Forms of China Company Incorporation for Foreign Investment

Throughout the development of the global economy, China’s economic development is particularly striking and its huge market potential also continues to attract global investors. China also plays as a significant role in world economy. Due to political, cultural background and other factors, China is a country full of opportunities and challenges in the views of most investors.

With continuously deepening of opening up, China provides several forms of Company Incorporation for Foreign Investment in China.

Foreign Representative Office Incorporation

The examination and approval procedure for a foreign representative office in China is simple, without requiring registered capital. For foreign investors newly entering the China market, setting up a foreign representative office is relatively a good bridge. But a representative office cannot carry out operating activities directly; in fact, it can only carry out business liaisons, product introduction, market research and technical exchange on behalf of an offshore company within the scope of their operations. A representative office does not qualify as a legal entity, so its civil liability shall be undertaken by the offshore company it represents.

Wholly Foreign-owned Enterprise Incorporation

In China, Wholly Foreign-owned Enterprise is a corporate enterprise, with entire capital contributed by the foreign investor, as well as an independent economic entity, bearing legal liability independently. Foreign investors contribute by installment towards the registered capital, where the first installment shall be paid in an amount not less than 15% of the statutory capital within 90 days from the date of issue of the business license, and the last installment shall be paid up within 2 years.

Taxes Involved in the Operation of Wholly Foreign-owned Enterprise includes Corporate Income Tax, Tariff, Value-added Tax on Importation , Value-added Tax, Consumption Tax, Individual Income Tax and Staff Social Security. Meanwhile, China will grant preferential policies for some enterprises according to different situation.

Foreign Investment Enterprise Incorporation

Flexible modes of business operations are allowed under the Measures on the Administration of Foreign Investment in Commercial Fields, foreign investors can set up joint venture, cooperative or wholly owned enterprises; or they can franchise others to open stores. Moreover, they can be engaged in one or more selling operations simultaneously, and more importantly, they are entitled to import-export power automatically conditional on the approval. Taxes include value-added tax, income tax and staff social security.

They are entitled to import-export power automatically on the approval. Currently, the implementation of the Measures have already canceled geographical restriction enlarged their business scopes and reduced the registration capital, which is favored by overseas investors.

Transformation of “Processing & Assembly” Companies Incorporation

“Processing & Assembly” refers to the processing materials supplied by customer, processing according to customer’s samples, assembling parts supplied by customer and compensation trade. “Processing & Assembly” is signed as a cooperative contract between a Chinese business entity and a foreign enterprise, and is registered in the name of the Chinese partner. Generally the “Processing & Assembly” company is not allowed to market the products within China, and all products manufactured shall be exported; The “Processing & Assembly” corporation is generally operated and managed by the foreign enterprise directly, while the Chinese partner shall only provide assistance; and both parties will finally collect the processing fee as agreed.

Sino-foreign Equity Joint Venture Incorporation

Sino-foreign Equity Joint Venture is also called equity joint venture. It is a corporation jointly invested and incorporated by foreign companies, other economic organizations or persons and Chinese companies or other economic organizations, which is featured by joint contribution, joint operation of all parties to the joint venture, and sharing of risk, profits and losses in proportion to their respective contributions towards the registered capital. The Law on Enterprises with Foreign Investment requires the foreign investor to contribute not less than 25% of the registered capital of the joint venture, but without a top limit.

Sino-foreign Equity Joint Venture is the best platform for foreign investor to share the resource with the Chinese enterprise, relying on its network and established well-known brand to enter the Chinese market successfully. Foreign investors can make use of the geographical advantage of Chinese enterprises, reasonable and legitimate to reduce the financial expenditure, and enjoy the foreign investment incentives to reducing operating costs.

Sino-foreign Co-operative Joint Venture Incorporation

Sino-foreign Co-operative Joint Venture is a general applicable mode of economic co-operation of investors for the exploitation of natural resources, which is distinctively subject to high risk, high input and high return. Sino-foreign Co-operative Joint Venture allocates its profits not on the basis of investment amount or shareholding, but according to the rights and obligations determined by contract between all parties. The investment or co-operative terms provided by the Chinese and foreign partner shall be in cash, in kind, in land use right, industrial property right, nonproprietary technology and other property rights.

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