China Company Incorporation Advantages
China company formation still keeps a strong attraction for oversea investors. China maintains a kind of relatively strong stability during the international financial crisis, compared with other countries. Since the reforms of the late 1970s, the Chinese government has created an increasingly sound investment environment for foreign investment, and China’s foreign investment attraction is actually continually enhanced.
In general, there are several types of business setup in China; the following are common types for business registration:
1. Wholly foreign owned enterprise (WFOE);
2. Representative office (RO);
3. Cooperative joint venture (CJV);
4. Equity joint venture (EJV);
5. Foreign invested partnerships enterprise (FIPE).
China Wholly Foreign Owned Enterprise (WFOE) is a common investment vehicle for mainland China-based business. The advantages of establishing a WFOE include, but are not limited to:
1.1 Ability to formally carry out business rather than just function as a representative office and being able to issue invoices to customers in RMB and receive revenues in RMB;
1.2. Independence and freedom to implement the worldwide strategies of its parent company without having to consider the involvement of the Chinese partner;
1.3. Capability of converting RMB profits to US dollars for remittance to its parent company outside of China;
1.4. Protection of intellectual know-how and technology;
1.5. No requirement for Import / Export license for its own products;
1.6. Full control of human resources
1.7. Greater efficiency in operations, management and future development.
Representative Office (RO) is established by foreign companies to engage in business liaisons, quality control, product promotion, market research, exchange of technology and other permitted activities in China. Using a representative office as Shenzhen entry form has the following advantages:
2.1. Affordable: no paid capital required, government and service fees are usually lower than what is needed for WFOEs.
2.2. Quicker Setup process (usually within one month or so), and easy to control than others business type in human resources or taxes issues
2.3. The quickest, relatively inexpensive and easy to set up.
A Sino-Foreign Cooperative Joint Venture (CJV) is a joint venture between a Chinese and a foreign company within the territory of China. The Chinese company usually provides the labor, land use rights and factory buildings, while the foreign company brings in the necessary technology and key equipment, as well as the capital. The joint venture is based on a cooperative joint venture contract in which matters like the terms of cooperation, the division of earnings, the ownership of property upon the termination of the contract term of the CJV, the sharing of risks and losses, etc are laid down. The foreign investors could be foreign corporations (including Hong Kong, Macao and Taiwan), individuals or partners, but Chinese investors must be corporations, not individuals.
The corporate form of an EJV is the limited liability company, which possesses the status of a Chinese legal person. China EJV Advantages:
4.1. Shared resources and complementation of advantages, given full play of the network and the famous brand already established by the Chinese enterprise, as well as smooth entry into the Chinese market；
4.2. Joint venture enables the foreign investor to utilize the geographic advantage of the Chinese enterprise for reasonable and lawful reduction of various fiscal charges and large reduction of operating cost；
4.3. Entitled to foreign investor preferences.
The Foreign Invested Partnership Enterprise (FIPE) is an unlimited liability business entity without minimum requirements on registered capital. The advantages of establishing a FIPE, compared with other types of enterprises, include, but not limited to:
5.1. No requirements on minimum registered capital;
5.2. Less procedures comparing with Wholly Foreign Owned Enterprise or Joint Venture
5.3. Capability of converting RMB profits to US dollars for remittance to its parent company outside of China;
5.4. Foreign Enterprise or Individual is allowed to establish a Partnership Enterprise with Chinese individual (While Chinese individual is not allowed to have Joint Venture Company with foreign investor)
5.5. The profit distribution of a FIPE could follow an informal negotiated agreement or abide by scheme adopted in the partnership agreement.
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