Establishing FICEs in China: Registration procedures explained

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Feb. 5 – Since June 2004 China has permitted foreign direct investors to establish fully operational, 100 percent foreign owned retail and trading companies that can buy and sell in China, holding their own import-export licenses. In this article, we will look at the pre-registration stage of the application process.

Applications are made at a provincial or municipal level (e.g. Guangdong province, Shanghai municipality, Beijing municipality, etc), albeit with input from local offices of state-level authorities. In addition, the five Special Economic Zones in South China have independent approval authority over this issue.

Pre-registration
Name registration
The relevant authority is the State Administration for Industry and Commerce (SAIC). This bureau administers the registration of all kinds of enterprises (including FIEs), organizations or individuals that are engaged in business activities; examines and ratifies the registration of business names; and reviews, approves and issues business licenses. Verification of feasibility of the proposed name by SAIC will take a few working days.

Only the Chinese name will be legally binding – the English name is not legally relevant for Chinese authorities. The word “China” cannot be freely included in the Chinese name. The name can be translated by meaning and/or phonetically.

Feasibility Study Report
While a company will not be held liable for the contents included in this report, it is used by the National Statistics Bureau to assess FDI in China. It is also used to assess exactly how much thought and planning has gone into your business. Although it is often somewhat disregarded as a vital component of the incorporation process these days, it is nonetheless a good discipline to go through. It usually only comprises ten points – however it does need to be translated into Chinese and you will need administrative assistance to complete this.

Environmental Protection Valuation Report
This is provided by the State Environmental Protection Bureau and is intended to control manufacturing production processes according to specified environmental norms. The bureau will require information about the raw materials used, the machinery and equipment, consumption and safe disposal of toxic products. Please note that all FICE applications require approval by this bureau. In some cases, a full report on the environmental impact issued by an appointed agent shall be required (for example in the chemical or leather processing business) and this may represent a major step to go through as it would affect the time-frame to get your factory up and running.

Issue of Approval Certificate and Business License
The authorities will issue the Approval Certificate and Business License after assessing the following documentation:

From the investor

  • Business License (certificate of incorporation – please note that depending upon locations, this may need to be notarized in the investor’s country of origin then translated into Chinese)
  • Bank statement to demonstrate credit worthiness (from the relevant bank in the country of origin then translated into Chinese)
  • Photocopy of passport for the legal representative of the investing company

From the new FICE

  • New business’ data – name of the company, business scope, registered capital, business term, lease contract etc.
  • Legal representative’s data – photocopy of passport and passport size photos
  • Directors’ data – CVs, photocopies of passport and passport size photos
  • Feasibility Study Report
  • Articles of Association
  • Environmental Protection Valuation Report

The Certificate of Approval is issued by the local office of the Ministry of Commerce (MOC). After the MOC issues the Certificate of Approval, there is a 30-day limit for the registration of the FICE with SAIC or the local authority, who then issues the Business License. After that, the FICE legally exists.

This does not represent the end of the establishment process however. There are still quite a number of post-incorporation procedures to be completed. It is time-consuming and labor-intensive work. If a procedure is omitted or handled wrongly it can cause problems for the FICE in the future which can be expensive to rectify.

The parameters you set during the establishment process define the basis for the future operation of your Chinese company. It is worth using an experienced, reliable advisor that can advise you thoroughly and properly. Choose a company that you want to work closely with as you develop and expand your China business, using a local firm with connections to the government but no understanding of your business requirements, or even worse using your own local staff, will prove to be a false economy in the long run.

For a comprehensive look at trading companies, including post-registration procedures and registered capital amounts explained, how to import equipment and deal with custom duties, and China’s VAT export rebates, please download the September, 2007 issue of China Briefing.