China Company Formation - Offshore Company Formation|Offshore Company Registration

China Company Formation

Stephen M. S. Lai & Co. Warning: Don't go out and find other offshore formation services websites until you have read this, and I am sure that the information you find from here you never can get from other professional websites, I promise !

Everybody knows where China is. There is no need to guide you where it is located. China is a large country, with over 12 billion of people (but 3-4 billion are poor); as compared with USA, only two billion of people. It is indeed very large, correct ? It is why many people want to enter China for business. Now, China is still a factory country (and No. 1 factory maker), as over 80% of products are made in China, and exported over the whole world. China is still under developing, no matter in terms of legal, politics, or economy. Here we only concern economic development, as I think businessmen would like to know more about it, as well as the legal developments, for overseas businessmen might have disputes when doing business in China.

China is now using opened market economy systems. Because of the global financial crisis, many countries are facing recession economy. Even USA, the powerful No. 1 economy system, her economy do affect many economy systems in other countries, but USA is still in depression economy and is also facing very hard financial burden (by issuing many long term government debentures). But as compared with other countries, such as USA and many European countries or western countries, China has already recovered her economy. China cannot rely on exports from USA or other countries anymore. She is now implementing her internal economy policies to trigger her economy growth. In the past, it was very difficult to do business in China by foreign investors, even you have huge capital. Since China has entered WTO (World Trade Organization), it becomes easier. Also as Hong Kong becomes part of China, and Hong Kong has signed a CEPA (Closer Economic Partnership Arrangement) agreement with China. So using Hong Kong company to enter China is easier to do business. Please note that Hong Kong is now part of China, but Hong Kong still today follows UK legal systems and UK law; China follows Chinese legal systems and Chinese law. In China, the official language is Chinese. So all legal documents and company formation documents and related documents must be Chinese.

How to form company in China.

There are some forms for overseas businessmen to enter in China. But please remember that you cannot use the concept of offshore companies to apply in China. China is a continental country, like Germany, Italy, etc. her law is very strict.

Two forms are very common for oversea businessmen . The choice depends up how you operate in China.

One is Representative Office (RO)

Second one is Wholly Foreign Owned Enterprise (WFOE)

To understand more, I am saying the easiest way is to register Hong Kong company, and, because of a CEPA (Closer Economic Partnership Arrangement) agreement with China, use the Hong Kong company and register again in China either as RO or WFOE.

How to use Chinese company to do business in China ?

Basically, many people are doing global trading businesses. They will purchase goods from Chinese suppliers (Chinese factories), and sell to their customers outside China.

Do you require to register Representative Office in China ? It depends whether you need to use Chinese resources such as you need to hire staff in China or need to rent an office in China.

1) Without using Chinese Resources. In this situation, if you need not hire or don’t intend to employ Chinese staff to follow your orders or you don’t need to rent an office in China, you can use Hong Kong company to sign purchases contracts with Chinese suppliers, and they direct ship the goods to your customers outside China. For Hong Kong company, the bank account is opened in Hong Kong, it will have multi-currencies including US$, EUR, RMB, …etc. You can settle the debts to Chinese suppliers by wire transfer or with online payments. In this situation, there is no need for you to pay China tax, as you only exercise purchasing activities in China, and you are not selling in China. You are not making profits in China. You are also not required to pay Hong Kong tax, and because you are doing offshore trading businesses by buying goods from China and selling overseas. Under Hong Kong legal systems, if you buy goods from China or outside Hong Kong, and sell goods outside Hong Kong, the law will regard this trading activity as offshore trading activity. Offshore trading activity is zero tax. Remember Hong Kong follows UK law.

2) Using Chinese Resources with informal way. In this situation, if you need to employ Chinese staff to follow your orders or you need to rent an office in China, in some special economic zones such as Shenzhen, etc, in an INFORMAL WAY, you can use Hong Kong company to employ Chinese staff, and you can use Hong Kong company and sign rental contract and rent an office in China. Remember it is an INFORMAL WAY. It doesn’t means it is allowed to do by Chinese law. IT HAS NO LEGAL EFFECTS IN CHINA, as you are using Hong Kong company.

3) Using Chinese Resources with formal way. In this situation, if you need to employ Chinese staff to follow your orders or you need to rent an office in China, and THE MOST IMPORTANTLY YOU NEED TO GET LEGAL PROTECTIONS, you need to use Hong Kong company to register again in China as RO. But the Hong Kong company must have a history over 2 years. In this situation, you can use RO to employ Chinese staff, and rent a warehouse, etc. and if something happens, YOU CAN ENFORCE YOUR LEGAL RIGHTS IN CHINA. Once you have registered a RO, you can open a basic bank account in China. The basic bank account can be multi-currencies. You can use this bank account to settle wages, salaries, company running expenses in China, BUT YOU CANNOT RECEIVE INCOME MONEY in this bank account as RO cannot allow you to do business and earn income in China. Basically, the money-in will deposit from overseas head office and pay for running expenses in China. Also it cannot open more than one bank account in China. Only one basic bank account is allowed. RO cannot open branch RO (in other provinces). For example, if you register RO in Shenzhen, you cannot register a branch RO in Beijing. If you need to register a RO in Beijing, you need to do another registration again in Beijing. One more thing, there is no tax for RO. But it also need to keep tax filing with local tax authority.

REMEMBER YOU CANNOT SELL IN CHINA USING REPRESENTATIVE OFFICE, NEITHER SELL YOUR SKILLS AS CONSULTING SERVICES NOR SELL ANY PRODUCTS IN CHINA. YOU MAKE INVOICES YOURSELVES AND ISSUE INVOICES TO YOUR CUSTOMERS IN CHINA ARE ILLEGAL AND IT IS A CRIMINAL OFFENCE TO DO SO IN CHINA.

If you need to do business in China (sell in China either your services or your products), you can either use Hong Kong company as a limited way (informal way) or register Wholly Foreign Owned Enterprise (WFOE) in China.

1) Using Hong Kong company and sell in China. In this situation, it is a rather informal way (limited way), the Hong Kong company can sign either consulting services agreements or sales agreements with Chinese businessmen. You can open a company bank account in Hong Kong. The bank account is multi-currencies, and do include US$, EUR, RMB, etc. You provide your services or sell products to Chinese companies, they make settlements to you by wire transfer to your Hong Kong bank account. However, Chinese companies will deduct around 5 to 20% from total amount as withholding tax. The exact rates do depend upon what products you sell and what services you provide. Certainly, your Hong Kong company has no tax in China, nor any tax in Hong Kong, as you are doing businesses outside Hong Kong.

2) Register a company in China, and you will do business and sell in China, and issue invoices in China. In this situation, you are totally doing business in China, you can rent an office in China, sell your products or services in China, you can employ Chinese staff in China. You need to register Hong Kong company (new company setup is OK), and use this Hong Kong company to register again in China as Wholly Foreign Owned Enterprise (WFOE). In legal form, it is a Limited Liability Company (LLC). The WFOE is 100% owned by Hong Kong company. Hong Kong company is a holding company; WFOF is a subsidiary. The WFOE can open one basic bank account, and one overseas bank account. The bank account can be multi-currencies. The bank account can receive income earned in China, and it can pay running expenses in China. WFOE need to file monthly or quarterly financial statements to local tax authority, and pay tax on monthly or quarterly basis(if it has profits). On annual basis, WFOE is required to arrange a Chinese auditor and issue auditor report and file the audited financial statements and tax documents to local tax authority and pay annual tax if it makes profits. The profits tax rate is 25% of net profits. As the WFOE has paid monthly/quarterly tax amounts over 12/4 months/quarters, only the excess in yearly basis over aggregate monthly/quarterly amounts is required to pay. For example, on monthly basic, the tax payer has paid RMB12,000 over twelve months; on annual basis, as the audited financial statements shows that it needs to pay annual tax of RMB 15,000, so WFOE need to pay additional RMB3,000. Contrary, in annual basis, it shows only RMB 10,000 tax, then the tax authority will refund RMB2,000 to you. If the company intends to pay all profits (after the company enterprises tax) as dividend to shareholders, and pay outside China. It can be done so provided that the company declares the profits as dividends, and the shareholders have paid dividend tax. The tax rate is 5% (on average) of dividends. Then the company can remit to overseas shareholder outside China. That means the WFOE need to withhold 5% of dividend tax and pay to tax authority within a couple of days. After registration of WFOE, you will have Tax Certificate licenses, so you can purchase VAT invoices from local tax authority, then you can issue invoices to your customers in China. WARNINGS YOU CANNOT MAKE INVOICES YOURSELVES AND ISSUING VAT INVOICES TO YOUR CUSTOMERS IS ILLEGAL IN CHINA AND IT IS A CRIMINAL OFFENCE TO DO SO IN CHINA. If you need to expand business in China, you can apply for branch office in different provinces. For example, you have registered a company in Shenzhen, now you want to expand your business in Beijing, you can register a branch certificate in Beijing. It is not a difficult procedure. The strict difficulty only began from when you registered WFOE in the beginning stage. In regard to Hong Kong company, as you do business outside Hong Kong, so there is no Hong Kong tax.

Documents required for Representative Office or WFOE:

Basically, the company must be REAL OFFICE (virtual office is not allowed) But if you don’t want to rent office, we can arrange you to rent business center (and share some office space) . It is also acceptable as part of registrations.

For Representative Office:

a) It requires full set of Hong Kong company with two years history with Chinese apostiled;

b) Bank reference of the Hong Kong company;

c) Rental agreement of Chinese office;

d) No need capital injection;

e) Application forms.

For WFOE

a) Bank reference of the Hong Kong company;

b) Rental agreement of Chinese office;

c) Capital injection verification report (WFOE, you need to put capital of RMB100,000 if you do consulting business; It will be RMB 500,000 if you do trading business; it can be put by installments basis). The capital must be verified by Chinese auditor and issue capital injection verification report. Once the capital has been verified (probably one to two weeks), it can be released and used in normal business way;

d) Application forms;

e) It requires full set of Hong Kong company with Chinese apostiled.

How to proceed ?

A) Representative Office

First, register an aging Hong Kong company with 2 years history.

Second, arrange Hong Kong company formation documents with Chinese apostilled.

Third, apply for company bank account in Hong Kong, and arrange issuing bank reference letter.

Fourth, either rent a real office in China or we rent business center for you so that it can produce rental contract.

Fifth, we will send to you application forms, and then you sign and courier to us for process.

Then, we will submit all documents and apply for relevant licenses and apply for bank accounts.

It will take one month to finish Representative Office work.

Remark: There is no need you come to Hong Kong nor China to open bank a/c and company registrations process in Hong Kong and China.

A representative office is required to submit monthly/quarterly tax filings with monthly/quarterly financial statements to local tax authority. Because of this, we will help our clients to keep monthly/quarterly bookkeeping and accounting, and produce monthly/quarterly financial statements and file to local tax authority.

A representative office is also required to submit yearly tax filings with annual audited financial statements to local tax authority. Because of this, we will help our clients to arrange local auditor and issue annual auditor report and financial statements and file to local tax authority.

B) WFOE

First, register a new Hong Kong company.

Second, arrange Hong Kong company formation documents with Chinese apostilled.

Third, apply for company bank account in Hong Kong, and arrange issuing bank reference letter.

Fourth, either rent a real office in China or we rent business center for you so that it can produce rental contract.

Fifth, we will send to you application forms, and then you sign and courier to us for process.

Sixth, You put money to China, so that we can arrange Chinese auditor to issue Capital injection verification report.

Then, we will submit all documents and apply for relevant licenses and apply for bank accounts.

It will take one to three months to finish WFOE work.

Remark: There is no need you come to Hong Kong nor China to open bank a/c and company registrations process in Hong Kong and China.

A WOFE is required to submit monthly/quarterly tax filings with monthly/quarterly financial statements to local tax authority. Because of this, we will help our clients to keep monthly/quarterly bookkeeping and accounting, and produce monthly/quarterly financial statements and file to local tax authority.

A WOFE is also required to submit yearly tax filings with annual audited financial statements to local tax authority. Because of this, we will help our clients to arrange local auditor and issue annual auditor report and financial statements and file to local tax authority.

Who are you ? Why are you getting so much offshore knowledge ?

Our firm is Stephen M. S. Lai & Co. We, as a CPA firm (international based), are young, energetic, trustful and reliable professional. We provide professional services for international investors and businessmen for
- Hong Kong Company Formation

- Chinese Company Formation and Chinese Company Auditing and Tax Filing
- Offshore Company Formation
- Auditing and accounting
- Consultations
- Company secretary
- Company taxation and tax planning
- Offshore bank account
- Trust arrangement

- Visa applications

We use our professional knowledge and experience to render the professional services to our clients, existing or potential, request so as to expand their businesses overseas.

Our clients come from different businesses including consulting, manufacturing, professionals, trading, ... and so on. They come from overseas, Hong Kong and Mainland China.

Senior Partner of Stephen M. S. Lai & Co.

Mr. Stephen Lai

FCCA (a fellow member of the Association of Chartered Certificate Accountants)

HKICPA (a practising member of Hong Kong Institute of Certified Public Accountants)

MBA ( Master of Business Administration from Heriot-Watt University, UK)

PDA (Postgraduate Diploma in Business Administration from Heriot-Watt University,UK)

PCA (Postgraduate Certificate in Business Administration from Heriot-Watt University,UK)

LLB (Ungraduate of Law Degree from Nottingham Trent University, UK)

Here is person whom you can trust and whom you can rely on. Stephen says, “I have provided professional services for my clients, overseas, local or mainland china, for decades. I have used my professional knowledge and experience to advise my clients for business issues, help them to solve the issues they have.”

We have a formation network in Shenzhen, Guangzhou, Beijing, Shanghai and other provinces. We do can help you. We are international professional firm. If you ask for further information or if you have further enquiries, let me know or if you need to ask for quotations, please go to the order form section and download “Chinese Company Formation Form” and e-mail to me.