The establishment of a representative office or foreign invested enterprise entails significant oversight and approval by the Chinese governing bodies. The main requirements for each entity type are outlined below.
To establish a representative office the following documentation must be submitted to China’s Administration of Industry and Commerce at the local level.
- An application including the intended name of representative office, name(s) of the responsible representatives, and the scope of activity, duration, and site of the office. The application must be signed by the chairman of the board or general manager of the foreign enterprise
- The parent enterprises articles of association or organizational agreement
- Legal documentation issued by the country or region in which the parent enterprise resides that sanction the foreign parent’s operations and indicates that the enterprise has been in operation for at least two years.
- Documentation detailing the process in which the foreign enterprise appoints the chief representative and other representatives of the office.
- Capital credibility documents issued by financial institutions that have business dealings with the foreign enterprise.
- Credentials and proof of identity of the representative office’s staff members appointed by the foreign enterprise
Upon receiving approval of the Administration of Industry and Commerce, the representative office must then:
- Open a domestic CNY bank account
- Register with the local public security bureau
- Register with local tax authorities within 30 days
- Apply for residence and work permits for the foreign representatives
Effective 1 October 2016, China introduced measures to liberalize foreign investment. This includes revisions of the regulations concerning wholly foreign owned entities, equity joint ventures, and contractual joint ventures, and the issuance of new basic regulations for the registration of foreign invested enterprises (FIEs).
The main change is the abolishment of the approval regime, except for investments in sectors restricted or regulated under the National Negative List. Until a new National Negative List is issued, the 2015 Catalogue of Foreign Investment applies. From 1 October, investments not subject to the Negative List are allowed to simply register with the Ministry of Commerce online at the time of the initial formation of the FIE using a standard set of documents. Additionally, registration (reporting) must be done when changes in the FIE structure are made, such as changes in name, business scope, management, ownership, registered capital, etc. Such changes are to be reported within 30 days of the change.
Under the simplified registration process, registration generally includes the following main steps:
- Obtain business name approval and reservation with the local Administration of Industry and Commerce (AIC)
- Register online with the Ministry of Commerce (may technically be done after obtaining business license, but in practice is generally required before)
- Register with the local AIC to obtain business license, which involves fulfilling specific local compliance and regulatory requirements (may be extensive depending on business)
- After business license is obtained, comply with all required AIC, tax agency, regulatory agency, and banking registration procedures (may vary at local level)
Under the approval process (now generally limited to investments subject to Negative List) Ministry of Commerce approval of a WFOE can take place at the central or provincial level depending on amount of investment and the scope of business. Application can take place at the provincial level if the following requirements are met:
- Proposed operations fall within the encouraged or permitted categories of the Catalog for Foreign Investment
- Total investment is less than USD 300 million
- proposed operations do not require government allocated raw or processed materials
- Does not unfavorably unbalance the national balance of communications, resources, and transportation, or export quotas for trade.
If central approval is required, it begins at the provincial level with an initial report that includes:
- Purpose of the WFOE
- The scope and scale of the business
- Products to be produced or services rendered
- Any other relevant details
Once the initial report is qualified at the provincial level, it is then sent to China’s Ministry of Commerce at the central level, which will grant or refuse approval. After approval is received, the formal application process for the WFOE can begin at the provincial level.
Initial application documents that must be submitted at the provincial level include:
- Written application to establish the WFOE
- A feasibility study
- Articles of association
- The name of the proposed legal representative in China, or the name of the members of the board if no single legal representative has been named
- A legal certification and certificate of good credit
- A written reply from the authorities at or above the county level of the intended place of establishment
- A list of materials that must be imported
- Other documentation that may be required by local authorities
Application and articles of association must be written in Chinese, and other documents originally written in foreign language must be accompanied by Chinese translations.
After receiving provincial approval for the establishment of the WFOE, the enterprise must then register with the AIC, the local tax bureau, and other relevant agencies within 30 days.
See process above for WFOEs for new rules on simplified registration. Where investments are subject to the Negative List Equity Joint Ventures require approval from China’s Ministry of Commerce. Initial application documents must be submitted by the Chinese and foreign investors, and include:
- A written application for establishing the EJV
- A feasibility study jointly prepared by the Chinese and foreign investors
- A joint venture agreement, articles of association, and contract signed by representatives of both the Chinese and foreign investor
- A list of candidates for chair, vice chair, and all directors for the EJV’s board
- Additional documents which may be required at the provincial level
All submitted documents must be written in Chinese, though foreign language versions can be submitted as well, except for the written application.
After receiving approval for establishing the EJV, foreign investors must register with China’s State Administration of Industry within 30 days.
See process above for WFOEs for new rules on simplified registration. Where investments are subject to the Negative List, Cooperative Joint Ventures require approval from China’s Ministry of Commerce or an authorized local authority. If approval is received from a local authority it must be reported to the Ministry of Commerce within 30 days. The initial application documents to be submitted by the Chinese investor and include the same documents as EJV application, as well as the following.
- Each investors business license or registration and credit certificates
- Legal representatives identity documents, including certification of identity, history, and credit if it is an individual foreign investor
As with EJVs, all submitted documents must be written in Chinese aside from the foreign investors’ identification documents.
After receiving approval for business license from China’s Ministry of Commerce, foreign investors must register with the tax authorities and China’s State Administration of Industry within 30 days.
The establishment of foreign invested partnerships in China includes application made at the local level with the Administration of Industry and Commerce. The application documents include:
- An application letter for the registration signed by all partners
- Identification documents of all partners
- A letter of authority for the representative designated by all partners or a jointly entrusted agent
- The partnership agreement
- Certificates of contribution ownership rights
- Certificate of the business site
- Other documentation that may be required by local authorities
As with a WFOE, an FIPs proposed operations must fall within the encouraged or permitted categories of the Catalog for Foreign Investment. In addition, if specific approval is needed from related bureaus for business activities for a FIE, the same approval is needed for a FIP as part of the application process.
In 2015, the registration process was simplified by combining the organization code certificate, tax registration certificate, and business license into a single business license number certificate. Further, from 1 October 2016, simplified registration is provided for companies not subject to the Negative List (covered above). With these changes, the typical process for setting up an FIE is as follows:
*Pre-approval from Ministry of Commerce generally only applies for investments subject to Negative List (restricted/regulated industries)
**Capital Verification only required for certain industries that require minimum capital amounts.
Before March of 2014, all FIEs had to register a minimum capital amount and pay-in their capital over a prescribed period of time. China amended its company laws in 2015, and as a result, both minimum capital requirements and the prescribed investment schedule have been eliminated and replaced with a subscribed capital system for companies not engaged in business activities requiring special approvals. The licensing phase of the registration process stipulates that the amount of registered capital must be declared with the total investment figure represented by the ratio between foreign-contributed capital and debt. In addition, the registered capital is meant to cover all the FIEs initial investment expenses; it may be used immediately for the newly formed company’s expenses. However, it is unlawful to add funds as stated and then withdraw them.
Although China abolished its minimum capital requirements, cities are still permitted to impose their own capital requirements for establishing a company. Furthermore, if a business is subject to additional licensing requirements, a minimum capital investment may be required to facilitate obtaining that additional license.
For most companies, the amount of minimum capital is based upon the location and the nature of the business. Authorities in the Tier 1 cities (Beijing, Shanghai, and Guangzhou) typically regard CNY 1 million (approx. USD 145,000) as a starting point. Applications with this amount or more are less likely to be subject to increased examination.