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Incorporation Procedure


PROCEDURE FOR ESTABLISHING A REPRESENTATIVE OFFICE
 
Foreign companies willing to establish a RO in China shall be at least 2 years old.
 
In most industries, the establishment of a RO simply requires registration with the Administration of Industry and Commerce (“AIC”). Among the documents to be submitted, applicants shall present proof of the foreign company’s domicile and proof of its lawful business operations for at least 2 years. If the documents are satisfactory, the AIC shall issue a registration certificate (the “Registration Certificate”), upon which the RO is officially established.
 
However, foreign applicants carrying out financial, insurance and/or security activities shall first apply to the Chinese authority in charge of their industry (the “Approval Authority”), for prior approval of the establishment of a RO (for instance, a foreign insurance company willing to establish a RO in China shall first require approval from the China Insurance Regulatory Commission). Upon examination of the relevant documents, the Approval Authority shall issue an approval certificate (the “Approval Certificate”) for the establishment of the RO. The applicant company shall thereafter apply for registration with the AIC within 90 days from the issuance of the Approval Certificate. After examination of the relevant documents, including the Approval Certificate, the AIC shall issue a Registration Certificate.
 
Registration of a RO takes between 1 and 2 months. The Registration Certificate issued by the AIC is valid for a term which varies depending on the particular industry of the foreign enterprise, and needs to be renewed upon its expiration.
 
Post-registration formalities include:

  • obtaining an Organization Code Certificate from the General Administration of Quality Supervision, Inspection and Quarantine of the PRC or its designated local bureau;
  • registration with the Public Security Bureau (“PSB”);
  • opening of a foreign exchange bank account;
  • registration with the tax administration; and
  • registration with the customs.

PROCEDURE FOR INCORPORATING A WFOE
 
Incorporation of a WFOE is a lengthy and burdensome process, requiring the approval of several Chinese authorities and taking overall 5 to 6 months. Procedures for the establishment of a WFOE may slightly differ depending on the intended location of the company (for instance, the regulations issued in Shanghai and Beijing slightly differ).
 
Before launching the incorporation process, foreign investors shall determine the following:
  • place of establishment of the WFOE (city and district);
  • premises of the head office of the WFOE and conclusion of a lease agreement (it is important to ensure that such premises can legally be used as registered office);
  • business scope of the WFOE; and
  • share capital of the WFOE.
 
Business Scope: Definition of the company’s business scope will determine the kind of WFOE to be incorporated (consulting, trading or manufacturing). A WFOE is only entitled to carry out activities falling within its business scope. Any amendment of the business scope requires a new approval procedure, and therefore takes another 5 to 6 months to achieve. Hence, it is important to define it carefully.
 
Share Capital: The last reform of the PRC Company Law, adopted in March 2014, abolished minimum registered share capital requirements and time limits for its contribution. However, in practice, Chinese authorities still require sufficient registered capital to enable companies to carry out their activities. In addition, the impact of this reform is mitigated in the case of foreign investors. Indeed, the regulations applying to FIE (WFOE, EJV, CJV) still impose a strict ratio between the total investment of the project and the amount of the registered share capital. Shareholders loans can only be granted up to the difference between these two amounts (borrowing capacity = total investment – registered capital). Determining a fair registered share capital therefore remains strategic.
 
Standard procedure: Outside the four FTZ, the incorporation of a WFOE requires the following steps:
  • pre-registration of the company name with the AIC (1 week);
  • examination and approval of the project by the local bureau of the MOFCOM (up to 3 months) - if the activity of the WFOE requires a specific license from the Chinese authority in charge of the relevant industry (e.g. food & beverage, finance, publishing, etc.), such license shall be obtained before submitting the WFOE project to the MOFCOM;
  • registration of the WFOE and issuance of a business license by the AIC (up to 1 month);
  • post business license formalities, including: making the company’s chops, opening of a bank account (1 to 6 weeks), registration with the Statistic Bureau, registration with the tax authorities (including VAT registration), registration with the administration in charge of foreign exchange, registration with customs, etc.
 
PROCEDURE FOR ESTABLISHING A JV
 
The procedure for establishing a Sino-foreign JV may vary depending on the location and the ownership structure of the Chinese party.
 
First, the Chinese party shall submit a project proposal and preliminary feasibility study to the MOFCOM or its local counterpart (and to its superior governmental department if such Chinese party is a State-owned enterprise).
 
Once the Chinese party has received initial approval from the relevant approval authorities, the parties shall prepare a joint feasibility study that reflects their assessment of the economic viability of the JV project. The parties shall then proceed to negotiate and draft the JV contract and articles of association of the JV. Once those documents are completed, the parties shall carry the following steps:
  • pre-registration of the JV name with the AIC (1 week);
  • examination and approval of the project by the MOFCOM or its local counterpart (for that purpose, the parties shall submit an application form, the joint feasibility study, the JV contract and articles of association, as well as other relevant documents) (up to 3 months);
  • registration of the JV and issuance of a business license by the AIC (up to 1 month);
  • post business license formalities, including: making the company’s chops, opening of a bank account (1 to 6 weeks), registration with the Statistic Bureau, registration with the tax authorities (including VAT registration), registration with the administration in charge of foreign exchange, registration with customs, etc.
 
Overall, the establishment of a JV takes 4 to 6 months.
 

SIMPLIFIED PROCEDURES WITHIN THE FREEE TRADE ZONES
 
Setting-up an FIE (whether a WFOE or a JV) within one of the four existing FTZ is simpler and faster. Under a “one-stop” application procedure, all application materials shall be submitted and handled through the AIC in the FTZ. The approval and filing procedures shall be conducted via inter-departmental circulation, after which the various licenses and certificates (including the business license, enterprise code certificate, and tax registration certificate) shall be issued to the applicant(s) altogether by the AIC. Duration may still vary from a business to another, especially when it comes to restricted industries. But overall within the FTZ, the registration of a WFOEs and JVs shall be shortened.

September 2015

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