Company Formation in China: Step-by-Step Guide for Foreigners (2025)

Establishing a company in China and attaining success in your chosen sector significantly depends on the type of business entity and operational structure selected. Foreigners have the opportunity to set up various types of companies. Before proceeding, it is important to understand the advantages of company formation in China 2025.

Advantages of Setting Up Your Company in China:

Before we explore the details of company registration in China, it is advisable to consider the additional benefits of establishing your business there. Here are some distinctive advantages that should not be overlooked:

• China offers numerous advantages that contribute to the success of businesses. With a population of approximately 1.3 billion, your enterprise is guaranteed a substantial market. Additionally, China's strategic location in the Far East facilitates easy access to neighboring markets, including India, Japan, and Thailand, among others.

• The Chinese economy is highly diverse, presenting opportunities across various sectors. Whether your business operates in agriculture, technology, manufacturing, automobiles, hospitality, or oil and gas, among others, you can anticipate growth and success. Given the readily available opportunities, registering a company in China is an excellent strategy for achieving success.

• Ranked as the fastest-growing economy in the world, China is one of the largest importers and exporters. Consequently, registering your company in China will effectively position your business within a dynamic network that can facilitate its path to success.

• Nearly every Fortune 500 company, including Apple, Nokia, and Oracle, has established operations in China. These esteemed brands are drawn to this rapidly growing economy to facilitate their global expansion. If the most respected multinationals utilize China as a launchpad, emulating their approach suggests that success is within reach for your enterprise.

• Having a company established in China provides unique advantages for export activities. With a local entity, your business can purchase directly from the domestic market, even from suppliers without an export license, and manage international sales through its own structure. Operating locally also grants access to VAT rebates on eligible products and enables you to maintain inventory in China, ensuring greater speed and flexibility when serving global customers.

There are three main entity types that you can choose to set up a business in China:

1.  Wholly foreign-owned enterprise (WFOE)

The most suitable business structure for foreigners intending to establish enterprises in China is a Wholly Foreign-Owned Enterprise (WFOE). Under Chinese law, a WFOE is defined as a limited liability company that is entirely owned by a foreign individual or operated by a foreign entity. Full ownership grants you greater control over the business's operations, profit objectives, and revenue.

As a limited liability company, a WFOE is recognized as a separate legal entity, which limits your liability to the amount of share capital contributed. This structure is the most advantageous option for overseas businesses seeking to enter the Chinese market.

Benefits of a WFOE:

• It is particularly well-suited for those aiming to establish a long-term presence in China.

• The business is authorized to engage in all activities for which it is registered in China.

• You have complete authority over the recruitment of personnel.

• You maintain full control over the company's decision-making processes.

• It serves as an effective means of protecting your trademark while expanding operations in China.

2.  Joint Venture

A joint venture represents another business structure that operates as a limited liability company. Under this model, it is necessary to establish and register a company in partnership with a Chinese entity. Notably, the Chinese partner is required to hold controlling shares (more than 50%) in the company. This arrangement means that, unlike a wholly foreign-owned enterprise, your partner will exert greater control over the daily operations of the business.

The primary advantage of pursuing a joint venture is the ability to quickly penetrate the Chinese market by leveraging established firms' expertise, distribution networks, and sales channels. Additionally, this approach alleviates concerns regarding the entry challenges typically faced by new businesses

While these benefits are significant, it is essential to recognize that with limited control, you are essentially entrusting your investment to another party. For many investors, this represents a considerable risk. Consequently, it is advisable to consider a Wholly Foreign-Owned Enterprise (WFOE) as your preferred option.

3.  Representative Office

This represents the most straightforward type of business formation available in China. However, unlike the registration of a Wholly Foreign-Owned Enterprise (WFOE) or a joint venture, which permits engagement in profit-generating activities, a representative office is subject to significant restrictions. This office is limited to conducting non-profit activities, such as providing customer support and conducting market research.

Given the limitations associated with operating a representative office, it becomes less appealing for investors seeking rapid growth for their companies. Therefore, when is the most opportune time to establish a representative office?

• During the market exploration phase, particularly if your company is small and operating with a limited budget.

• When a company aims to establish a basic presence in the Chinese market for activities such as quality assurance and communication with suppliers.

• If your company is considering expansion into the Chinese market, but a final decision has not yet been reached.

Step-by-Step Procedure For Company Registration:

1. Select a consulting partner to assist you with the registration process.

Although the Chinese administration has made significant efforts to support businesses, it is important to note that registering a company is a complex task. From interpreting company laws to preparing the necessary documents, the process can be daunting. However, this should not deter your ambition to expand into China. Utilizing the services of a consulting company is the most effective and reliable option.

Consulting Companies are operated by professionals who have assisted other investors with company registration in China. They are well-versed in the optimal steps to follow and the common pitfalls to avoid. If you wish to expedite the registration process, ensure it is conducted professionally, and enjoy a seamless experience, it is advisable to collaborate with a reputable China company registration firm.

In addition to helping, you with company incorporation in China, the expert firm will also come in handy to assist you with the following:

• Payroll

• Bookkeeping

• Tax Planning

• Audits

•  Support for the annual financial statements

2. Choose the Scope of a Company

In China, the government has categorized its sectors and placed particular emphasis on areas with the potential to accelerate economic growth. To familiarize yourself with these categories, it is recommended to consult the Catalogue for the Guidance of Foreign Investment Industries," which is regularly updated. The government actively encourages investors who prioritize innovation. For instance, if your business is in the manufacturing sector, it will receive significant support from the administration. This commitment is a key reason behind the unprecedented growth of Chinese manufacturing in recent years.

3. Prepare the necessary documentation

   To obtain authorization to commence operations for your company, it is essential to prepare a variety of documents and submit them for approval. Below is a list of the required documents:

   Company Name: To obtain the company name, it is necessary to seek approval from the Administration of Industry and Commerce. This step is crucial to ensure that your chosen name does not conflict with those already in use. Please note that the approval process may take between two and fifteen days, depending on the location of your intended business.

   Number of Shareholders or controllers: These individuals are the shareholders who possess the majority of shares in the company you are incorporating. To avoid potential complications in the future, it is advisable to verify that your business partners are permitted to hold shares in China.

   Structure of the Company: This document constitutes the complete operational profile of the business, which includes the board of directors, supervisors, general manager, and legal representative. This structure should be accompanied by copies of the passports of the directors.

   Legal Address: This represents the official headquarters of the company, where authorities can seek clarification on any matters concerning the business. The address should include relevant details, such as the phone number and email of the property owner.

   Article of Association (AOA): This is another essential document in the China company registration process. It contains important information regarding the business description, including the scope of operations you intend to pursue. In this document, you are required to outline the key details of the business, including the managerial structure and the methods for distributing profits.

   Registered capital and total investment: The registered capital refers to the resources allocated to cover the expenses associated with operating the company. Conversely, the total investment encompasses both the registered capital and any future loans from investors. This total investment may also include contributions from third parties, such as banks.

   
   

4. Apply for Approval Certificate:

   To submit all required documents through a single online portal that disseminates them to all relevant authorities (including SAMR, SAIC, Tax Bureau, etc.), these authorities will review your application and notify you of the approval or denial of the certificate.

   
   

5. Apply for Business License

   Upon receiving a business certificate, you may require additional licenses depending on your specific industry. In China, businesses engaged in manufacturing, food services, beverages, construction, and telecommunications are mandated to obtain supplementary licenses.

   
   

6. Register with the Public Security Bureau (PSB)

   This registration facilitates the acquisition of company chops, financial chop, legal Representative’s chop. In China, company chops hold the same significance as a signature in Western countries. Without a chop, it is impossible to validate any contract.

   
   

7. Open a Bank Account

   For your business to commence operations, it is essential to establish a Basic Corporate Bank account to conduct RMB transactions and a Capital Account to receive foreign-invested registration capital from overseas.

   
   

8. Register at Tax Bureau

   In China, all companies, including wholly foreign-owned enterprises, are obligated to adhere to tax regulations. In additional, the companies can apply for the ability to issue official invoices (Fapiao). Consequently, it is essential to initially register the company's basic financial and operational information, such as CFO verification and category, among other details. During this process, it is important to take note of the various tax obligations, which include:

   Custom Duties: These duties apply to goods that are exported from or imported into China.

   Value-Added Tax (VAT): China has varying VAT rates depending on the industry, which include 3%, 6%, 9%, and 13%.

   Individual Income Tax: This tax is imposed on dividends received by company partners and on staff salaries.

   Corporate Income Tax (CIT): The standard Corporate Income Tax (CIT) rate is set at 25% on net profits. 

As previously mentioned, starting a business in China is a significant undertaking. Therefore, it is highly advisable to engage a professional to guide you throughout the process. Collaborating with experts means having a partner to support you, even during the initial stages of company operations. Do not hesitate; now is the time to identify a reliable consulting partner and capitalize on the high-potential Chinese market. Brasia offers comprehensive assistance with these services.

For more information contact us at info@brasia.hk.