Global site

Business formation and entity choice in China

What are the most common types of businesses that can be established in China?

Foreign investors are allowed to register the following types of entities for doing business in China:

  • Representative Office (RO): Usually used by investors to conduct market research and learn more about the country. ROs can be used as a liaison office for its head office and must confine its activities to promotion. ROs are not allowed to generate revenue, solicit business, engage in warehousing or sign contracts with customers.
  • WFOE (Wholly Foreign-Owned Enterprise): A WFOE is a 100% wholly foreign-owned subsidiary doing business in China. The foreign company has sole responsibility for its profits and losses. It is required to register as a legal person restricted to certain businesses. The enterprise is able to implement strategies that effectively conform to the interests of the parent company abroad.
  • Equity Joint Venture (EJV): Same as WFOE, an EJV is also registered as a legal person restricted to certain business scopes. Meanwhile, it is a limited liability company and is required to be registered as a legal person. The main feature is that the joint venture parties take responsibility for losses and profits according to the ratio of their equity stake.

How long does it take to establish a legal entity in China?

The establishment procedures in China are usually organised around 4 main steps (approval of the company name, obtaining the business licence, completing tax registration and other authorities’ registration).

From the submission of all required documents a time frame of 2 to 3 months can be generally considered for the legal entity to be operational.

Tax registration in China

What are the tax filing requirements in China?

Corporate Income Tax (CIT)

On 16 March 2007 the National People’s Congress passed the new Corporate Income Tax (CIT) Law, under which the standard rate of CIT for both domestic and foreign enterprises was revised to 25% with effect from 1 January 2008. Under the prevailing PRC CIT law and regulations, a company will be subject to CIT on actual profit basis.

Value Added Tax (VAT)

Under the prevailing PRC VAT regulations, a company would normally be liable to VAT as follows:

  • Sales and importation of goods (13% VAT)
  • Provision of processing, and repair and replacement services (13% VAT)
  • Provision of transportation, postal, basic telecommunication, construction and real estate leasing services, sales of real estate, transfer of tenure (9% VAT)
  • Leasing of tangible movables (13% VAT)
  • Other services (6% VAT)

Individual Income Tax (IIT)

Personal income tax is levied on both Chinese and foreign individuals (albeit with varying allowances), and tax is imposed on private business income. Expatriate employees of Chinese enterprises, resident representatives of foreign businesses and other individuals who hold residence permits normally must register with the tax authorities if they are subject to IIT in China. Short-term foreign travellers might also be subject to PRC IIT depending on their length of stay in China.

In 2018, the new PRC Individual Income Tax (‘IIT’) Law (‘the new IIT law’) containing broad changes to the existing IIT system and the final implementation regulations for the amended IIT law were released.

What is the tax authority in China?

The State Taxation Administration of the People’s Republic of China (SAT) - http://www.chinatax.gov.cn/eng/

What is the process of applying for a tax identification number in China and what is it called?

To improve the level of public administration and social operation efficiency, China has comprehensively implemented the ‘one license, one code’ registration model, which combines the tax registration certificate, business license, organisation code certificate, social insurance registration certificate and statistics registration certificate into one certificate commonly called Unified Social Credit Code. Though the tax identification number could be known once the business license is obtained, tax registration is still necessary for other information including financial manager, financial accounting system, VAT taxpayers’ type, etc.

Other registrations

Are there any other registrations required in China?

Apart from the business and tax registration, entity engaged in the import and export of goods or technology shall apply for filing registration with the Ministry of Commerce of the People's Republic of China. A consignee or consignor of import or export goods handling customs declaration procedures shall complete customs registration in accordance with the law. In addition, some specific business scope or arrangement (e.g., employee stock option plan of overseas listed companies) shall also be subject to the approval or permits of relevant authorities.