After America, China is undoubtedly becoming the next “land of promise”. The Chinese government is even offering tax breaks to foreign firms to boost investment in the country (source). According to a government release, companies are exempt from withholding taxes on profits that they reinvest in specific industries.
China was ranked the world’s third largest FDI recipient after United States and the UK, according to the 2017 World Investment Report(PDF) published by United Nations Conference on Trade and Development (UNCTAD).
There is a huge growth in disposable income and the people of China spend more eagerly these days. The economies in Europe have tanked and the US economy has saturated.
It’s China where the action is happening.
If you are planning to explore new opportunities in China by starting a business over here, the good news is, not just the opportunities are available in abundance, there are qualified local business consulting agencies like Business China that can help you set up your entire business with minimum fuss and delays.
You can open up three types of businesses in China, namely
1. WFOE – Wholly Foreign-Owned Enterprise
2. Joint venture
3. Representative office
Before proceeding, let us quickly learn about these three types of businesses in China.
WFOE – Wholly Foreign-Owned Enterprise
If you want to start a WFOE, you don’t need a Chinese business partner. As the name goes, it is a foreign-owned enterprise, with full control in your hand as a foreigner doing business in China. WFOE is a limited liability company. If you simply open a branch of your company in mainland China, this does not mean a WFOE. The ownership can be anywhere, but the main business must be in China and it should function within the regulations of the Chinese law and business practices.
It is a form of a foreign-invested enterprise that rests on the partnership of the foreign investor and the Chinese investor (or investors). Together, they share the profits, the losses, and are responsible for the management of the joint venture company or business.
The benefit of starting a joint venture for you as a foreigner is that the local business partner may already have established distribution channels, gained significant knowledge of the local market and fostered government relationships.
A representative office is a local Chinese branch of your company that exists in another country. A representative office allows you to hire local experts or partner with local businesses and it also allows you to send your own employees to work in China.
The degree of independence that you enjoy with a WFOE and even with a joint venture, is obviously not available with a representative office, but it is the fastest way of setting foot in the country as an entrepreneur. You can do market research. You can meet and find suppliers and clients. You can market and promote your business in China.
Now that we have seen different types of businesses that you can set up in China, how do you set up your business in China? Here are the 10 steps to starting a business in China as a foreigner.
1. Find out which businesses are permitted under which category
Although the Chinese market is fast opening, and the People’s Republic of China is aggressively attracting foreign investment, there are still some industries that are not available to foreign businesses such as mining, education and healthcare. Before you proceed with other steps, make sure that if you want to set up a business as a WFOE, whether you can get a license for it or not.
2. Arrange all the needed documentation
A local business set up consulting agency like Business China, once you decide to partner with it, can easily provide you a comprehensive list of documents that are needed to get your business registered and to obtain the needed licenses.
The documentation may include legitimate financial records in your home country, your ID proofs, the ID proofs of your foreign representatives, the ID proofs of your local representatives, your lease documents, passport size photographs of yours, your representatives and your supervisors, copy of the articles of incorporation, copies of business licenses, attested copies of bank letters, and the real estate certificates if you have taken office space or land on lease.
Again, many more documents might be needed, and you can get a complete list from our website or through one of our representatives.
3. Choose your preferred business entity status
As explained above, the three main business entity status are: WFOE, joint venture and representative office. Accordingly, you will need to obtain registrations and licenses.
4. Choose the location
Within mainland China there are many cities and towns to choose from when you are about to set up your business as a foreigner. The selection of the location will depend on the infrastructure needed by your business, the access to your market, the skill set of the workforce available on a location, the access to shipping ports and airports if you need to import and export, and the general prestige attached with a city. Many doors of opportunities can open in China simply because of the name of the city on your business address.
5. Choose the right name for your business
Once you have chosen your location and the type of business you are going to open this is the right time to choose the name of your business. Why should the name of your business come after the location? It is because the name of the location will also be a part of your business name.
Hence, it is very important to choose the location and your business name because once a license has been issued for the location and the name, it will be very difficult for you to change both, because then you may have to go through the same procedures to get new registrations and new licenses.
6. Choose the right local business set up agency for your business as a partner
Your choice of the local business set up agency (for example, Business China) will have a lasting impact on your business.
Depending on what type of business you are planning on opening in China, your local business set up agency can immediately dismantle the language barrier. Although there is a great demand for English teachers in mainland China, a major part of the population, including educated professionals and government officials are not very comfortable speaking in English.
An agency like Business China can provide you professionals that are proficient both in English and Chinese.
Getting various clearances and submitting documents to multiple departments can be a big headache and sometimes can even cost you your business plans. This is a ground work that requires deep understanding of the local cultures and access to the right officials. Just make all the necessary documents available to your local business set up partner and your registrations can be done while you are sitting at home or in your office.
This access can only be obtained by executives who are constantly doing the groundwork for foreign businesses. There are many immediate and long-term benefits of partnering with a local business set up agency such as understanding the accounting system, taxing, banking, labor laws, logistics and business ethics.
7. Develop a business plan
You must have a five-year business plan. When you submit your business plan the government will approve it and only then you will be able to operationalize your business. You will have to do business within the guidelines enclosed in your business plan. If you start carrying out business activities that are not present in your business plan, your business can be shut down.
Remember that your business will need to be approved by the appropriate Chinese government authorities before it can be registered.
All the important articles of association should be included with the business plan. You should also have a feasibility study. Preferably your business feasibility study should be in Chinese.
Proposed personnel salary and benefit budgets must be presented when you are presenting your business plan.
8. Get your trademarks and intellectual property registered as soon as possible
In China, the first person who registers a trademark or copyright owns the rights to it. It doesn’t matter if you have used the trademark for years, if you haven’t registered it, and if the other person registers it, that person owns it. So, get your trademarks and intellectual property registered as soon as possible. Business China can help you register your trademark with great speed.
9. Open bank accounts
Depending on various types of businesses you may like to indulge in, you will need to open local bank accounts. For example, for a WFOE, you will need a foreign exchange bank account as well as an RMB bank account to carry out local transactions.
10. Hire staff
You can possibly bring every employee from your home company. For many crucial roles you will need to hire local Chinese staff. Make sure that you Chinese employees are able to communicate themselves in English, even if proficient English is not required. You can take help of a local agency like Business China to make sure that you hire the right staff for your business.
Labor laws are very particular in China. The rights of the employees are stringently protected by the law. Make sure you have a written contract before the employee starts working because if an employee has worked under you without a written contract, you may have to pay double the agreed-upon salary. Carefully study the labor laws before starting your staff hiring campaign.
As mentioned in point 6 above, finding the right liaison, or the local business set up agency, is very critical to the success of your business, because all the ground work will be done by the set up agency.
How can you ensure the success of your business set up in China? We can answer all your questions. Do give us a call or send us an email and we will gladly provide you all the information that you need to take the right steps in the direction of setting up your business in China.
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