Why You Need A Foreign Subsidiary In China – Benefits And Procedure

foreign subsidiary in china

The process to set up a foreign subsidiary in China is not always straightforward and it can be time-consuming. The risk of not being compliant with the local law is high and that can compromise all your business operations.

But the advantages of opening a foreign subsidiary in China are multiple. First of all, the possibility to operate independently from the parent company.

In the article, we will show you the benefits and the best business structure to set up a foreign subsidiary in China.

What Is A Foreign Subsidiary In China?

A foreign subsidiary is basically a company with operations in a foreign country. This allows your company to do business with countries that you would otherwise not be able to do business with.

A foreign subsidiary in China is a separate legal entity in which the parent company owns shares. The two companies do not need to have the same name and the parent company’s control is limited to the amount of share capital invested in the company.

The important point here is that the subsidiary is completely independent from the parent company while, for example, the branch still relies on the parent company.

Benefits Of Forming A Foreign Subsidiary In China

Forming a foreign subsidiary is a must if you want to do business in China. Aside from the fact that China has an open economy, doing business in China also requires that you comply with Chinese laws, rules, and regulations.

Doing business in China is also not as easy as it looks. To ensure that your business runs smoothly and has no problems, establishing a foreign subsidiary is a step to take into serious consideration.

Setting up a foreign subsidiary in China has its advantages and below we show you the most important ones.

Less taxation

Setting up a subsidiary can lessen your taxation expenses because the subsidiary is considered a private corporation in China. This means that the government will not exert pressure on you to minimize your business operations. Aside from this, setting up a foreign subsidiary also allows you to reap the benefits of various programs and policies implemented by the Chinese government. For instance, the Chinese government encourages foreign companies to set up operations in China so that the country’s economy can grow.

Access to the labor market

Forming a foreign subsidiary in China also gives you access to China’s enormous labor market. Many foreign companies have difficulty finding skilled personnel in other countries but if you choose to form a foreign subsidiary in China, you are sure to find qualified staff because the country has a good and big labor market.

Expand your business in a growing market

Another advantage of establishing a foreign subsidiary in China is that you will be able to expand your business in a growing market. Because its market is growing a lot recently, especially regarding the Chinese middle class that has now access to more income, the possibility of gaining huge profits is high. You won’t have any problem expanding your business if you have the help of the right strategies and if you have the appropriate systems in place.

Independent operations

As a subsidiary, the company in China can operate independently, which means that managers can choose their own business style to match China’s culture and differing needs. And you can also choose the right business structure for your company, without depending on the parent company abroad.

How To Set Up A Foreign Subsidiary In China

Businessmen who are contemplating expanding their businesses in other countries often wonder how to set up a foreign subsidiary in China. Setting up a foreign subsidiary consists of choosing the appropriate business structure in the country and establishing a legal office. It is a fairly simple procedure, but it can be very time-consuming. 

But first of all, it is important to conduct some careful planning and research. One important area of consideration is the type of business that the foreign company wants to conduct in China.

For instance, a manufacturer of automobiles might want to establish a manufacturing facility in China, where he could employ tens of thousands of people, reducing the costs of production. On the other hand, a company that provides IT services may want to establish a consulting company in China and in this way being able to hire local employees to manage sales and marketing.

However, there are basic requirements that any foreign company will need in order to operate legally. As a company, you will need to register your company with the State Administration for Market Regulation (SAMR). 

Once you have registered your business with the State Administration for Market Regulation, you will be required to establish an office. You can either employ Chinese workers to do this part of your business or you can employ a local Chinese agency that can help you to find an office or set up a virtual office if needed. Whichever method you decide to use, you should ensure that you establish a permanent address for your office in China. You should ensure that the address is easily accessible from Chinese authorities.

Another step is the one related to the bank account. You will need to open a bank account in China to operate your subsidiary.

Best Business Structure For A Foreign Subsidiary In China

For your foreign subsidiary in China, a Wholly Foreign-Owned Enterprise (WFOE) is the best option.

This is the best option especially when you plan to stay for a long term in China and you want sole control of your company.

Why is a WFOE the best business structure for your foreign subsidiary in China?

There are many advantages for that and the main are:

Autonomy – the WFOE does not require cooperation with a Chinese partner, and this autonomy has advantages; it can help streamline decision-making and eliminate the risks associated with choosing the wrong business partner.

Revenue and remittance – Unlike a Representative Office, a WFOE can earn money in China and profits can be remitted back to the investor’s home country.

Conduct direct business activities – WFOEs are allowed to conduct business activities like trading, manufacturing, service, consulting, which Representative Offices cannot do in China.

Hire employees – With a WFOE, you can directly hire local or foreign employees without going through the services of an HR company.

Conclusion

Opening a foreign subsidiary in China is the best option for those companies that have a clear idea of their businesses and the potential of the Chinese market. As said, with this structure, you will not have connections with your parent company abroad, and you can conduct business operations in China independently.

Our WFOE formation service can help you to set up a company in China without risking being non-compliant with the Chinese laws and regulations and we will take care of all the steps for you, from the registration with local authorities to managing tax and accounting after a successful WFOE formation.

Contact us for a free quote!

Leave a Comment

Your email address will not be published. Required fields are marked *