The 5-in-1 China Business License (WFOE)

china business license

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5-in-1 China Business License

As part of the focus to simplify the business registration process in China, a new “5 in 1” WFOE business license was introduced in 2016. This allows a single application for 5 of the main licenses required, speeding up company registration significantly. In this article, we will look at:

  • What are business licenses in China?
  • How the application process for licenses has improved in recent years
  • What exactly is included in this 5 in 1 license
  • How might it be improved further in the future, will we see more licenses added?

What is a business license in China?

The business license is one of the most important document to operate in China. There are three major registration steps when setting up a WFOE in China:

  1. Approval for registration to Ministry of Commerce of the People’s Republic of China
  2. Application for a business license to Administration for Industry and Commerce (AIC)
  3. Obtaining operating certificates and licenses from various government departments

In China, these licenses and certificates are real paper certificates, not just electronic authorizations as companies may be used to in other countries! Physical certificates often need to be presented during various company activities, and in some areas, it is also appropriate to display copies of certificates at the company’s place of business.

Simplifying application – “3-in-1” and “5-in-1” licenses

Until a few years ago, separate applications had to be made to each appropriate government departments for each license required.  These applications could take a week or more each, and involved a lot of preparation and administration.

The Chinese government has been keen to improve this situation for many years. The Chinese Premier Li Keqiang has regularly spoken of the government’s commitment to this. The first step that made solid progress was the introduction in 2015 of a “3 in 1” business license, which combined the applications for three key licenses into one.

In mid-2016 the government expanded this to offer the current “5 in 1” license nationwide. Some companies had access to the 5 in 1 application process prior to the nationwide introduction. It is common for China to trial new business policies and procedures in the countries’ Free Trade Zones before expanding nationwide. Companies in the Shanghai Free Trade Zone have been offered combined and streamlined license application since 2013.

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What is included in the 5-in-1 license?

The license involves a single online application to the local AIC (Administration for Industry and Commerce) in the city of registration. This must be supported by extensive documentation as has always been the case with license applications. The difference with the new process is that the AIC will share this documentation with various government departments as necessary to make the applications for the individual licenses.

The following five licenses are issued as part of the single application:

  1. Business license

The business license effectively is the authority that states the company is fully legally registered under the local authority. Its duration of validity is normally associated with the capital injection plan of the company. It allows the company to start a business, invoice customers and recruit staff, etc. This is commonly the certificate displayed at the company premises, also referred to as the main China business registration certificate.

  1. Organization code

Also known as the “organization registration certificate,” this gives the unique code or identifier of the company. This is then used in all correspondence and further registrations with local government departments.

  1. Tax registration certificate

The tax registration certificate gives proof of registration with the local state taxation bureau, with whom future filings for all company tax will be made. Taxation on WFOE has to accomplish a set of annual requirements.

  1. Social security registration certificate

The social security registration certificate shows registration with the local authority for filing and payment of all required employee social security contributions. This and the following certificate are the two which were added to the previous 3 in 1 business license in 2016.

  1. Statistical registration certificate

This is issued by the local statistics office to show registration. Each month, a WFOE must submit a statistics report to this department containing financial information as well as employee and salary data.

Does the license make a difference?

Without doubt, it is a good sign that the government is committed to improving the application process for foreign companies in China. The introduction of this 5 in 1 license is a solid step forward, but overall it doesn’t make a great deal of difference to a complex application process. The main advantage comes from the time saved by not having to deal with five different departments independently, reducing the overall WFOE setup time by as much as a month.

Don’t be misled however that just because this is a single online application there is less paperwork and administration involved! The documentation required is much the same as before, and it will need the same amount of preparation for submission. The management and distribution of this, however, is much simpler, being handled by the AIC. There are also several applications needed that are not included with the 5 in 1 license (such as VAT registration, chop carvings permits, import/export permits, and some baking / foreign exchange permits).

There is a potential disadvantage that creeps in as well. The process of online submission means there is much less of a chance for integration and discussion with government departments. Often this is of little significance, but there are setup cases where this is helpful for clarification of certain issues, and this was easier in the past. Errors or omissions in paperwork or information given in the application will likely cause a rejection and a re-submission is then necessary.

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Where next for WFOE business licenses

It is likely that more licenses will be added to the 5 in 1 license. The Chinese government has a focus on improving and streamlining the company application process, both for foreign and domestic companies and the need for multiple applications and approvals is a key area which slows the process down.

Such an approach has already helped China improve its business environment. According to World Bank data (reported by the Chines State Council here), between 2013 and 2016 the ranking for “China’s business environment” rose 18 positions, and for “ease of doing business” it rose 31 positions.

There has already been a start made on taking things further. Certain regions of China are experimenting with including more licenses in their AIC application process. For example, Liaoning and Jiangsu province now offers a “6 in 1” license which includes chop carving certificates. And Yangzhou city is considering the introduction of a much fuller “12 in 1” license.

Given that the 5 in 1 license initially began with regional trials, it seems more than possible we may see more licenses in the near future!

The information contained in this article is valid on July 11th, 2018. For updated information, please contact us via email at [email protected]

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