Documents required to register a business
Processing procedure (diagram)
Fee for company formation (based in Beijing)
Documents to be handed over after completion

Foreign Invested Commercial Enterprises (FICEs)

Foreign Invested Commercial Enterprises (FICEs) are pertinent for retailing, wholesaling, franchising or trading businesses in China. New regulations introduced make the applications procedure far quicker and enlarge the playground available for the foreign investor to conduct trading activities.

China has ratified new regulations that permit foreign companies to establish fully operational WFOE trading companies that can buy and sell in China.

Previously, foreign companies were restricted in their abilities to both purchase domestically and then re-sell domestically in China. They could form trading companies on their own only if they registered in so-called Free Trade Zones (specific areas of free trade designated by the Chinese government) or, otherwise, tie up with a Chinese partner in a Joint Venture agreement. With this latter arrangement, however, were very high thresholds in terms of required registered capital and turnover.

Foreign companies have been allowed to establish

Majority Joint Venture Trading Companies starting from 1 June 2004
Wholly Foreign Owned Trading Companies starting from 11 December 2004

• In detail, the new regulations apply for the following five activities:
  retailing - i.e. selling goods and related services to individual persons from a fixed location, as well as through TV, telephone, mail order, internet, and vending machines
  
• wholesaling - i.e. selling goods and related services to companies and customers from the industry, trade or other organizations
  
• representative transactions on the basis of provisions (agent, broker)
  
• franchising
  
• import/export, distribution and retailing by existing manufacturing companies

Minimum registered capital required
Wholesale FICE RMB 500,000
Retail FICE RMB 300,000

Suggested registered capital
Wholesale FICE > RMB 1,000,000
Retail FICE > RMB 1,000,000

It should be noted that Registered Capital is additionally the amount that is required by the business to operate until it can break even. The term "Minimum registered capital" is used by local governments as a guideline only, and as mentioned, the WFOE needs funding via its registered capital until it is able to support itself from its own cash-flow.

There are additional issues with local governments, seeking foreign investment, not being fully aware of tax and customs requirements - too low capital can mean issues such as refunds on export VAT can be problematic and so on. It is vitally important you address the registered capital need against the businesses operational requirements and not against 'minimum' specified amounts bandied about elsewhere. It is an operational cash-flow issue, not a regulatory licensing matter.

After obtaining approval, foreign trading companies are allowed to operate in the following business areas:

• retailing enterprises : retailing, import of merchandise it sells, sourcing and purchasing of domestic goods for export, related services
  
• wholesaling enterprises : merchandise wholesaling, commission agency (except for auctions), import and export of merchandise, related services
  Limitations apply to some specific products such as books, periodicals, newspapers, automobiles, medicines, salt, agricultural chemicals such as pesticides, crude oil and petroleum. If a foreign investor has more than 30 retail stores in China and distributes products mentioned in the paragraph above from different brands or suppliers, the foreign investor's share in a retail enterprise is limited to 49%. Retailing enterprises, which do not distribute any of the limited products, are not restricted on the number of stores in China.

From 11 December 2004, all geographical restrictions for retailing enterprises have been removed - foreign investors have been allowed to establish retail stores anywhere in China.

Business Scope

One of the most important issues in FICE application is business scope. Business scope needs to be defined and the FICE can only conduct business within its approved business scope, which ultimately appears on the business license. Any amendments to the business scope require further application and approval. Inevitably, there is a negotiation with the approval authorities to approve as broad a business scope as is permitted.

Business Terms

Business duration is limited to 30 years for foreign trading companies set up in the developed coastal areas; companies established in the Western areas are limited to business duration of 40 years.

General Tax Information

Value-added Tax and Corporate Income Tax shall be paid by FICEs.
All enterprises are subject to do routine monthly report to the Tax Administration Department.

The taxes mentioned above are the major ones. There are Consumption Tax, Tariff, Urban Real Estate Tax, Stamp Duty, Vehicle and Vessel Usage License Tax and etc, which are payable by some sectors or for some special cases.

Staff Recruitment

Under China's Labor Law, enterprises can decide for themselves the timing and means of recruiting staff as well as the relevant requirements and number.