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Business Set-up and Freelance Work in China
Setting up a WFOE in China
Using the example of a WFOE (Wholly Foreign Owned Enterprise) as one of the most attractive business models for foreigners, let’s take a closer look at how to set up a business. First of all, the condition of setting up a WFOE is that you have a minimum of registered capital, the full amount of which depends on the type of business you are about to open and the location of the business.
Now, there are quite a few documents you need in order to register your WFOE:
- Two copies of the certificate of incorporation (or an equivalent document) or of your investor’s passport, certified by a Chinese embassy or consulate
- Two copies of bank reference letters from your investor’s bank
- A passport copy of your parent company’s director, the Chinese company’s legal representative, and the Chinese company’s supervisor
- Six photos and a brief resume, provided by the legal representative in China
- Documents on your registered capital and business scope, as well as eight proposed Chinese names for your company
- Your office address, including two copies of the leasing contracts, the certificate of real estate ownership, and the landlord identification
- Four copies of the letter of authorization
If you plan on registering a Trading or Manufacturing WFOE, you might need to submit additional documents. As this process can be rather complicated and time-consuming, and as foreigners are not allowed to directly submit these documents to the relevant authorities, you should try to find someone who will act as your liaison or sponsor. Ask around to find out who other self-employed expats and entrepreneurs have used and do thorough background checks before you hire someone. Your sponsor should have some experience in helping foreigners set up their business and leading negotiations with the authorities on their behalf.
Once you have collected all the documents you need in order to apply for business registration, the steps to setting up your business are the following:
- Register your company name with the state administration of industry and commerce
- Obtain a certificate of approval from the foreign Economic Cooperation Bureau or the Ministry of Commerce
- Apply for a business license
- Obtain an organization code license from the technical supervision bureau
- Obtain a tax certificate from the taxation bureau
- Register and have your business approved by the state administration of foreign exchange
- Open a bank account which is both available in foreign currency and RMB
- Obtain a capital verification report by a certified public accountant
- Apply for a permanent business license
- Register your financial certificate and statistics license
Not every self-made expat is an entrepreneur who is about to set up their own business, of course. Some are simply trying to work as freelancers, offering language courses or other services, for instance. However, while setting up a business is quite easy, despite the hoops you have to jump, working as a freelancer can be a challenge.
The easiest way to secure a visa for freelance work is if you have worked at a company before and have some time left on your Z visa. In that case, your residence permit would also be in place. You can also work part-time for a Chinese company, granting you a Z visa, and do freelance work the rest of the time. However, if you plan on starting out as a freelancer, things are a little bit more complicated than that. In that case, most expats apply for a C visa.
A C visa is suitable for foreigners who are “invited to China to do business” which means that you will still need to provide a letter of invitation from a Chinese company. Keep in mind that this visa is only valid for 30 days. If you have already established some business contacts and secured some work, this should not be too difficult. Otherwise, you will have to hire an agency to help you with the visa.
Another option would be to contact friends or family members in China and convince them to hire you as a consultant, thus granting you a work visa. However, this method is highly problematic and might put your friends in danger if their company is ever subject to government checks.
Those who plan on immigrating to China can try to apply for a Permanent Residence (D) Visa. This grants you the same rights as a Chinese citizen, including the right to work as a freelancer. Unfortunately, they are not that easy to obtain. Please contact the nearest Chinese consulate and read our article on Chinese Residence Permits for more information.
Taxes and Invoices
Invoices, or fapiao, are an important way for the Chinese government to monitor taxes paid on transactions. Everyone who wants to provide services or sell goods in China has to be able to issue fapiaos to their customers, who can otherwise report them to the authorities. Until recently, this was a big problem for freelancers who could not issue fapiaos to their clients as they were not able to register as an official business. By now, many third-party companies issue fapiao on behalf of the freelancer. In some cases, the tax bureau might tax you directly and issue the fapiao for you. In that case, you will have to provide the original service agreement.
However, these solutions are work-arounds. If you are looking for a long-term solution, you should try to register as a Joint Venture or Wholly Foreign Owned Enterprise. That way, you will be able to issue invoices in the name of the company.
Keep in mind that working in China without paying taxes properly can result in hefty fines. Tax officials might ask you to pay 50% to 500% of the tax due, in addition to the outstanding taxes. Although this is rather rare and you will probably only have to pay interest for your late payments, it is not worth the risk. Learn more about this and other tax-related topics from our article on taxation in China.
We do our best to keep this article up to date. However, we cannot guarantee that the information provided is always current or complete.