How to start trading in China is one of the most popular questions a business-minded person would likely ask about. Since China is well-known for its cheaper products, many see the country as a potential for business especially when it comes to trade. A trading WFOE is so far the best option to make your business plan a reality.
Read our article on An Investor’s Guide to Incorporating WFOEs in China
This article will provide you with the steps and procedures for registering a trading company in China. So, keep reading!
What is a WFOE for trading?
Firstly, WFOE stands for Wholly-Foreign-Owned-Enterprise, one of the three types of business structures that can operate in China. The other two types include Joint Venture (JV) and Representative Office (RO).
WFOE is considered the best kind of structure to set up because it is 100 percent owned, capitalized, and operated by foreign investors. Hence, one can conduct business freely without needing a Chinese local partner especially during the process of registration. Furthermore, this type of structure is very common among overseas companies that want to incorporate their business into Mainland China.
After deciding to go for a trading WFOE, you will need to identify your business scope. Moreover, you will have to go through the registration process within 30 working days.
How to register for a trading company
Business scope
China has its unique way of allowing foreign businesses and that is to determine the business scope of a foreign-invested enterprise. For a trading WFOE, China’s Ministry of Commerce mandates five aspects that fall into this business scope.
- Trade agent
- Wholesale
- Retail
- Franchise
- Export and Import
Generally, registering a WFOE involves getting a five-in-one business license, however, a trading company under export and import needs to obtain an export/import license as well. On the other hand, a trading company is usually established in the form of a “foreign-invested commercial enterprise (FICE)” structure. This structure basically covers the business scope mentioned above.
Registration capital
Not having a minimum registered capital is one good aspect of establishing a WFOE. With that said, opening a trading company will be cost-effective. However, in terms of wholesale and retail companies, the registered capital should amount to RMB500,000 and RMB300,000, respectively.
Nevertheless, the registered capital can be paid at the initial stages. First, the applicant can pay 20 percent of the required amount after the company is registered within 90 days. Then, the remaining percentage shall be paid after the issuance of the business license within 2 years.
General steps to follow
1. First, pick a location, rent an office, and register the office’s address.
2. Then, decide on a company name both in English and Chinese and register at the State Administration for Market Regulation (SAMR).
3. After that, apply for a business license and request for the import/export license and qualification as a trader.
Documents needed:
- Application form
- Feasibility study report
- Contract or article of formation
- Bank certificates and audit reports of investors
- List of goods to be traded
- Identity certificates or passport copies
- Pre-approval notice from the Ministry of Commerce
- Real estate leasing contract and compliance certificate
- List of board directors
- Evaluation report for state-owned assets
4. Finally, follow post-registration procedures.
- Open a foreign bank account.
- Register for trademark intellectual property.
- Obtain a company seal from the Public Security Bureau.
- Register for taxes.
Tax registration
The corporate income tax for WFOE ranges from 15 percent to 25 percent while income on the profits is taxed up to 35 percent. Moreover, general taxpayers need to pay from 0 to 17 percent VAT rate, while small-scale taxpayers pay 3 percent.
The tax registration not only emphasizes tax requirements but also ensures that a trading company is also able to provide a “Chinese fapiao” to prove its legal transactions. Furthermore, the Chinese fapiao or tax invoice is crucial for businesses to avoid tax complications with the Chinese tax system.
Opening a trading company in China requires payment of VAT for traded goods. In return, registered trading companies can apply for a VAT export refund or rebate. Recently, China has announced an increase in tax rebates intended for export enterprises. Due to the impact of COVID-19, China extended support to export trading companies by increasing the VAT refund rate by 9 percent and 13 percent for a number of products.
See more details here: Export Enterprises to Benefit from Increased Tax Rebates
Classification of traded goods
As in any trading system per country, China also sets certain classification standards for trading goods. The commerce department in China demands foreign traders to register the list of goods they intend to import or export. Knowing what is allowed or not to trade is crucial in determining whether to start a trading business in China. Hence, anyone who wants to get into the trading venture must have knowledge of China’s trade restrictions on exported or imported goods.
On imported goods
Imported goods are categorized as permitted, restricted, and prohibited.
Permitted: Only requires an automatic license.
- Meat products
- Textiles and clothing
Restricted: Limitations imposed by tariff quotas and mandatory license.
- Electronic and mechanical products
Prohibited: Banned from import into China.
- Toxic substances
- Arms, ammunition, explosives
On exported goods
Exported goods require three types of licensing and are valid within six months of the issuance year. For more information on export licensing, contact us, and arrange a consultation with our experts.
Marketing your company
Before setting up a trading company, you must also consider localizing your market in China and therefore, start making more profits.
One of the ways to effectively market your company is to build an online presence and thus, launch a company website. Most companies involved in e-commerce trade can enter into the Chinese market more successfully through an online platform. However, it is not as easy as just creating your website. You need to go through the process of obtaining an ICP license for a China-based website to reach out to potential customers.
Check out: ICP License for a China-based Website: Why You Need It
But no worries, our team can provide full assistance and get your license procedure done within 10 days for those located in Shanghai. Just send your request to our Professional IT services page and our IT experts will get in touch with you.
Key takeaways
Setting up a trading WFOE could be the most viable option especially for foreign investors. However, one must take into account the experience of doing business in China. Foreign investors with less experience may prefer a joint venture with a local partner. This may mean better access to local customers and more expansion of sales. Thus, it may be more preferable as an investment vehicle.
On the other hand, WFOEs can be much more profitable and convenient given the sole control of business operations and expertise in foreign trade investments concerning China.If you want to know more about doing business in China, contact our team for consultation and assistance. Follow us on social media to get the latest news!
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