China is one of the fastest growing economies in the world and is expected to surpass the United States and become the world's largest economy over the next few years. In recent decades, the country has opened to a free-market, welcoming a large amount of foreign investment.

As a sign of a strong commitment in opening the economy to foreign investors, and to stimulate local consumption, China issued a new Foreign Investment Law (FIL) in 2020.

However, setting up an entity in China can be quite complicated as regulations are often changed and vary from city to city and province to province. 

Download the China Business Guide

How to set up a company in China

Foreign-invested enterprises

Companies can be set up by or with foreigners in China. Since the FIL took effect, the provisions of the “P.R.C. Company Law” and the “P.R.C. Partnership Enterprises Law” have applied to the organizational forms, institutional frameworks, and standards of conduct of foreign-invested companies.

In fact, the "P.R.C. Chinese-Foreign Equity Joint Ventures Law," the "P.R.C. Wholly Foreign-Owned Enterprises Law" and the "P.R.C. Chinese-Foreign Contractual Joint Ventures Law", governing the three traditional types of foreign-invested enterprises (FIEs), such as Wholly Foreign Owned Enterprise (WFOE), Equity Joint Venture (EJV), Cooperate Joint Venture (CJV), were simultaneously abolished.

Foreign-invested enterprises that are established in accordance with one of the aforementioned abolished laws before the new FIL took effect may retain their original corporate organizational forms, and so forth, for five years after the implementation of the new FIL. The specific implementing measures are to be formulated by the State Council.

Therefore, depending on the foreign shareholding ratio in an LLC or a Company Limited by Shares, it would still work to make reference to a wholly foreign-owned enterprise (WFOE) or a Sino-foreign joint venture enterprise in an economic sense. However, a WFOE or JV, including an equity joint venture (EJV) or cooperate joint venture (CJV), would no longer exist as a legal form. All foreign-invested enterprises (FIEs) in China will take the legal form of either a Limited Liability Company, Company Limited by Shares or a Partnership.

starting a business in china

The new FIL changed the landscape of the foreign-owned entities in China, such as WFOE and JV and EJV by establishing new legal forms available to investors.

In fact, the new law doesn’t make a distinction between local and foreign investors anymore. As a result, the entities available are now the following:

Limited Liability Company (LLC)

The Limited Liability Company is a separate and distinct entity. An LLC is composed of maximum 50 shareholders with limited liability of their investment amount only. Shareholders can be either individuals or corporations. An LLC may have restrictions on the transfer of shares.

After all shareholders have made their capital contributions in full, such contributions must be verified by a statutory capital verification institution which shall issue capital verification certificates.

After the total capital contributions of the shareholders have been verified by a statutory capital verification institution, application shall be made to the company registration authority for incorporation. A representative designated by all the shareholders or by an agent jointly entrusted by them, shall submit such documents as an application for registration, the articles of association and the capital verification certificate.

The date of the issuance of the company business license shall be the date of the incorporation of a limited liability company.

Company Limited by Shares (or Joint Stock Company)

The total capital of a Company Limited by Shares shall be divided into equal shares. Shareholders shall assume liability towards the company to the extent of their respective shareholdings, and the company shall be liable for its debts to the extent of all its assets.

It is a separate and distinct entity, incorporated by means of sponsorship (by means of subscription by the sponsors for all the shares to be issued by the company) or by means of share offer (by means of subscription by the sponsors for a portion of the shares to be issued by the company and offer of the rest to the general public).

To incorporate a Company Limited by Shares, there shall be five or more sponsors, of which more than half must have their domicile in China.


Other types of entities in China

open company in China

Representative Office (RO)

The RO is not a legal entity, and it must confine its activities strictly to conducting market research and feasibility studies on the viability of setting up a permanent entity in China (limited scope), inclusive of the following:

  • Collect information about markets, competitors and/or customers;
  • Conduct research on the demand for the product and/or service;
  • Gather information on business regulatory requirement for subsequent set up of permanent entity;
  • Cultivate trade contacts and handle product enquiries;
  • Participate in exhibitions and trade shows;
  • Other incidental and supportive roles.

The RO cannot engage in profit-making activity in China and can only complete non-sales functions. Due to its limited scope of business, and relatively low tax contribution (if compared to a subsidiary), the RO is generally discouraged by the Chinese government, as it does not bring enough added value, expertise, technology, nor tax contribution to the country.

setting up company in china


A branch office is considered an extension of the foreign company and not as a separate legal entity. The parent company of a branch office entity is implicitly liable for all the debts and liabilities of the branch office. In fact, it is considered the same legal entity as the overseas company. The parent company must appoint its representative or agent in China to take charge of the branch and shall allocate to the branch funds commensurate with the business which it is to engage in.

Profit-making activity can be conducted at a branch office. There is no limit in the amount of investment or ownership of a branch office. However, the branch office is confined to the operations detailed by the parent company. Unless otherwise prohibited, the branch office can invoice local customers, sign local contracts and receive income from local customers.

A foreign company that intends to establish a branch in China must submit an application to the authorities in charge in China together with relevant documents such as its articles of association and the company’s registration certificate issued by its country. Upon approval, it shall apply to the company registration authority for registration and for a business license for the branch according to law.

open company in China


A partnership is a business owned by at least two partners (individuals or companies). It is not a separate legal entity from the business owners as they are personally liable for all debts and losses of the partnership.

A Common Partnership enterprise comprises of common partners who bear unlimited and joint liabilities for the debts of the partnership enterprise.

A Limited Liability Partnership enterprise comprises of common partners and limited partners. The common partners shall bear unlimited and joint liabilities for the debts of the limited liability partnership enterprise, and the limited partners shall bear the liabilities for its debts to the extent of their capital contributions.

What is the tax framework in China?


Corporate Income Tax


Individual Income Tax



China taxation has been subjected to several reforms during the last decade. Some of these reforms, without limitations, are referred to the Business Tax to VAT Pilot Reform (B2V reform, from 2012 to 2018) and the Individual Income Tax (IIT reform, effective since 1st January 2019). Nowadays major taxes are listed as follow (other miscellaneous taxes or certain trivial surtaxes on the major tax have not been listed):

Income taxes in China

  • Corporate Income Tax (CIT)Tax resident: 25% in general; a reduced rate of 15% is applied to high-tech companies, another reduced rate of 20% is instead applied to the so-called small enterprises (with the first CNY 1mln of taxable income taxed at 5%, then up to CNY 3mln taxed at 10%) or tax holiday for qualified enterprises under certain incentives

  • Withholding Income Tax (WHT)Non-tax resident: 10% in general, reduced rate as per tax treaty

  • Individual Income Tax (IIT): 3% - 45% on a progressive basis


Turnover taxes and customs duty:


  • Value-added Tax (VAT):
    • 13% on Sales and imports of general goods; provision of processing, repair and replacement services; and provision of leasing services of tangible and movable assets;
    • 9% on Sales and imports of specified goods; provision of transportation, postal, basic telecom services, construction services and leasing services of immovable property and sales of land use rights or immovable property;
    • 6% on provision of value-added telecom services, financial services, modern services and lifestyle services; and sales of intangible assets other than land use rights.

  • Consumption Tax (CT): it applies to 14 categories of consumable goods, including, without limitations, tobacco, alcoholic drinks, cosmetics, jewelry, fireworks, gasoline. The tax is computed based on sales price and/or sales volume.

  • Customs Duty (CD): duties are imposed on goods imported into China and are generally assessed on the CIF (cost, insurance and freight) value.  The rate of duty depends on the nature and country of origin of the imported goods.


Land/Property-related taxes

  • Real Estate Tax (RET): A tax imposed on the owners, users or custodians of houses and buildings at the rate at either 1.2% of the original value with certain deduction or 12% of the rental value

  • Land Appreciation Tax (LAT): A tax levied on the gains realized from real property transactions at progressive rates ranging from 30% to 60%

  • Deed Tax (DT): A tax levied on the transferees or assignees on the purchase, gift or exchange of ownership of land use rights or real properties, with the tax rates generally range from 3% to 5%

  • Stamp Duty (SD): A tax levied on enterprises or individuals who execute or receive "specified documentation" in China and the tax rates vary between 0.005% to 0.1%.



HR & Employment in China

Visa for foreigners

All foreigners who want to stay and work in Mainland China should hold a valid visa. For foreign professionals, there are two main options: M-Visa, Z-Visa.

M-Visa: Commercial trade activities

China business visa (M-Visa) is issued to foreigners coming in China for commercial and trade activities, such as attending trade fairs, visiting clients and factories, negotiating with clients, signing contracts and other commercial activities. The validity period of China M visa is three months in most cases, while the allowed duration of stay is usually 30 days and can be longer depending on applicants' personal cases.

According to China M visa rules, one of the following documents is required:

  1. Invitation letter issued by a Chinese business or trade partner;
  2. Invitation letter or confirmation letter of invitation issued by duly authorized Chinese institutes or relevant units;
  3. Invitation letter of a trade fair.

Z-Visa: Work

Chinese work visa (Z-Visa), is issued to: foreign expert working in China, for commercial performance, chief representative or representative of a foreign company, offshore oil operations, volunteering (more than 90 days), foreigner working in China with a Work Permit issued by the Chinese government.

The Z-Visa itself only allows a stay duration of 30 days from the date of arrival in China, during which time the employer must seek a Temporary Residence Permit for the duration of the work contract, to a minimum of 90 days and a maximum of 5 years. Note that the work visa is usually single-entry and the duration is to be determined by the Temporary Residence Permit the person gets after entering China.

Applicants are divided into 3 categories, from A to C (the standard profiles generally falling within category B), based on: (i) the amount of salary and taxes declared in the previous year, (ii) their university education, (iii) their professional experience and (iv) their level and knowledge of Chinese.

Applicants need to submit one of the following work permits obtained through their employers in China:

  1. Foreigners Work Permit, issued by the Ministry of Human Resources and Social Security of the PRC;
  2. Registration Certificate of Resident Representative Offices of enterprises of foreign countries (regions), issued by Chinese authorities of industrial and commercial administration.
  3. An approval document for commercial performances, issued by the Chinese government authorities for cultural affairs.
  4. Invitation Letter to Foreigners for Offshore Petroleum Operations, issued by National Offshore Oil Corporation.


COVID-19 update

With the world still struggling with the COVID-19 pandemic, the situation of visa issuance in China is everchanging and quite different from the standards of before the pandemic.

Currently the Chinese government only issues visas for work (Z) or business (M); in some cases, also visas for family reunification Q or S. If the traveler has a valid residence permit, there is no need to apply for a new visa.

To apply for business visas (M) it is necessary to provide:

  • The usual documentation for visa application
  • A PU Invitation Letter issued by an authorized Chinese entity


To apply for work visas (Z) it is necessary to present:

  • The usual documentation for visa application
  • A PU Invitation Letter issued by an authorized Chinese agency or a vaccination certificate with vaccine made in China (vaccination course must have been completed at least 14 days prior to travel)
  • The Work Permit or the Work Permit Notification Letter, issued by the Chinese company from which the professional is regularly hired in China.


According to the regulations in force for the control of the COVID-19 pandemic, it is possible to travel to China only with a direct flight, unless there are no direct connections between the Country of departure and China. For boarding it is necessary to have a QR health code: the green QR code HDC (Chinese green pass). To obtain it, it is necessary to submit:

  • A negative result of the nucleic acid test carried out 48 hours before departure
  • A negative result of the serological antibody test carried out 48 hours before departure
  • A valid visa for China (or residence permit)


Nucleic acid tests and serological antibody tests must be performed at one of the facilities approved by the Chinese Embassy.

Want to know more about setting up a company in China? Contact us now