How to register a foreign company and obtain
Licenses and Permits in China

1. Guide: the reasons to consider setting up a company in China

1.1. 10 compelling reasons to explore establishing a business in China

1. Expand or diversify international sales with a new growth driver and generate profits that can be distributed and repatriated.
   
   
2. Open a sourcing office or export trading subsidiary to secure supply from China. The COVID-19 health context has led European and American importers to set up a local structure. To monitor suppliers and organise group orders, of course, but also to optimise purchasing. In other words, to better manage changes in the cost of raw materials, production and logistics.
   
   
3. Hiring in China to provide technical support or equipment maintenance services. This has become an important selection criterion when customers for technical products are located in China.
   
   
4. Open a sales office to start a domestic sales operation.
   
   
5. Develop and better manage online sales (e-commerce). Chinese consumers are among the most connected in the world. Mastering these flows locally and becoming involved in the local distribution strategy is a major asset for success and profitability control.
   
   
6. Set up an after-sales service and repair workshop for products sold in China.
   
   
7. Set up a manufacturing or assembly unit to reduce costs, lower local sales prices and invoice customers in RMB (CNY). More recently, a French textile importers want to move away from Chinese suppliers who have become fragile or less reliable since the COVID crisis. For others, the challenge is to be able to participate in tenders from China, or to better control logistics flows and costs, as well as Incoterms.
   
   
8. Setting up a warehouse base to develop exports to customers in the Asia-Pacific region. Logistics zones set up in one of China's 21 free trade zones provide a storage base for fast deliveries to customers. In June 2022, the largest complex of duty-free shops opened at the new free port in the Hainan Island Economic Zone.
   
   
9. Sell business-to-customer (B2C) services such as healthcare, vocational training, bars and restaurants.
   
   
10. Provide business-to-business (B2B) services such as engineering for infrastructure projects, construction, training, consultancy or technical expertise.

1.2. Why set up in China in 2025? Review of the context and risks

The country has long been a base for low-cost manufacturing, commonly referred to as the factory of the world. Following the Beijing Olympics (2008) and the Shanghai World Expo (2010), the authorities took steps to rapidly upgrade the country's infrastructure.

This has led to the partial or total relocation of Chinese companies based in coastal regions. Some have moved some or all of their production lines inland. Others have chosen to locate elsewhere in Southeast Asia. For basic lighting products, for example, these relocations began in the early 2000s.

Despite strong growth, significant increases in labour costs and the cost of renting or buying land mean that the region is still competitive with Europe and the United States.

The sectoral breakdown of international companies and subsidiaries in China has remained fairly constant over the past few years. On the other hand, the periodic amendments to the foreign investment catalogues and the “negative list” governing foreign investment, which regulates foreign investment, have greatly encouraged the arrival of SMEs, SMIs and individual entrepreneurs who want to succeed and expand their business internationally. The Sixth Amendment to the Company Law of China, approved on 29 December 2023, took effect on 1 July 2024.

In 2023, the post-pandemic COVID context had a limited impact on foreign investment in China. According to statistics from the Ministry of Commerce, this foreign direct investment (FDI) totalled USD 190 billion, an increase of +12% on the previous year.

2. Understanding diversity and choosing the right location

2.1 Large disparities in economic performance between provinces

China's official statistics show wide disparities in development across provinces. Of the 31 provinces in mainland China, the following disparities can be observed, based on the latest available statistics for 2023.

Against this background, a comparative analysis of the conditions for setting up a business allows to:

• Find out about the project attractiveness and investment conditions in different zones and industrial parks.
• Evaluate the conditions and facilities for setting up in different cities and their districts.
• Evaluate the customs and tax exemptions and tax advantages that can be granted for a project.
• Develop multiple business scenarios, taking into account fixed and variable logistics costs.
• Better identify the success criteria for building a profitable and sustainable business
• Make location choices that take into account transport distances and times
• Select areas where labour availability and costs have been properly assessed.

Every company in China is affiliated to a specific municipality or province, and changing location may require new registration formalities and a new business licence. Tax and customs offices do not have nationwide jurisdiction and their performance is linked to the municipalities. Investors must take account of this competition between provinces in order to negotiate the best terms for their investment.

2.2. What best legal form for setting up a business and developing it successfully?

To guide you, there here are 4 legal forms that a foreign company or entrepreneur can use to set up their own business by creating a new entity. The links provided on these three entities will take you to a detailed presentation of each of them.

	The Representative or Liaison office
	The Sino-Foreign Joint Venture (EJV or CJV)
	The fully 100% LLC owned company or subsidiary (ex-WFOE)
	The domestic branch of a company registered in China

2.3. Where to locate your business in China? expert advice

China is about 15 times the size of an average European country. The decision to set up in such a vast country can be dictated primarily by practical considerations:

• The municipality or province where a Chinese JV partner is located.
  
  
• The city where your first employees are based or where you have the greatest concentration of customers.
  
  
• An area suitable for the activity in question: probably an industrial zones for an assembly or manufacturing activity. There are several categories of industrial zones for export in China. It is advisable to compare the cost of entry (establishment conditions), the quality of the resources required and the availability of premises to rent or land to buy and build on.
  
  
• A Chinese free trade zone for an import business, which would allow you to hold stock under a special customs regime. This is often the choice of foreign companies in the luxury goods sector and importers of wines and spirits. The first FTZ was in Shanghai, but the country now has 21, including the most recent FTZ in Hainan.
  
  
• The region where a construction or engineering project with a Chinese municipality or state-owned enterprise is located. Many international companies are involved in frastructure construction project. These include port projects, solar and wind power projects, nuclear power projects, mining sites, oil drilling and refining, and liquefied natural gas (LNG) production and processing.
  
  
• A location close to an international port or airport. This makes it easier for you and your international clients to get to your offices when travelling to China.
  
  
• The choice of office location has a direct impact on the attractiveness of your company to future employees. It's all about ease of access by public transport and proximity to metro stations.
  
  
• If the nature of your business requires significant lobbying or cooperation with national and regional authorities, a major city such as Beijing, Chongqing, Guangzhou or Shanghai may be a better choice.
  
• Finally, it's useful to know where your foreign and Chinese competitors are located.
  

Useful tip : Depending on the activities you intend to carry out and the legal form you are considering, a comparison may be relevant. By choosing a few locations and comparing the conditions for setting up in different districts, you can draw up different cost assumptions and operating budgets. Rents vary between one and three depending on the district within a city. Social security contributions and taxes vary from province to province. Another important factor: negotiable benefits in some areas, but not all.

3. Administrative and legal guide

Approval to set up a business in China To successfully register a company in sectors subject to specific foreign investment laws, it is advisable to carry out a personalised analysis of the conditions for setting up a business in China. Why should you do this? Local authorities have a great deal of autonomy in applying national investment policies. Conditions are not the same everywhere. This flexibility means that the level of support, investment incentives and benefits are not standardised. They vary from region to region municipality to municipality, district to district, technology parks or industrial zones to free-trade zones. So it's a question of measuring the interest and attractiveness generated by the nature of your project and activity. Attractiveness in terms of the image of your company, your business, your innovations or your know-how, projected tax profitability, impact on investment statistics, etc.

3.1. Formalities in addition to legal registration and obtaining licences

• Tax registration: It is necessary to register with the local tax authorities to obtain a tax identification number and to prepare the relevant tax returns and obligations. This includes the payment of income tax, VAT and local taxes, depending on the target business.
  
  
• Opening bank accounts: to contribute all or part of the capital, organise mandatory deductions and conduct commercial transactions with customers and suppliers.
  
  
  
• Customs registration: rregistration with the Chinese customs is mandatory for activities involving international trade, i.e. import and export.
  
  
• Additional licences and specific permits: Depending on the company's activities and the regulations governing the sector. Sometimes registration with a professional organisation is required. For example, SIFFA or IATA registration in the transport sector, VATL licence for cloud and telecom activities, NMPA certificate for cosmetic products. See more examples of specific licenses.
  
  
• Social security registration: An employer in China must be registered with the social security system and pay social security contributions for its employees. This includes social security schemes such as medical insurance, old-age insurance, unemployment insurance and industrial injury insurance.
  
  
• Maintaining accounting records and annual reports: It is necessary to keep accurate records of business activities in China. Accounting registers, shareholder registers and minutes of meetings. An annual audit report must be submitted to the authorities to maintain good standing.
  
  
• Renewal of licences, permits and registrations: Certain registrations, licences or certificates have a limited period of validity and must be renewed regularly. It is important to keep track of these expiration dates and renew these documents in a timely manner to avoid legal or administrative roadblocks.
  
  
  
• Regulatory compliance: Comply with applicable laws and regulations, including personal data protection rules and contractual clauses. For example, comply with Chinese laws on advertising or the export of personal data. Global compliance means ensuring compliance with safety standards. This applies to manufacturing activities, of course, but also to the use of sensitive products (food or medical devices). Intellectual property and other sector-specific regulations must also be taken into account. All in all, you need to remain vigilant in order to adapt your business practices to the ever-changing Chinese legislation.
  

With our team and network of partners, we also offer :

Finding industrial premises, warehouses forhazardous and chemical products, clean rooms. Work visa and residence permit formalities. Accounting, tax returns and annual audits. Corporate credit management and directors' liability.

• Search and recruitment of directors, subsidiary directors, managers, sales staff, technicians and engineers, local Chinese and Western staff.

• Review or drafting of employment and customer contracts and their translation into French or English.

• Appropriate intellectual property management to protect trademarks and patents.

• Comparison of approved service providers for construction work, upgrading of industrial buildings and warehouses, and fitting out or renovation of offices.

• Drafting of internal regulations in accordance with Chinese labour laws.

• Advising subsidiary managers and coaching entrepreneurs on business conduct and negotiations.

• Setting up offices or sales offices to support development in other Chinese locations.

3.2. Negotiating and resolving disputes with the Chinese authorities

Foreign companies in China may face problems with expired licences or permits, or bureaucratic obstacles. Complications often arise with Chinese customs, health authorities (NMPA or CFDA) or tax authorities, especially during audits or inspections. These problems are sometimes linked to a legal form or permits that no longer reflect the company's new activities.

As of May 2021, Chinese regulations for the approval of beauty products, medical apparatus and pharmaceuticals have become stricter for both imported and local products. These new regulations are leading to rigorous inspections and an increasing number of disputes, often related to competition and consumer complaints, which are managed by SAMR. Regulatory compliance is critical to maintaining a company's image. We offer our mediation expertise to effectively resolve these disputes with the Chinese authorities.

3.3. Negotiating the dormancy status of a company in difficulty

Since 1 March 2022, an update to China's company law has allowed a company or subsidiary to apply for temporary cessation of operations status. This measure was designed to help domestic companies that are experiencing difficulties, for example due to the impact of Covid. This solution significantly reduces operating costs in the event of temporary difficulties. However, it is subject to certain conditions and formalities. Find out more about the legal measures available to a company incorporated in the PRC.

4. Conclusion and summary of the keys to successful business creation

4.1. Summary of key factors for successful establishment in China

Successful establishment in China depends on a number of key factors: understanding the market, choosing the right legal form, locating in a favourable economic environment and taking into account local specifics such as tax regulations and labour costs. In addition, access to specialised or free trade zones can offer significant tax advantages.

 

4.2. Advice for prospective investors

Foreign investors are advised to carry out a comparative analysis of different cities and districts in order to better understand and optimise the costs of setting up. Rents and social security contributions vary considerably from one province to another. So does the availability of certain human resources. Using a local expert can simplify administrative procedures and improve the conditions for setting up a business by negotiating local tax incentives.

 

4.3. Outlook to 2025 and beyond

Changes to China's 2024 regulations open up new opportunities for foreign investors. On 19 August 2024, the Chinese State Council approved the new Negative List for foreign investment access. Restrictions in the manufacturing sector will be completely removed, while the telecommunications, education and healthcare (including hospitals) sectors will be more open. Pilot zones are planned to facilitate the implementation of these new rules.