How To Prepare For China Company Incorporation
China company incorporation is a hot topic now, and it is easy to see why: most jurisdictions that go there grow rapidly and become revered multinationals. For about four decades, China has experienced rapid economic growth, and the wave is not showing any sign of abating.
Therefore, this is an excellent moment to jump in, maximize profits, and grow into a global brand. You cannot be left behind, but how do you go about setting up a company in China?
This post is a comprehensive guide to opening a company in China to help you prepare appropriately. We will also highlight the current economic situation in the country and the importance of working with an agency of experts.
Overview of China’s Economic Situation:
- China has the globe’s fastest-growing economy, averaging 10% over the last 30 years.
- China’s GDP in 2021 was USD17.7 trillion, which was only second to the United States.
- China is home to the three world’s largest stock markets, Hong Kong, Shanghai, and Shenzhen.
- China’s population is 1.41 billion, according to the 2020 census estimates.
- In 2020, China was the largest recipient of foreign direct investment (FDI), which totaled USD163 billion.
- China is home to more than 200 privately held tech unicorns, each valued at more than USD1 billion.
- China is the largest manufacturing economy and also boasts of the fastest-growing consumer market.
- Services contribute about 51.6% of the Chinese GDP. Industry (40.5%) and agriculture (7.9%) come second and third, respectively.
Prepare Ample Capital for Your Company Operations:
Forming a company in China is just not so much different compared to other places, only that this time, it is offshore. Therefore, you need to be prepared appropriately with ample finances.
Although there is no minimum requirement to open a company in China, you need to have ample cash to meet all the expenses. Here are some of the costs that you need to factor in when considering China company incorporation.
- Cost for incorporation.
- Payments for additional permits (where necessary).
- Market research-related costs.
- Payment for hiring staff.
- Cost of buying machinery and hiring staff.
- Advertising-related costs.
- Cost for product development.
As you can see, these are the primary costs of starting a business, but the rule of thumb is to ensure you have enough funds to run the company for about one year.
By the close of the year, your company in China is expected to have become self-sustaining. If not, you should also have plans for mobilizing additional resources.
Understand the Accounting Standards Used in China:
Right from the start, you should appreciate that the accounting standards used in China are different from the International Financial Reporting Standards (IFRS).
In China, you need to use the Chinese Accounting Standards (CAS), which feature some notable differences. For example, IFRS allows accountants to select between the re-evaluation method and the historical cost evaluation model. However, CAS only allows one method of appraising assets: historical cost evaluation.
Understand the Procedure for a China Company Incorporation:
The process of China company incorporation can be summarized in the following nine main steps:
- Select the preferred company name, and have it approved, and reserved by the State Administration of Industry and Commerce (SAIC).
- Do a feasibility study for the company that you want to register in China.
- Select the preferred company scope.
- Get the company’s address and a legal representative in China.
- Prepare all the documents, including the list of controlling partners, legal address, articles of association, registered capital, and details of directors and shareholders.
- Apply for a certificate of approval from the Ministry of Commerce (MOFCOM) and the State Administration of Finance (SAIC).
- Register your business with the Public Security Bureau (PSB) for company Chops.
- Open a bank account.
- Register the company with the tax bureau.
As you can see, the process of China company incorporation is never easy, and it is crucial to be prepared adequately. The main challenge comes from the long list of documents needed for registration and the fact that you have to deal with different departments.
The good thing is that Primasia, one of the best agencies for China company formation, is here to help you. Primasia works with professionals that you can count on to learn about the Chinese market, register your company offshore, and comply with all legal requirements.
They do not stop there. In addition, Primasia will be there to help you craft a winning market entry strategy and, later, payroll management, accounting, and filing tax returns.