Understand the Jurisdictions Setup Requirement Before Proceed Your China Company Formation
China is one of the leading economies in the world, and as such, it is a natural magnet for foreign investors and corporations interested in doing their business on a global scale. If you are thinking about China company formation as a foreigner, however, you should know that there are only three main types of legal entities foreigners are allowed to incorporate in China. They include the followings:
Wholly Foreign-Owned Enterprises – WFOEs
WFOEs is one of the most preferred investment vehicles that foreigners investing in China are interested in. With this business set up, the law allows foreigners to own up to 100% of the shares. Such shares can be held by individual investors, holding companies or offshore companies. The liability of WFOEs are limited and so are the requirements for their incorporation from one industry to another.
If you are interested in this kind of entity, our business incorporation experts will be available to give you all the guidance you need as far as the requirements and the procedure are concerned, depending on the specific type of industry you are keen on exploring.
In China, there are two main types of joint ventures that foreign investors may consider for business incorporation. They include the followings:
- Equity Joint Venture – Equity Joint Ventures are legal business entities with limited liability. It means that risk and profit sharing in Equity Joint Venture will be proportionate to the equities held by the partners in the EJV.
- Co-operative Joint Venture – with a Co-operative Joint Venture, profits are shared per the terms laid on the CJV at the time of incorporation, and not according to the share contribution of the members. As such, investors see co-operative venture to be more flexible than equity joint ventures.
Representative Office in China
A representative office is a liaison organization between a foreign parent company and China. It is not an independent legal entity, and it is not allowed by law to carry out any form of business activity that may lead to direct profits. Some of the activities that an RO may engage in include but not limited to the following-:
- Preparation of market studies
- Conducting market research
- Establishing and arranging contracts
- Offering advise
- A general collection of information
Prohibited, Restricted and Encouraged Entities for Foreigners in China
The corporate establishments in China can be a bit complicated, and sometimes it may be necessary to use China company formation services to simplify the processes. Not every industry is open to foreign investments in China. It is imperative for every foreign investor to have a clear understanding of the industry where they are prohibited, restricted or encouraged to invest in. Here is a brief overview of such-:
Prohibited industries include-: Freight, Railway, Shipping, and Oil & Gas. These industries are completely out of bounds from foreign ownership. However, foreigners can still invest in them by offering services to Chinese owners.
Restricted industries include-: Pharmaceuticals, mining, and tobacco. Ownership in these industries are restricted, and the best way to be an owner is to have a joint venture with a Chinese. With a joint venture arrangement, the Chinese partner must have the majority shares.
Encouraged industries include –: trading, manufacturing and consulting. These are the industries where you will find the bulk of the joint ventures as well as the wholly foreign-owned enterprises in China.
How 3E Accounting Can Help
When considering China company formation, it is imperative for every investor to fully understand and comply with all the People’s Republic of China rules and regulations. Business in China is highly regulated and missing just a single step during the incorporation process is sufficient to ruin your approval chances.
At 3E Accounting, we are well versed with all the rules and regulations governing the formation of business in all the sectors. We can help you to successfully set up a wholly foreign-owned enterprise, domestic Chinese enterprises, branch offices, non-profit organizations, representative offices, and joint ventures amongst others.
We have a team of competent lawyers, accountants and tax experts who are very knowledgeable and experienced in China business formation. Additionally, we also offer license renewals, annual filing of returns, license changing, and any other administrative task you may wish to outsource so that you focus on the core activities for moving your venture forward. Contact us for information.