What You Must Know Before Setting Up a Foreign-Invested Enterprise in China

Dear Friends,

Have you decided that the time has come for a more substantial investment in China?

Perhaps, you have so far been relying on local partners, such as distributors or sales agents. But this mode of operation no longer fits the bill.

Sales and demand have grown by leaps and bounds. To meet the surging demand, setting up your own inventory or manufacturing facilities is in order now.

In other words, you are big enough to stand on your own. It is time to take the next logical step by having a more established and permanent presence in China. Setting up a foreign-invested enterprise (“FIE”) is very often the answer.

While you may be keen to set one up without further ado, you should consider the following before doing so.

?? Does your line of business fall under China’s “Negative List”?

It is absolutely vital to check whether your line of business is prohibited or restricted for foreign investment in China. Market access is not a given: the “Negative List” contains the industries and sectors where foreign investment is not allowed.

?? Have you worked out how much working capital you need?

It is very important to anticipate your working capital needs in advance, since this is essential for determining the right amount of registered capital.

Although the minimum registered capital requirement has been dropped, you should, in practice, ensure that the amount is enough to cover the working capital needed until the company reaches break-even point.

Learn more about registered capital in China and what is considered acceptable forms of capital contribution.

?? Do you have a clearly defined business scope?

The business scope refers to a list of activities that your FIE is allowed to conduct in China. As you can only issue tax invoices for those specific activities, it is crucial to make sure that your business scope is as accurate as possible.

Thinking of covering all your bases? A “catch-all” business scope is, however, very unlikely to be approved by the authorities.

Find out what else you should take into account before establishing an FIE and what the procedure involves.

If you are considering setting up in Shenzhen — China’s national city of innovation — take a look at our comprehensive Step-by-Step Guide to Setting Up a Company in Shenzhen.

The different procedural and paperwork requirements are understandably complex. We can sort out all the details on your behalf — from the initial stages of planning to implementation and ensuring that your future business operations run smoothly. Drop us a message here to learn more. We will be glad to assist.