How to start a business in China

With ease of manufacturing and the enormous base of goods-oriented consumers, China’s financial stability can make it an attractive option for those looking to start their business overseas.

While China’s suitability as a destination for budding entrepreneurs has improved over the last several years, there may still be several hurdles for US entrepreneurs looking to start a Chinese business.

This guide will help you navigate those hurdles and set up a company in China.

Can I start a business in China wihout hiring any help?

There's an old adage that locals know best. In the case of setting up a business in China, this can ring true.

While it's technically possible to start your business in China without any assistance, hiring a local consultant can streamline the process if you have the means to do so.

Working with a consultant, you can coordinate your business structure, organize and file your paperwork, and perhaps most important of all - they can act as your representative while you’re not in China.

While Wise isn't affiliated with any consultants, here are some popular consultancy companies in China:

• AmCham China
• AmCham Shanghai
• Shanghai Expat
• AsiaExpat

It’s important to carry out your own independent research to make the best choice in consultants should you wish to hire professional help.

Visa and Immigration Requirements for US Citizens starting a business in China

Before you determine what type of business structure makes the most sense for your needs, it’s important to consider which visa you need to legally live and work in China.

Here are the main visa options available to US citizens:

Z Visa

A Z Visa, most commonly known as a work visa, allows US citizens to live and work in China.

To apply for a Z Visa, you’ll need to satisfy the list of requirements.

This visa will grant you access into the country, after which you’ll need to head to the Public Security Bureau (PSB) to convert the Z Visa into a residence permit.

Residence Permit

A residence permit is what allows you to stay in the country, though they’re only valid for one year. You’ll need to renew the visa once a year to avoid fines or deportation.

M Visa

An M Visa is also known as a business visa, and is suitable for entrepreneurs who want to conduct preliminary work research and networking before establishing a company in China.

You can only stay in the country for 30-90 days on the M Visa.

Permanent Residence for Investors

The China Green Card is reserved for foreign investors who make a significant investment in the Chinese economy.

If you’ve invested in China for at least three years, invested substantial capital, or created a lot of jobs in the country, you can apply for permanent residence in the country.

What type of company should I register in China?

There are various ways to set up your business in China, each with their own pros and cons.

These are three of the most common business structures:

Representative office (RO)

A representative office is easier to open than the other types of companies, primarily because they don’t require registered capital and generally include simpler procedures.

However, with an RO, you’ll face certain limitations with your business. For example, an RO can’t manufacture products, import or export, or accept payment from Chinese clients. The RO cannot directly engage in commercial activities or issue invoices.

This option is most suitable for liaison offices that don’t directly trade or exchange goods, like the marketing arm of your company or your customer support staff.

Joint venture (JV)

Joint ventures are less common than they used to be for foreigners setting up a business in China. In a JV, you would enter into a partnership with a Chinese company or other foreign entity, though in many cases a Chinese partner is mandatory.

There’s less restrictions to content with as a JV compared to an RO, and it’s the only type of business structure in China that supports certain industries such as telecommunications, media, education, and some high-tech industries.

As with any joint venture, however, there are risks.

For example, by going into business with a partner, you might deal with management differences and control issues.

Should your partnership break down, you risk losing control of your brand and your business.

With China’s lax intellectual property laws, if you’re planning to manufacture, produce, or sell a high value product, it can represent an even greater risk.

Wholly Owned Foreign Enterprise (WOFE)

WOFE’s allow foreign entrepreneurs to own 100% of their Chinese business, however, they can be more challenging to set up due to more complex bureaucratic procedures.

However, the Chinese government has taken steps to streamline this process for foreign business owners in recent years.

With a WOFE in China, you’ll have nearly the same rights as a Chinese-owned business. Most WOFE’s are LLCs, or Limited Liability Companies, in which partners only have responsibility for their own invested capital.

Plus, as a result of China’s partnership with the World Trade Organization, WOFE’s can operate as trading companies or retail stores.

Generally, there’s no mandatory minimum capital requirement to open a WOFE in most industries. However, some industries or locations may still require a minimum amount.

How does the business setup process work?

For many, the first step to setting up a Chinese business will be hiring a qualified consultant to guide you through the process.

However, if you decide to go it alone, the following step-by-step process will take you through everything involved in setting up a WOFE.

1. Choose your business scope and structure

It’s important to check your business type against China’s list of restricted industries to make sure you can legally operate your business in the country.

You can also take a look at the catalog of encouraged foreign businesses, to see what types of incentives you might be eligible for.

Bear in mind that your business can be permitted or denied based on the scope. If the scope is deemed to be too broad, it could be rejected by authorities, and if it’s too narrow you run the risk of restricting your future business activities.

If you are looking for help on how to name your business in China you might want to try using a business name generator. Find a catchy name for your business with the help of Wise, so it'll stand out in a crowded sector and help you to make the most innovative products.

2. Get your documents in order

There are various documents you’ll need to start a business in China, which include the following:

• Certificate of Incorporation, Articles of Formation (or the equivalent) certified by the Chinese embassy or Chinese consulate
• (2) Copies of the passports of each investor certified by the Chinese embassy or consulate overseas
• Bank references from each investor’s bank declaring good standing
• (2) Copies of the passports of the parent company’s director, the Chinese company’s legal representative and the Chinese company’s supervisor (if applicable)
• (6) 2”x2” photos of the Chinese legal representative along with a brief resume or CV
• Registered capital
• Business scope
• 8 proposed Chinese names for the company in China
• The Chinese office address, including (2) copies of leasing contracts, certificates of real estate ownership as well as landlord identification
• (4) Copies of a letter of authorization

If your WOFE has a manufacturing arm, you’ll also need:

• Purpose and estimated investment
• The enterprise’s operational structure and number of those employed
• Permission for land use
• Environment evaluation report
• Details of products
• Size of production
• Detailed list of equipment used
• Business plan
• Environmental protection measures
• Requirement for the utilities of the site such as water and electric usage

3. Apply for approval

In China, your business must be approved through two separate entities: the Ministry of Commerce, and the State Administration of Industry and Commerce.

Your approval is contingent on the scope of your business, particularly in “restricted” sector businesses. If there is a problem with your scope, one or both entities will ask that you amend it.

It is possible for your approval to be denied altogether.

If your business falls in the “encouraged” sector, you’ll also need approval from the National Development and Reform Commision.

Your application can take up to 90 days, and is subject to further verification that could extend the timeline.

4. Register and open a bank account

After you’ve received your approval, you must register with the Chinese Administration for Industry and Commerce (AIC) and apply for your business license within 30 days. You’ll need a new set of documents to get your business license, as follows:

• The application form
• Articles of Association
• Approval certificate
• Company name, as approved by the AIC
• Business licenses of all investors
• Letter of recommendation from the company’s bank
• List of directors, managers, supervisors, and legal representatives

The AIC could also ask for additional documents, but this list is a baseline for what’s required. Once you have your business license, you’ll be able to open a Chinese bank account.

What types of business tax will there be on my Chinese company?

Your business in China will be subject to several different types of tax, including:

• Corporate Income Tax: roughly 25%, but variable
• ¹Small-scale VAT of 3% for businesses that qualify as “small-scale taxpayers”
• Customs duties
• ¹VAT: about 13%
• Individual income tax

Where can I find more help?

If you’re looking for additional information on laws, regulations, financial and political climate, and business types in China, the US Government has put together an extensive whitepaper on the country’s investment climate.

For more details about policies and procedures, the Chinese government has set up an excellent English-language resource at their Ministry of Commerce website.

For more digestible information on setting up and running a business in China, check out the blogs China Law Blog or China Briefing for broken down Chinese policy and business formation procedures.

Manage international payments with ease

Taking your business abroad means challenging international payments, right?

Not necessarily.

Wise offers a smart, economical solution for businesses setting up abroad.

Wise is not a bank, but a Money Services Business (MSB) provider and a smart alternative to banks. With a Wise Business account, you can easily send payments to 160+ countries, receive in 40+ currencies and hold business funds without paying monthly account fees.

Open a Wise Business account online

Some key features of Wise Business include:

• Major local account details to receive international payments with ease.
• No monthly account fees, just a simple one-off fee for account details.
• Receive payments from e-commerce platforms such as Amazon or via Stripe.
• Create invoices using the Wise invoice generator or invoice templates.
• Accounting integrations, including an QuickBooks Bill Pay connection.
• Batch payment options for fast payment of up to 1,000 people.

---

Sources used :

¹ PwC

Sources last checked on 15-November- 2024.