Listing ID #2636917
Company Information
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Contact SupplierWhen a foreign investor chooses to enter the China market, they will first need to decide whether to launch their business by establishing a legal entity with a capital investment in China or to start more cautiously by testing the market, building networks and/or hiring local representatives.
If a legal entity is the preferred route, the foreign investor will have to consider, in addition to the general commercial and strategic considerations: the business sector, the amount to be invested and whether a Chinese partner is desirable or even mandatory. Government rules for specific industries may affect the size and form of the investment. For instance, media, automotive and telecom industries are all industries that may require foreign invested enterprises to have local partners.
Representative Office (RO)
A Representative Office (RO) can represent the interests of a foreign investor by acting as a liaison office for the parent company. ROs can conduct market research, develop partnerships and business channels and, since they do not have a minimum investment requirement, ROs are not considered to be a Foreign Invested Enterprise (FIE). ROs are the least complicated way for a foreign firm to have a legal presence in China and were, at one time, the first choice for foreign companies with little or no previous experience in the country. However all business transactions, including the issuance of invoices, must be managed by the parent company and ROs can only hire a maximum of four foreign employees. Any local employees must be hired through government-authorised employment agencies. ROs are usually taxed on a proportion of gross monthly expenses. Given the restrictions on transactions, employment and the taxation on expenses, WFOEs are generally now considered a better option for entrants seeking to develop their business in the China market.
Wholly Foreign Owned Enterprise (WFOE)
A WFOE is a limited liability company (LLC) that is fully invested by one or more foreign investors. Along with the rights afforded to a RO, a WFOE may also legally conduct business transactions within China and hire local employees on its own accord. However, foreign investors do have to make an investment into the company and, depending upon the business activity, there may be a minimum capital requirement. WFOEs have begun to outpace joint ventures as the most popular vehicle for a China presence.
Joint Ventures (JVs)
There are two types of joint venture structure in the China market:
Mergers and Acquisitions (M&A)
M&A has become an increasingly popular route to invest in China in recent years. There are many options for M&A in China, including equity and asset acquisitions, as well as mergers. As a form of foreign direct investment, the general rules on establishment of FIEs also apply to any M&A.
Comparison | RO | WFOE |
---|---|---|
Registration Procedures | Incorporation documents, bank statements of credit | Business plan, name approval, corporate documentation such as Articles of Association |
Time Required | 1-2 months | 3-5 months |
Capitalization | No registered capital required | Minimum registered capital depending on industry and locality; minimum investment RMB 100,000 |
Business scope | Cannot engage in profit making activities (except law firms) | Can engage in direct business operations as listed in Articles of Association |
Liability | NOT legal person; liability assumed in parent company | Legal person; limited liability company; parent company liability limited to WFOE registered capital |
Regulatory Requirement | No MOFCOM approval for most industries; registration with AIC | MOFCOM approval and registration with AIC |
Tax Method | Cost + or Actual method | Actual taxation method |
Adaptability to demand | Cannot establish subsidiaries or branches | Can establish subsidiaries or branches |
Staff | Cannot employ directly; must use registered employment agencies | Can employ directly |