After staying in China long enough, many foreigners choose to open his own business in China, which will be convenient for the sake of business and also helps with visa.
To open company in China, there are several types and formations.
One is to open a limited company, wholly foreign owned enterprise, WFOE in short. In this formation, foreigners can choose to invest directly or invest with overseas company. If invest directly, shareholder will be the individuals, and needed documents for that is passport and investment proof- a bank referance letter proves that the person is able to invest financially. To promote the business or for the sake of brand popularization, some might choose to invest with his overseas company. In that case, you should notarize all company documents through local Chinese embassy, get a bank reference letter from the bank where you opened company account as a financial proof. The rest will be providing company name, business scope and determine the office address.
Another type is representative office. First of all, only overseas company (HK company included) can open representative office. Second, the overseas company should be over two years old. Then, overseas company should have bank account outside of China. These are the requirements for opening representative office here in China. What is the general process? It's a representative office of overaseas company, so the notarization of all overseas company documents through local Chinese embassy is the first step, the bank referance letter should also be included into the notary. After that, we can continue and complete the process in Shenzhen to get legal registration documents in Shenzhen.
What is the difference? Limited company and representative office?
A. To open limited company, you will need to show that you have enough money to invest first, at least 100,000 RMB deposit in your overseas bank account. For representative office,you only need to show that your overseas bank account is active and has no bad records. And for limited company, you will need to transfer registered capital afterwards, with the new policy, you can choose to do that within 2 years, 5 years or 10 years after you get business license. You will need to do that after all.
B. Time of Process. Now it takes around 1 to 2 months to open a limited company
in Shenzhen with all the required documents. For representative office, it takes 1 to 2 weeks only.
C. Difference in hiring. For representative office, because its function is to represent the overseas company, so it's not an independant company. So representative office cannot hire employees directly. In order to hire someone, you wil need to add him or her as representative first. And one representative office can have 4 representatives in total at most. If you want ot hire more, you need to do that with foreign service company and sign employment contracts with employees as three parties, your representative office, employee and foreign service company. This way, you will need to pay foreign service company related fee every month. With limited company, you can hire employees directly and there is no limitation on number of staff.
D. Difference in tax. Representative office pays tax according to the office expense, unlike limited company, which pays tax according to the company profit. As representative office cannot engage in any economic acitivities directly, it surely won't have any income. So it pays tax according the office cost such as rent, staff salary and other office expenses. Limited company, Chinese owned or foreign owned, pays tax according to profit.
E. Official invoice (Fapiao) issuing. Represntative office cannot issue official invoices to clients as its function is to represent only. If your clients are mostly outside of China, it doesn't matter then. Limited company can buy blank invoices from tax bureau and issue invoices to clients in China.