This is the most common type of establishment, 70-90% American and foreign –investors uses. In this business type, foreign investors solely own and run all affairs concerned with the business. An essential feature of this type is that no third party or partnership is needed. Thus, this structure does not require partnership with a Chinese
The various forms of establishments have its pros and cons, as the saying goes anything that has an advantage will rarely not have a disadvantage for WOFE, an advantage is that it isn’t required for such establishment to pay the minimum registered capital(MRC), and only fees of registration are needed.
The minimum registered capital (MRC) is the least amount of money that must be paid by shared holders of companies registered with the Chinese government. This gives the privilege to government benefits such as the following:
- Sponsorship for temporary residence
- The ability to increase the number of foreign employees
- It covers the pre-operating cost such as rental fees and purchases
The minimum registered capital is about 100,000 RMB, this amount may vary depending on the type of establishment. It is, however, important that when starting a business in China, your company should pay the minimum registered capita
2. Sino-foreign joint venture company (SFJV)
This is also known as an equity joint venture, it is a type of establishment involving a representative between a foreigner and a Chinese. This might seems like the safest route to starting a business in China or to set up a company in China. Experts, however, warn against it. As stated earlier the various business establishment has its pros and cons. Although if you decide to venture into this business structure endeavour to carry a background check on your partner(s).
3. Sino-foreign operative company (SFCE).
This is also known as the contractual – joint venture, it is the second most legal structure use by foreigners to set up a company in China .it is also a joint venture between a foreigner and a Chinese national but it enables more flexibility than a Sino-foreign equity joint venture as it enables the structure to be either a limited or unlimited company. In this type of business structure, the resources for land and equipment are provided for by the Chinese partner while the foreigner provides the funds needed and technology.
Profits are shared on agreed contracts and managerial levels are negotiated.
You must review all legal structures with a lawyer preferably a Chinese lawyer to choose which suits your business best, an accounting agency will also be needed.
- Securing your intellectual property: As the saying goes prevention is better than cure when starting a business in China, you must protect all, you’re in intellectual properties. The help of a Chinese lawyer will be very beneficial in this regards. You should take preventative measures and as soon as possible register your trademark. The Chinese government operates a first-come, first-serve basis when it comes to registering trade. You should also make sure that you keep yourself abreast of the trademark filling to have a different one. On your part to starting a business in China, in case you come across infringing products, these products can only be taken down on the basis that your trademark has been registered, in such situation these products can be taken down through a petition.
- Bank account: To set up company in China, it is required that you have either a resident or non-residential bank account, if possible get both and if you choose to one, choose a bank that has both local and international corresponding relationships. However, if you decide to use a WOFE business structure, you would need a residential bank account. Banks such as the bank of America, Citi Bank, and the standard chartered bank has both local and international correspondence. Other banks you can make use are Bank of China and ICBC. This is a requirement you should consider when choosing a bank such as the proximity to where you set up your company in China, the local bank account used when starting a business in China and its ease to business activities.
Most banks in China request for the following requirements to open a bank account they are ;
- A valid I.D
- The company’s structure
- The names of the directors of the company.
However, the above requirements may vary from one bank to another.
- Market entry: you should establish a strategy to penetrate the Chinese market, this strategy should be flexible and part of your business plan. To be honest, the people of China are welcoming to investors but, to permeate the market could be a tad difficult. Therefore, you should create a strategy to assess the market, get a procurement strategy, carry out a consumer survey and customer analysis. These are all necessary when starting a business in China.
- Managerial strategy and staff employment: While you might be likened to employ foreigners when starting a business in China, you would also need Chinese staff to work for you. In facts, this is one of the requirements by the Chinese government to alleviate unemployment in the people’s republic of China. Employing the Chinese as part of your employees has immense benefits such as ;
- It reduces the cost of salaries as opposed to employing foreigners
- They will give you more information about the people and the local market
- Because they know the business mentality of their people, getting first –hand information on how to permeate the market wouldn’t be difficult.
- They can help in navigating cultural differences
- They can help promote your business brand
However, if it ever becomes difficult to recruit staffs, you can employ the services of a recruitment agency.
THE COST OF STARTING A BUSINESS IN CHINA
The cost of starting a business in China over the years has significantly reduced. The registered capital needed to start a business in China is dependent on the company’s’ structure. While WFOE is the common business structure, the cost to set up company in China using WFOE structure is about 100,000 RMB to 500,000 RMB. For example, a manufacturing company using WFOE will pay a registered capital level of 1000,000 RMB, WFOE of a trading company is between 500,000 to 1000,000 RMB while the WFOE of a consulting firm is 100,000 to 500.000 RMB.
However, the minimum share capital any foreign company with a WFOE structure can get is 30,000 RMB. While some foreign companies decide to opt for virtual offices, if you would require a physical building or an office space to set up company in China, the minimum you should budget is 20,000 RMB. This prices could be higher depending on the facilities in the building and type of building you choose. Another expense you should add in your budget is accounting services, this is mandatory when starting a business in China or when you want to set up company in China, the accounting services are usually about 500RMB. Taxes, both value-added tax (VAT) and corporate income tax are another significant factor you should put into consideration, the corporate tax is about 10-20%, for goods and services, the VAT is 16%, for companies involved with food production and sales the minimum VAT rate is 13% and 11% for real estate.
CHALLENGES INVOLVE WITH STARTING A BUSINESS IN CHINA
Over the years, there have been some drawbacks in which foreign investors or companies have faced. Some of these challenges are;
- Governmental policies: Some of the government policies are mostly in favour of domestic businesses in China. The policy preference has made foreign companies in competition with state-owned or cosmetics businesses in China.
- Cultural difference and language barrier: Foreign businesses growth can be hindered by a language barrier. To surmount this obstacle, it is advisable to either get a proficient interpreter or learn the Chinese language. Apps such as Duolingo could be of immense help. China operates a bit of a fairly traditional society thus, respect is held in high regard. You should understand, research the culture and business mentality of the Chinese to be on the same page with them. Send gifts as Chinese loves to be appreciated, as much as possible accept invitations, acknowledge them and only call Chinese by their designated names.
- Corruption: In recent years, the people’s republic of China has been faced with bribery, looted funds, corrupt public and officials, this as hinder economic growth, development and implementation of policies.
Other factors that affect starting a business in China are;
- IP security and trademark
- Determining the best business structure.
However, the above problems can be surmountable with a good business plan and strategy, no wonder business experts emphasize on a good, flexible, specific, realistic and long-term business plan. If you are looking to starting a business in China or to set up company in China. You would require a visa to China thus, why don’t you use our top-notch, reliable, fast and swift visa services at visa express. For more information or questions, contact us here.