Domicile Registration in China – Lifted Restrictions in Shanghai, Guangzhou and Chongqing

August 25, 2015 Posted by China Briefing Reading Time: 6 minutes

201506-illustration By Dezan Shira & Associates
Editor: Elizabeth Leclaire

For foreign enterprises, registering a domicile is one of the first and most important steps in the process of establishing long term operations in China. The registration procedure is regulated on a state level by the China Administration for Industry of Commerce (AIC) and is required of both foreign and national businesses hoping to open a headquarters within the country. Under the AIC, all enterprise domiciles must have a distinct non-residential address that may not be shared with other enterprises. Furthermore, companies are confined to operations within the domicile unless branch offices are established. A lack of a legally registered domicile prohibits any formation of a company based in China.

It is important to note that provincial and municipal governments retain the power to deregulate domicile registration procedures on a local level. Within the past year, Shanghai, Guangzhou, and Chongqing have significantly simplified domicile registration procedures in order to stimulate economic and entrepreneurial development. Foreign investors should thoroughly examine the individual advantages and challenges faced when registering a domicile across different regions of China. In this article, we take a look at the lifted restrictions on domicile restrictions in China’s three major cities and give readers a general idea on how to register a domicile in China.

Shanghai

As the nation’s financial center and the city with the world’s busiest port, Shanghai is a competitive destination for establishing enterprises. In March this year, the Shanghai municipal government eased restrictions on domicile registration in order to cultivate even deeper economic growth.

Under the new regulations, nearly any non-residential location in Shanghai may be converted into an enterprise’s domicile, provided that the location is not already in used for fundamental services, such as an evacuation room or department security room.

Shanghai’s new regulations also permit the conversion of residential buildings to registered domiciles. In order to do so, enterprises are required to first apply to Shanghai’s Bureau of Real Estate Management for the registration approval. Following Bureau approval, a local committee and all interested property owners will make the final decision to accept or reject the establishment of a domicile in a residential location.

Another significant distinction to be drawn between the state AIC and Shanghai policy in terms of domicile registration is the allowance of a shared domicile address between two enterprises in Shanghai. An investment company and its corresponding management enterprise are permitted to share a domicile address within Shanghai, as long as the management enterprise assumes liability for both companies. Additionally, Shanghai has allowed any two companies that hold an investment relationship to register under the same domicile. This recent policy has greatly expanded domicile registration opportunities for enterprises, as the definition of an “investment relationship” is broad and has remained undefined.

However, Shanghai’s policy in terms of operating outside of a domicile location closely mirrors that of the AIC. Enterprises are required to establish a branch office if planning to expand business outside of the registered domicile. Although the Shanghai municipal government has declared that illegal operations outside of a registered domicile will lead to legal liability with the AIC, no specific financial or legal ramifications have been established.

Shanghai Free Trade Zone

This past August 13, Shanghai again deregulated domicile registration procedures, allowing law firms within the Shanghai Free Trade Zone (SHFTZ) to register domicile residences. The recent change significantly eases foreign investor emergence into the Chinese market, as foreign enterprises typically already rely heavily on Chinese law firms to manage legal matters involved in establishing operations within the country.

Law firms within the SHFTZ may now offer companies entrepreneurship guidance and business secretary and legal aid, as well as complete process tracking services that oversee the registration process.

Guangzhou

With its proximity to Hong Kong and Macau, Guangzhou is a favorable destination for both local and foreign investors relying on imports and exports. In 2014, Guangzhou’s GDP surpassed RMB three trillion (US$469 billion), with its Ningbo port’s throughput volume exceeding that of Hong Kong.

Residential locations may not be used as a company’s domicile address in Guangzhou. Conversion from a residential location to a domicile is subject to local municipal government policies. This process is often extremely costly and time consuming, and is not recommended for emerging enterprises in Guangzhou.

However, Guangzhou based companies are provided greater freedom in sharing domicile addresses with related companies. Companies may operate within the same domicile location if they have investment affiliations or if the domicile address is within designated government areas, such as industrial zones or special parks.

Operating outside of a domicile address is legal in Guangzhou and does not require establishing a branch office, as long as the activities are reported to registration authorities and do not expand past the domicile’s district. Companies hoping to broaden their business scope outside of the registered domicile district must apply for additional branch offices.

Chongqing

Located in central China, Chongqing has increased in prominence with the expansion of China’s new Silk Road Economic Belt, which will connect the nation’s inland cities with its coastal counter parts and prominent trade nations. In addition to local governmental tax breaks for foreign investors to increase economic development, all investors in Chongqing and surrounding provinces enjoy a 15 percent income tax rate (compared to a rate of 33 percent along China’s coast). Financial incentives have caused Chongqing’s economy to total RMB 1.42 trillion (USD 223 billion) in 2014, an increase of roughly USD 25 billion from the year prior.

In 2014, Chongqing deregulated domicile registration policy in order to further incentivize investment. Residential properties may be used as a domicile address in Chongqing, provided the enterprises’ proceedings do not affect the rest of the residential community. Chongqing has prescribed a list of recommended enterprises for utilizing residential addresses as a domicile, including e-commerce, design, software development, and management consulting. Additionally, companies in Chongqing are permitted to share domicile locations.

Similar to in Guangzhou, enterprises in Chongqing often do not need to register a branch office to conduct activities outside of the domicile location. Companies that maintain operations within the domicile district and have business scopes that do not need pre-approval from the government are not required to open branch offices.

About Us

Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email china@dezshira.com or visit www.dezshira.com.

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