subject: How to register your business in Shanghai,China [print this page] How to register your business in Shanghai,China
China market offers great business opportunities due to its large-scale and lower cost. However, it has its thresholds challenges, ranging from inadequate legal guidance, inappropriate entry strategy, complicated registration documentations, difficulty in making a precise forecast of operational costs and taxations. Principals listed blow can help you to be out of confusion.
(1)Analyze your business to choose proper type of entity to setup.
Refer to the "Catalogue for the Guidance of Foreign Investment Industries", there is a long list of encouraged, restricted, prohibited industries for foreign investments. Be sure that your business is allowed by Shanghai Municipality Authority, that is, not in the restricted and prohibited list. Your business flow, invoicing request, operational budget are determinants of choosing the business vehicles listed below.
(2)Learn in depth the Key thread hold Capital Requirement for setup FIEs in Shanghai
Under the new Chinese Company Law, the minimum capital requirement slashed to a unified level of RMB 30,000 (approx. USD 3,750). However the numbers might have no meaning during your incorporation process. SMCC need to verify whether the capital is adequate for the project. The Capital Requirement listed in Form 1. are the threshold in practice, from real case and experience. Besides, registered capital is also subject to specific laws and regulations that may set higher thresholds for different industries. For example, Joint venture advertising agency must have a minimum registered capital of USD 300 thousand. 20% of the registered capital should be contributed within 90 days from the setup day of the company, and for the left can be paid off within 2 to 3 years based on the capital amount.
In case you need foreign shareholder loan in your future business, the total investment amount of the project is suggested to be listed in the due diligence report with the maximum amount that SMCC allow, because the foreign loan quotas is the difference of total investment and registered capital. The registered capital should be at least 70% of total investment amount in case it is below USD 3 million.
(3)Make a Pre-Entry Tax Planning for your future business.
FIEs as well as representative offices and branches of foreign enterprises in China have heavy tax compliance requirements. An FIE is generally liable for enterprise income tax, turnover related VAT, business tax, and/or consumption tax. In case FIEs have payments made to foreign entities, withholding tax should be paid. Furthermore, an FIE is also obliged to withhold individual income tax and social security contributions on employees salaries.
Technical tips: a proper company structure can help you to save your turnover related taxes. FIEs with investment in both HK and mainland China can minimize tax burdens via proper arrangements for trading volume and transfer pricing; Rearrange the nature of foreign employees' income help to make full use of the exempted categories for IIT, etc. Optimization tax-effectiveness of your shareholding structure and funding arrangements is a pre-registration step.
(4)A COMPLETE forecast for operational cost for your business is a MUST.
In order to have a complete forecast for operational cost, there are some points that you cannot afford to miss: Annual Co-operative Examination, SAIC annual license renewal, local employees' social security contributions, accounting & taxation outsourcing (if applicable). Examples in practice, quite a lot of FIEs, in their calculation of employee cost, miss the social security contribution, which accounts for approximately 60% of the basic salary. They will face a headache, if they have already offered a net salary to their employee, which means a 60% unexpected payroll cost.
