International companies setting up a subsidiary overseas face a potentially time-consuming and costly exercise. In China subsidiaries are usually limited liability companies in the structure of a Wholly Foreign-Owned Enterprise (WFOE) or Foreign Invested Enterprise (FIE).
It’s a big move and if the venture fails they face extra expenditure and the stress of closing the company, selling property, laying off staff.
The sensible alternative is to use a Professional Employer Organization (PEO) and Employer of Record (EOR) to source staff and administer payroll in the new territory … speedily and risk free.
Setting up a Subsidiary in China
Incoming investors should research and select which region and cities are best suited to their expansion plans and business activities, particularly in reference to enterprise zones and free trade areas. Steps include:
• Lodge and verify the unique name of the company
• Obtain a registration certificate for a new company from the State Administration for Industry and Commerce (AIC). The fee is usually 10,000 yuan, around $1,500
• Provide details of the owners, nationality and location of the parent company and detail planned activities of the subsidiary, with feasibility report
• Appoint management board, which can comprise foreigners or Chinese nationals
• Open business bank account and deposit minimum share capital, which can vary between provinces and sectors, typically 30,000 yuan, around $4,500 (not required in free trade zones)
• Apply for a business license at the local AIC, a legal requirement for all Chinese companies
• Register with the State Tax Administration to run payroll, income tax, VAT and business taxes
• The entire process can take between four to six months
What you need to set up a subsidiary in China
• Articles of Association from the parent company with a statement of its intention to open a subsidiary in China, translated into Chinese by an accredited authority
• Confirmation from the State Authority for Industry and Commerce that the proposed company name is unique in China
• Proof that minimum share capital, dependent on province and sector, has been deposited in a business account
• Obtain permits and licenses specific to area of operation, such as pharmaceuticals, automotive and construction sectors for example
Benefits of setting up a Subsidiary in China
• A subsidiary in China, usually structured as a limited liability Wholly Foreign-Owned Enterprise (WFOE) or a Foreign Invested Enterprise (FIE), can act independently of the parent company, under a different name and follow its own business activities
• Subsidiaries enable foreign companies to explore their potential in China without the major commitment of capital investment, while increasing their international credibility and profile
• The parent company and its directors generally have no responsibility for any debts or liabilities of the subsidiary
Chinese Subsidiary Laws
• Wholly Foreign-Owned Enterprise limited liability companies are governed by the Foreign Investment Law 2019 (FIL) as of January 1 2020
• The FIL brings in new laws for organizational structure and operating procedures. For example, Cooperative Joint Ventures (CJVs) no long exist
• There is expected to be a five-year transition for companies incorporated before 2020
• China’s Company Law does not set minimum levels for share capital. This is decided at provincial level based on company size and sector of operations
Take a faster route into China
The cost-effective and time-saving alternative to the lengthy process of establishing a Wholly Foreign-Owned Enterprise (WFOE) in China is to work alongside an Employer of Record (EOR) such as Bradford Jacobs.
This becomes increasingly important after China implemented the Foreign Investment Law as of January 2020 and with tax law changes set to kick in from January 2022.
Our in-country specialists steer you through the complexities of setting up operations by onboarding new employees, then ensuring compliance with all employment, taxation and social security regulations. You retain day-to-day control of your employees – who are in place and operational within days rather than the six months it could take to set up an entity in China. There is no reason for international borders to stand in the way of your international expansion. Call us.