Your China business is flourishing and you are ready to open a second office. Well done! Once you get over the initial excitement of expanding your presence to a new city, you might be wondering how to formally establish your new branch office. The good news is that it is a relatively more streamlined process than opening a WFOE. However, there’s still a substantial amount of paperwork involved.
Take a look at some of our previous articles: How to Open a Representative Office in China?
In this article we introduce some distinctive features branch offices in China, setup requirements and tax implications.
Branch Office: A Definition
The Company Law of the People’s Republic of China and Administrative Regulations of the People’s Republic of China on Company Registration are the two main reference texts clarifying regulations around branch offices. In particular, the latter provides a definition of a branch office. According to article 39, a branch company refers to an organization established by a company to engage in business operations outside its place of residence.
Pre-Registration Compliance Requirements
Below are some key aspects to consider before starting the branch office incorporation process:
- Branch Name: Unlike a subsidiary, a branch office is not considered as a separate legal entity but an extension of the head company. This is reflected in the naming pattern of China branch offices. For example:
Alibaba’s Headquarters Registered Name: 阿里巴巴(中国)网络技术有限公司
Alibaba’s Guangzhou Branch Registered Name: 阿里巴巴(中国)网络技术有限公司广州分公司
As seen from the example above, the name of the branch should consist of the WFOE name + branch location+ Chinese word for “branch” (分公司).
- Legal Representative: The branch office must appoint 1 representative to manage the day-to-day operations of the branch. This person can be foreign or Chinese and must have the necessary documents to legally work and live in China.
- Business Scope: Branch office cannot conduct activities that are outside of the headquarters’ business scope. The branch’s business scope should be specified in the articles of association of the company. In addition, if the new branch office needs to amend the scope of its activities, it should seek approval of the competent authorities.
- Registered Office Location: An office space lease should be secured prior to registration of the branch office.
How to Open a Branch Office
The process for opening a branch office is much less intimidating than it is for opening a WFOE for the first time. There are essentially 4 key steps to follow in order to open your branch office. Let’s go through them one by one:
1. Online Pre-Filing
In 2018, the Chinese government implemented a new Integrated Registration Service system, known as 一窗通 to facilitate business registration throughout the country. As an entrepreneur or business owner, it means that you won’t have to run between different bureaus and administrations to register your new venture. You can in fact start your application in the comfort of your own office.
In Shanghai for example, you can submit documents for an online pre-screening on the Municipal Government’s website.You will need to create an account, input your head office’s business license number and choose a name for your branch office (subject to approval). Then you will be asked to upload the following supporting documents:
- Head office business license
- ID/Passport of the branch office’s representative
- ID of the agent in charge of the application
- Office lease agreement
2. Business License Application
Authorities will review your documents and provide a decision after within 1 working day. Assuming everything is in order, you will then have to bring original paper copies of the documents to the relevant Municipal Government office for on-site verification. Below is a detailed list of documents you should prepare:
3. Other administrative formalities
Depending on the branch office’s activities, you might be required to open a bank account and complete social insurance registration if you want hire employees for your daily operations. Our finance experts can provide guidance and advice on the best type of bank account to open according to your business needs – contact us with any questions.
Taxation of Branch Offices
Generally speaking, branch offices are subject to the same Corporate Income Tax (CIT) rates as their head office. Filing-wise, there are two options:
- If the branch office doesn’t have its own accounting system, all tax declarations should be submitted by the head company on a consolidated basis.
- If the branch office has its own, independent accounting system, it can file its taxes directly at the local Tax Bureau.
As of June 2019, China’s standard CIT rate is 25%. For more information on the CIT, make sure to check out our Corporate Income Tax Guide.Need advice on setting up your China business? Get in touch with our team for a consultation and follow us on social media to receive the latest news.
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