China Company Formation:
Requirements in 2021

Company names in China should follow certain rules:
1) They have to start with the name of the city / place they are incorporated;
2) They have to include the business scope.

For e.g. “Shanghai XXX International Trading Co., LTD” in case of an import-export trading company,  or “Shanghai XXX Trading Co., LTD” in case of a domestic trading company (which sells in China only), or “Shanghai XXX Consulting Co., LTD” if it’s a consulting company, “Shanghai XXX Culture Communication Co., Ltd.” if it’s a skills training and culture promotion company, “Shanghai XXX Technology Co., LTD” if it’s an IT and Technology company, and so on – you just need to replace “XXX” with your name choices. Please note that the English name of the company will only appear on the official seal (main company chop) of the company, i.e. it’s not written, nor mentioned in the business license, bank or tax system. Chinese name of the company will always be the main name of the company. Therefore, if you know Chinese or have someone in your team who knows the language, we recommend that along with English name choices, you give us Chinese name choices too. Rules and format for Chinese names are exactly the same as mentioned above: 1) starts with place of registration 2) must contain business scope.

Although it’s not specifically mentioned in the company laws, local governments always have a recommended amount for registered capital in Cina. For e.g. if you register your company in an economic zone in Pudong district of Shanghai, the management of that particular economic zone will tell you exactly how much is the minimum registered capital for their economic zone. As for paid up capital, it’s not always required – trading and consulting companies, for example, do not have any paid up capital, and they can be registered and start doing business with only registered capital. Obviously, some types of companies still have paid up capital requirements, for e.g. comapnies in banking, finance, manufacturing etc. if you want to register a company which requires a paid up capital, you can contact us for more information.

In average, registered capital for trading companies in Shanghai is between $150,000 and $300,000 – exact amount will depend on the local government requirements, shareholders’ business plans and other business aspects, so it can be minimum $150,000 and up. Registered capital for consulting companies can be much lower, in average it’s between ¥100,000 (RMB) and $150,000. Registered capital can be in RMB or USD – shareholders of the company can choose based on their business plans and preferences. Registered capital, as a rule, can be innjected within the validity period of the business license of the company, and it’s normally 30 years or more. If, however, business does not work and the shareholders decide to liquidate the company, they can do that without injecting any capital, provided the company does not have any outstanding tax or credit payments or other issues with the government or investors.

If the sahreholders of the company decide to inject the registered capital in China, they can do it by opening an investment account – a separate account from the main account of the company. Investment account is opened in the same bank where the company opens its main account. The difference between the investment account and the main account of the comapny is that investment account can only take investment payments and they are not subject to taxation, whereas the main account of the company can only receive payments from clients and those payments are subject to being taxed, and are treated as income.

Corporate bank account of the company in China can be opened right after the business license of the company is issued by the company registrar – this step is #3 in the whole process, i.e. #1: name regstration of the company #2: incorporation application and #3: corporate bank account opening.

Corporate bank account opening process requires the company director visit the bank at least 1-2 times. Therefore, if the company director is not in China, shareholders should either consider appointing a nominee director or wait until the company director can travel to China. When the company director is able to attend a meeting with the bank official, we first will make an appointment for the meeting – most of the banks do not accept unscheduled visits – then one of our staff will go with the company director to the bank and will assist with the process. Each visit, depending on the bank schedule, might last between 1 and 3 hours.

General requirements to open a corporate bank account in China are:

1) Registered office of the company (bank official will visit this place together with the company director – our company formation package includes this type of address. NOTE: not all company registration addresses can be used for bank and tax registration);
2) Set of company documents, including all the official seals (company chops);
3) Original passports of the company director and supervisor;
4) Real name authentification from the mobile number provider in China;
5) Around 1200 Yuan to cover the corporate bank account service fees.

By default, main account of the company will be in Chinese currency – RMB, and, like in most countries, the main account will be linked to the tax office so they can deduct taxes when due. Therefore, in the first visit to the bank, company director can open company’s main – RMB account. USD or foreign currency (can have multiple – separate foreign currency accounts) account(s) of the company can be opened in the second visit to the bank. Because, company will have to apply and obtain a special permit from the Ministry of Commerce before it can open a foreign currency account. You can read more about corporate banking in China in our previous article / podcast.

Company tax registration can be done after the RMB (main) account of the company is opened. Like the bank, tax offce also requires a personal visit of the company director – it’s a very short, ID verification visit, normally lasts no more than 15 minutes.

There are two different types of licenses in China:
1) General licenses – given for products and services which do not require special license.
2) Special licenses – given for products and services which require special license.

Depending on the specific situation, a company can apply for import-export license at the custom office and relevant government departments after opening its foreign currency account. Like the bank and tax office, custom offices are also requiring a personal visit of the company director nowadays. General import-export license is very straightforward to apply and obtain – it does not involve any other government department than Custom Office, and takes around 12 business days to get. However, special licenses might take considerably longer to apply and get, and they do involve different other government departments, not only the Custom Office.

E-Port stands for “Electronic Port”, and import-export companies can apply for it at the Cusom Office when they submit an application for import-export license. E-Port is used for the import-export process, and like the name suggests, it gives companies an electonic access to Chinese ports – using an E-Port system, companies can sign agreements with different ports around China, and process their imports and exports in through this system. It’s a mandatory device for all international trading (import-export) companies in China. Without E-Port, companies cannot legally import or export any products under their name.

A limited liability company can have only one controlling / managing director, which is also called a “Legal representative” of the company. Legal Representative of the company, by default, will have absolute controlling powers – they can do pretty much everything (within the law) with the company, unless the shareholders (ultimate owners) and the director (Legal Representative) sign an agreement specifying the rights and obligations of the director (Legal Representative). A company can also have a board of directors and appoint several directors on the board.

A limited liability company in China can have only 1 main supervisor (manager), and if it decides to have a board of supervisors, it can appoint several supervisors on the board too.

Companies should file for taxes every month and year (annual report) in China. Company accountant (should be a licensed accounting company – NOT an individual, also NOTE: foreigners are not allowed to have an accounting license in China, so the company accountant CANNOT be a foreigner individual or a company either) should file for taxes periodically, without any delays. Failing to do so will cause unnecessary fines and penalties.

Companies should send the following to their accountants every month:

1) Company bank statements for all the accounts;
2) Cost and expense invoices and wage sheets, and other important records;
3) Copies of agreements;
4) Copies of payment confirmations (Alipay, WeChat etc.).

In order to avoid any issues with taxation, we recommend staying in touch with the accounting firm that manages the company’s accounting, and send all the required documents to them without any delays. Our company formation package includes accounting service too, so our accountants always remind our clients about the filings in advance.