Your Questions, Answered.
Structured guidance for investing and operating in China.

01

What are the differences between a trading enterprise, a manufacturing enterprise and a service enterprise?

A practical comparison of operational scope, tax treatment and registration expectations across three common enterprise models.

OPERATIONS

1. Manufacturing enterprises process or assemble tangible products and usually involve the procurement and processing of raw materials. In some cases, R&D businesses may also be treated as manufacturing enterprises if their work includes processing activities.
2. Trading enterprises are principally engaged in the purchase and sale of goods for profit.
3. Service enterprises provide intangible services, such as consultancy, technology transfer and licensing. As a general rule, they do not trade in physical goods.

TAXES

1. Manufacturing enterprises are generally subject to VAT, calculated as output VAT minus input VAT. Historically, standard rates in this category were 17%, with reduced rates such as 11% or 6% applying to certain industries. From May 1, 2018, the 17% rate was reduced to 16%, and the 11% rate was reduced to 10%.
2. Small-scale taxpayers may issue VAT general invoices rather than VAT special invoices and apply a 3% rate on pre-tax sales. Corporate income tax is generally 25% on net profit, although certain small and micro enterprises may qualify for preferential treatment.
3. Trading enterprises are also subject to VAT. Historically, the standard rate was 17%, later reduced to 16%. Export VAT refund rates typically ranged between 5% and 17%, and later between 5% and 16%, depending on the product category.
4. Service enterprises often issue VAT general invoices and may be taxed at 3% on pre-tax sales, although some service industries, such as advertising, may be subject to different rates. Corporate income tax is generally 25%, again subject to any applicable small-enterprise relief.

COMPANY REGISTRATION

Under the Company Law, the minimum registered-capital requirement for a multi-shareholder limited liability company was reduced to RMB 1 from March 1, 2014. Single-shareholder companies, sole proprietorships, partnerships and certain regulated industries remain subject to their own rules.

In practical terms, recommended capital levels still depend on local policy, operational requirements, the intended business model and ease of registration. We generally use the following benchmarks:

1. Manufacturing enterprises: approximately USD 500,000 in subscribed capital. Registration commonly requires a plant lease, an environmental impact assessment and fire-safety documentation.
2. Trading enterprises: approximately USD 150,000 in subscribed capital. Registration usually requires an office lease.
3. Service enterprises: approximately USD 50,000 in subscribed capital. Registration generally requires an office lease rather than industrial premises.

Where no board structure is used, the company will usually need at least one executive director and one supervisor. The executive director may also act as general manager and usually serves as legal representative.

02

Pros and cons of setting up a RO

A Representative Office may appear light and accessible, but its operational constraints and tax consequences are often underestimated.

We often see smaller foreign firms, and in some cases individual operators, consider a RO instead of a WFOE. For some, the attraction is the absence of so-called "registered capital". For others, a RO appears less risky and less demanding than a WFOE.

In practice, however, the main disadvantages are easier to understand as a short checklist:

1. A RO is generally not permitted to conduct direct business or trading activities, except in limited cases. It is intended to function as a liaison or representative presence for the parent company rather than as an operating commercial entity.
2. A RO cannot apply for or purchase VAT invoices ("Fa Piao") from the tax bureau. This can materially limit commercial flexibility when dealing with Chinese customers.
3. A RO is still taxed in China. In many cities, this means approximately 6% business tax on total expenses and roughly 3% RO income tax on total expenses when the expense-based method is used.
4. Payroll costs can create a double economic burden, because employee salaries remain subject to tax and social insurance while also feeding into the RO's taxable expense base.
5. A RO cannot normally hire local employees directly in its own name and usually must rely on dispatch or secondment arrangements.
6. A RO also faces restrictions in areas such as vehicle ownership and import approvals, where a WFOE may have more flexibility.

7. To set up a RO, the foreign company usually needs to show two years of continuous operation in its home jurisdiction. Incorporating a WFOE does not impose the same threshold. If, for example, a company has only been established in Hong Kong for one year, it may still pursue a WFOE immediately, whereas a RO application may need to wait until the two-year requirement has been satisfied.

03

An investment project that requires land?

Land-use approvals involve different review paths depending on project size, funding source and local policy treatment.

Land is state-owned in China. Applying for the right to use land involves substantial documentation and can be a lengthy administrative process. Different investment projects fall into three broad documentation categories.

The approval path usually falls into one of three categories:

1. Government-supported projects: these usually require a Project Proposal, a Feasibility Analysis Report and a Commencement Report for Construction Works, and are subject to formal scrutiny before approval.
2. Larger or restricted projects without government funding: these typically require a project application report and a formal review process before approval.
3. Smaller or medium-sized non-restricted projects: these may only require a feasibility report for record filing.

The thresholds for what constitutes a large project or a restricted investment differ by province and city. For example, a real-estate project may only require record filing in one jurisdiction while requiring formal review in another. The documentation burden therefore depends heavily on local policy.

It is also important not to assume that the process ends with these headline documents. Additional supporting materials are often required for each category of investment, and the wider land-use approval process can extend well beyond the initial filing stage.

In some cases, approval may take two to three years. For certain industries, leasing premises rather than applying for land rights may offer a faster route into operation. In other sectors, however, land approval remains unavoidable. The applicable rules may also be adjusted from time to time to reflect foreign-investment incentives.

04

What are the tax obligations of an offshore consultancy firm?

The core issue is whether the offshore entity may be treated as a permanent establishment in China, and how that changes tax exposure.

We have seen growing interest from both foreign nationals in China and Chinese nationals in using Hong Kong companies for consultancy activities. The practical question is usually not whether the offshore company exists, but whether its work in China creates taxable presence and personal-tax exposure.

Case I

A Chinese professional, X, has incorporated a Hong Kong company, ABC, of which he is the sole shareholder and sole director.

Scenario 1

X resides in China for most of the year but does not register a Mainland company or representative office for ABC. He works intermittently on separate projects in China, and the fees are remitted to ABC's Hong Kong corporate account.

Outcome

1. If the projects are genuinely separate and properly documented, ABC may be treated as a non-permanent establishment in China.
2. On that basis, ABC may avoid Chinese corporate income tax on those service profits.
3. If the profits are neither arising in nor derived from Hong Kong, Hong Kong profits tax may also not apply.
4. If X receives no remuneration from ABC, the argument would also be that no personal income tax arises for him in China on that basis.

Scenario 2

X is effectively working on one continuing China project, even if there are breaks in timing between work stages.

Outcome

1. The Chinese tax authorities may regard ABC as having a permanent establishment in China.
2. ABC may therefore become subject to 25% corporate income tax on the relevant profits.
3. If ABC pays X for the China work, that payment may also trigger Chinese personal income tax.
4. Director income may also remain relevant to Hong Kong salaries-tax rules, subject to any relief available under the Mainland-Hong Kong arrangement.

Scenario 3

X asks clients to remit fees directly to his personal account in China in order to avoid the complexity of Scenario 2.

Outcome

1. This is not tax planning. It is tax evasion.
2. ABC may still be liable for Chinese corporate tax if it is treated as a permanent establishment.
3. The funds received personally may still constitute taxable income.
4. The distinction matters: Scenario 1 is tax mitigation within a documented structure; Scenario 3 is unlawful tax evasion.

Case II

A foreign professional, Y, such as an American consultant, lives in Guangzhou for more than six months but less than one year. He has incorporated a Hong Kong company, DEF, of which he is the sole shareholder and sole director. DEF serves both Chinese clients and US clients.

Scenario 1

DEF is not treated as having a taxable presence in China, and its profits are not sourced in Hong Kong.

Outcome

1. DEF may avoid both Hong Kong profits tax and Chinese corporate income tax.
2. Y may also avoid Hong Kong salaries tax and Chinese personal income tax, depending on how remuneration is structured and sourced.

Scenario 2

DEF is treated as carrying on a taxable project in China, and Y is paid by DEF for the China work.

Outcome

1. Chinese corporate income tax may arise for DEF.
2. Y may face Chinese personal income tax on the China-sourced portion of the income.
3. Hong Kong salaries-tax issues may also arise depending on how the remuneration is characterised.
4. US tax consequences may remain relevant because the US and Hong Kong do not currently have a double-taxation treaty, although relief may still be available for Chinese tax paid under applicable US-China rules.

Scenario 3

Y receives China-project income personally and fails to report it properly.

Outcome

1. The exposure may extend across China, Hong Kong and the United States.
2. Depending on the structure and reporting obligations, this may create tax-evasion risk in more than one jurisdiction.

05

Why do people choose RO and FIPE?

The choice is often driven by capital constraints, immigration needs, operational flexibility and varying tolerance for compliance complexity.

We often receive enquiries about setting up a WFOE, RO, JV or FIPE. In some cases, however, the investor does not explain the underlying business line or investment scale, which makes it difficult to give advice tailored to the actual situation. Without that basic context, it is hard to recommend the right structure with confidence.

Some foreign nationals consider a RO because it may support Z-visa applications or residence-permit renewals and allows them to remain in China on a more stable legal basis. A RO is often seen as easier and less expensive to establish because it does not require paid-in capital, and some investors assume that it also involves lighter tax and management burdens than a WFOE. That assumption is not always correct.

In many cases, the foreign investor is using a single-shareholder or closely held company, sometimes incorporated in Hong Kong, and may appoint himself, herself or a family member as chief representative. The practical objective may be to create a lawful basis to live and work in China while keeping the structure relatively inexpensive and straightforward.

FIPE structures, by contrast, are often chosen by smaller investors who still want to operate through a legitimate commercial entity rather than carrying on business informally under the cover of a RO. For clients with limited capital but genuine operating needs, FIPE can offer a more appropriate path.

The right recommendation depends on candid disclosure of the investor's business model, budget, staffing needs and immigration objectives. Without that information, structural advice is likely to miss the mark.

06

How to apply for a Z-visa and a residence permit?

A step-by-step outline of the usual employment-licence, visa-entry and residence-permit sequence for foreign nationals.

We are occasionally asked to provide visa guidance alongside broader market-entry work. The summary below is intended as a practical reference, even though our main work remains focused on feasibility analysis and investment advisory rather than immigration processing alone.

Scenario I

1. Your employer in China will usually apply for the employment licence on your behalf.
2. Once approved, the employer will normally send you the approval documents, an invitation letter and the employment contract.
3. You may also need to complete a medical examination and obtain a health report in your home country or country of residence, unless the local Chinese mission waives that requirement.
4. You then apply for the Z-visa at the relevant Chinese embassy or consulate using the employment-licence materials, the invitation letter and, where required, the health report.
5. After entering China, you will usually complete a further medical examination, apply for an employment permit and then apply for a residence permit.
6. The Z-visa is generally a short-term single-entry visa, and the residence-permit application is usually required within 30 days of entry.

If your spouse plans to join you in China for family reunion, a separate application can generally be made through the relevant Chinese embassy or consulate, provided your status in China is properly documented.

Scenario II

1. If you are already in China on a visa other than a Z-visa, your employer may still begin the employment-licence process.
2. You will usually need to leave Mainland China in order to apply for the Z-visa. Hong Kong or Macau is often used for this step.
3. After re-entering China with the Z-visa, you may then proceed with the employment-permit and residence-permit applications.

Q&A

Question: "I will be working for a Chinese company in Shanghai for several years. How can my spouse join me in China from Country X?"

Answer: Prepare copies of your employment permit, residence permit and employment contract, together with a letter of invitation, and send them to your spouse. Your spouse will also usually need the marriage certificate, or a notarised copy if required. The application can then be filed with the relevant Chinese embassy or consulate in Country X.

07

How long on earth does it take to form a RO?

The distinction between registration time and full formation time is critical when setting realistic expectations.

It is common for different agencies to quote different timelines. In general, foreign agencies tend to provide longer estimates than local Chinese agencies.

There is an important distinction between registration time and formation time.

1. Registration time refers to the period required for the authorities to review and register a RO once the client has already prepared the necessary documents.
2. Formation time covers the full process from beginning to end, including coordination, document preparation, notarisation and consularisation.

Formation time is therefore inevitably longer than registration time alone.

The longest formation timeline we have encountered was approximately six months. In that case, the overseas parent company had instructed a Hong Kong law firm, which likely delegated the operational work onward to another agency. Once several intermediaries are involved, coordination delays become far more likely. In those situations, credibility and perceived reliability are often prioritised over speed.

Why, then, do foreign agencies often quote longer timelines than local Chinese agencies?

There are several possible reasons:

1. Foreign agencies often follow stricter internal procedures, especially around documentation control.
2. They may be less willing to compress turnaround times through overtime-heavy execution.
3. Some agencies quote more cautiously because cross-border documentation and consular work can be unpredictable.

As a practical benchmark, our standard processing time for the registration stage alone is 30 working days, assuming the client has already prepared the required documents.

Some agencies may quote shorter timelines, such as 20 to 25 working days, but we are generally reluctant to compress the process beyond a level we consider dependable.

Document notarisation and consularisation time can vary depending on the country in which the parent company is located. Internal document-preparation time also differs significantly from one client to another.

1. Fast-track case: around 60 working days in total, including the 30-working-day registration stage, if the client can expedite internal documents and notarisation.
2. Normal planning case: around 90 working days in total, allowing roughly 60 working days for preparation and delivery plus another 30 working days for registration.

On that basis, 60 working days, or roughly two and a half months, should be viewed as the minimum practical threshold for forming a RO. A more comfortable and typical timeline is 90 working days, or around four months. If the overall timeframe extends materially beyond that, there should usually be a specific reason.