to conduct trading activities within China, as well as to import and export goods. Usually, investors obtaining a Retail FICE license open a shop.

The third type of China incorporation for foreign entrepreneurs is the China Representative Office. However, due to the restrictions on business activities of a representative office, it is the least preferred option for foreign investors. This entity is useful for entrepreneurs wishing to conduct preliminary market surveys and feasibility studies before making a long-term investment commitment to China. Like a WOFE and a FICE, a Representative Office is registered through the Foreign Economic Relation & Trade Commission in the city of establishment. Approval is granted within one month.

To further encourage China incorporation, the government has developed five SEZs in Shenzhen, Zuhai, Shantou, Xiamen and Hainan to encourage foreign investment, and these are ideal for manufacturing companies primarily exporting processed goods. An SEZ enterprise is appealing to foreign investors because it can be 100% foreign-owned and receive a wide range of tax concessions. For example, companies established in an SEZ enjoy 100% tax exemption for the first two years after incorporation, followed by a low corporate tax of 7.5% for the following 3 years, culminating in a corporate tax rate of 15% thereafter.

For more information on forming a Company in China, email email@healyconsultants.com or call us in Singapore (+65) 6735 0120

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