Establishing a subsidiary in China is one way to enter the Chinese market. The process requires time, money, interaction, and communication as well as travel to China.
Foreign companies establishing a local entity in Mainland China will get the status of Foreign Funded Enterprise (FFE) or Wholly Foreign Owned Enterprise (WFOE). Those two terms refer to the same legal structure in China.
Be aware that the status of WFOE/FFE can provide advantages (Industrial Parks do provide subsidies to WFOE/FFE when investing in their zone but not necessarily to Chinese companies) and disadvantages (negative lists).
When doing business in China, foreign companies should be aware of three negative lists:
- China’s Negative List for Market Access: It lists all sectors restricting private investments from either privately owned local or foreign companies.
- China’s Negative List for Foreign Investment Access: It lists all sectors limiting or forbidding foreign investments in Mainland China.
- China’s Negative List for Foreign Investment Access in FTZs: It lists all sectors limiting or forbidding foreign investments in Chinese Free Trade Zones.
To establish a company in Mainland China, foreign companies can either invest directly from their headquarters or through an Asian holding company established in Hong Kong or Singapore. The indirect investment in Mainland China is usually privileged as it allows to provide more flexibility on financial structuring, optimization and flows to better lead an Asian strategy and future investments in the region.
How is a company incorporated and how long does the process take?
In Mainland China, the set-up of a foreign company is usually divided into two major phases, the incorporation phase, and the post-registration phase.
Prior to the incorporation of the foreign subsidiary in Mainland China, the company needs to decide and confirm the availability of an official Chinese name that will be written on the business license. This step, together with the rest of the incorporation, is usually prepared by either a law firm or a legal agent who will also help establish the article of association of the entity. We usually recommend working with a legal agent as the process will be cheaper and sometimes quicker. Our local team acts as project manager and works directly with selected agents to secure the incorporation of the company. At the end of the incorporation phase, the foreign company obtains its business license and stamps.
Following the incorporation phase, our team will focus on opening and activating bank accounts and registering the subsidiary to the local tax bureau and labor bureau which is part of the post-registration phase.
For some specific activities or sectors, be aware that additional actions will need to be taken to receive the necessary credentials and certifications.
The entire process usually takes 6 months, depending on the processing of the Chinese authorities and local banks.
If you need more details and support with your incorporation, feel free to contact us.
