Establishing a Trading Company in China

Posted by Reading Time: 6 minutes

By Eunice Ku and Rosario Di Maggio, Dezan Shira & Associates

FICEMar. 29 – When an international company has reached a certain level of success in selling to or trading with China, or simply wants an on-the-ground presence in the country, it is common that a trading company is established in the form of a foreign-invested commercial enterprise (FICE).

The FICE structure has become the most common type of legal entity that foreign investors establish in China, as it is the most convenient, adequate and cost efficient type of business structure available for foreign traders wishing to conduct the following activities:

  • Expand their sourcing platform and take direct care of logistics and quality control
  • Purchase for the purpose of reselling finished or semi-finished products in China as an intermediary between Chinese suppliers and foreign China-based clients
  • Import goods to China to sell directly, either in wholesale or retail
  • Establish a fully operational China sales and after sales platform
  • Act as a business support and liaison office for their overseas headquarters, including setting up other branches and employing staff on a national basis.

Being consistent with the WTO commitments China agreed to in 2001, the Chinese authorities created the framework for FICE to operate in 2004 with the promulgation of the Administrative Measures for Foreign Investment in the Commercial Sector (“FICE Measures”).

The measures cover Sino-foreign equity/cooperative joint ventures as well as wholly foreign-owned enterprises (WFOEs) engaged in domestic retail, wholesale, commission agency, or franchising businesses. The FICE Measures removed previous restrictions on the establishment of wholly foreign owned trading entities.

A FICE is relatively easier to set up compared to a full manufacturing WFOE as the capitalization requirements are typically lower due to the absence of any imported machinery or tooling requirements. They are also more cost effective than representative offices.

However, from a legal, tax and accounting perspective, to establish and run a FICE requires both technical and administrative local knowledge.

It is important to ensure that the business model is feasible, that the foreign investor has a full understanding of the registration and post-registration procedures, company cash flows, and internal control processes.

Scope Covered
A FICE refers to a foreign-invested enterprise (FIE) that engages in the following activities:

  • Retailing: i.e. selling goods from fixed venues or via television, telephone, mail order, internet, and vending machines, and related services.
  • Wholesaling: i.e. selling goods to retailers and industrial, commercial or other customers and other wholesalers, and related services.
  • Franchising: i.e. authorizing the use of trademarks, trade names and operation models for remuneration or franchise fees through conclusion of contracts.
  • Commission agency activities: i.e. acting as sales agent, broker or auctioneer for goods, or as wholesaler charging fees and conducting sales for others’ goods and related services on a contractual basis.

There are two main types of FICE: retail FICE and wholesale FICE.

Retail FICE can, upon permission, engage in:

  • Retail of goods;
  • Import of goods dealt in by the FICE itself;
  • Purchase of domestic products for export; and
  • Other relevant ancillary business.

Wholesale FICE can engage in:

  • Wholesale of goods;
  • Commission agency (except auctioning);
  • Import and export of goods; and
  • Other relevant ancillary business.

A FICE can authorize others to open stores by way of franchising.

Basic Set-up Requirements
The foreign investor should meet the following criteria:

  • Has a good reputation
  • Has not committed any acts in violation of Chinese laws, administrative rules or regulations
  • Can meet the required ratio between registered capital and total investment (see accompanying Mandatory Total Investment – Registered Capital Ratios chart)

Limitations
Limitations apply to FICEs dealing in specific products such as books, periodicals, newspapers, pharmaceutical products, agricultural chemicals, agricultural films, chemical fertilizers, processed oil, grains, vegetable oil, edible sugar and cotton. If a foreign investor has more than 30 retail stores in China and distributes these products from different brands or suppliers, the foreign investor’s share in a retail enterprise is limited to 49 percent.

Retailing
Where the foreign investor wishes to apply to open a shop concurrently with the establishment of the FICE, the proposed shop must conform to the urban and commercial development plans of the city where it is situated, and a document issued by the local government evidencing the same will be required.

In addition, for stores with business areas of or above 3,000 square meters, the foreign investor will be required to submit a photocopy of the certification document for the right to use the land, and/or the premises lease agreement for the store.

Where a FICE that has already received permission to be established applies to open a shop, then in addition to meeting the above requirements, it must also have undergone annual inspection on time and passed, and have paid up all of its registered capital.

The land to be used by a FICE for opening a store must be commercial land obtained by means such as public invitation for bids, auction, and listing in accordance with the laws and administrative regulations relating to land administration.

Franchising
For foreign investors who would like to engage in franchising, they must also comply with the Administrative Regulations on Commercial Franchise adopted by the State Council in 2007.

Term of Operation
The term of operation of a FICE should generally not exceed 30 years, whereas a FICE set up in the central and western regions should generally not exceed 40 years.

Business Scope Expansion
Where an existing FIE wishes to engage in the commercial sector, it should amend its joint venture (JV) contract (applicable to JVs) and articles of association, fill out the relevant application forms, and submit them in accordance with the legal procedures for expanding an enterprise’s business scope. The specific method of distribution (i.e., wholesale, retail or commission agency) should be specified, and the list of the relevant products should be attached.

Application Documents
The application documents for establishing a FICE are as follows:

  • Written application form
  • Feasibility study report jointly signed by all investors
  • Contract, articles of association, and annexes thereto
  • Each investor’s bank credit certification, registration certification (photocopy), and legal representative certification
  • Identity certificate if the investor is an individual
  • Each investor’s audit report in the most recent year audited by an accounting firm
  • Evaluation report for state-owned assets to be invested by the Chinese investor into a Sino-foreign equity/cooperative JV commercial enterprise
  • Catalog of import and/or export commodities of the FICE
  • List of members of the board of directors of the FICE and the respective appointment letters from each investor
  • Enterprise name pre-approval notice enterprise issued by the administrative department for industry and commerce
  • For stores the size of 3000 square meters or above, land use right certification document (photocopy), and/or lease agreement for the store to be set up (photocopy)
  • Document issued by the in-charge commerce department stating that the store is in compliance with the relevant provisions concerning urban development and urban commercial development

Where documents are not signed by the legal representative, a power of attorney must be presented.

Portions of this article came from the March 2013 issue of China Briefing Magazine titled, “Trading with China.” This issue of China Briefing Magazine focuses on the minutiae of trading with China – regardless of whether your business has a presence in the country or not. Of special interest to the global small and medium-sized enterprises, this issue explains in detail the myriad regulations concerning trading with the most populous nation on Earth – plus the inevitable tax, customs and administrative matters that go with this.

Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.

For further details or to contact the firm, please email china@dezshira.com, visit www.dezshira.com, or download the company brochure.

You can stay up to date with the latest business and investment trends across China by subscribing to Asia Briefing’s complimentary update service featuring news, commentary, guides, and multimedia resources.

Related Reading

Setting Up Wholly Foreign Owned Enterprises in China (Third Edition)
This guide provides a practical overview for any business-minded individual to understand the rules, regulations and management issues regarding establishing and running a WFOE in China.

Hong Kong and Singapore Holding Companies
In this issue of China Briefing Magazine, we take a closer look at the benefits of both Hong Kong and Singapore holding companies, how to establish and maintain a company in each of these jurisdictions, and the relevant double tax agreements.

VAT General Taxpayer Status Important for FICEs

FICE Franchising in China: A Flourishing Business Model

Import-Export Taxes and Duties in China

China’s Import and Export Licensing Framework

How to Sell to China – The Initial Evaluation Process

29 thoughts on “Establishing a Trading Company in China

    Bipul Kumar says:

    hi,

    we are a New Delhi India based trader. Our company ” Needle Worx ” deals in Garment imported accessories like laces, button and belts. we already source these item from China and supply here to Garment Exporters in India.

    Our maximum customer want to import goods on their own license as they can save 29% custom duty on total invoice value, India government already provide them these facilities.

    But our company not exist in China, due to them we cannot raise invoice directly to customer. Procedure : suppose our company already exist in China and after order confirmation customer say for bank detail for swift payment. Next procedure is we transfer particular amount to factory in China where goods to be produce. Once bulk complete next procedure is to raise invoice to customer. Either goods to be sent out directly from factory to customer or factory will send goods to our company and again we will manage to send it to customer but our concern is that our company invoice should be raise only to customer and China factory detail should be hidden bcs if it disclose may be customer can contact to factory directly for further orders.

    Also pls note we are a very small scale company bcs we already import goods on their own license so we have very selective customer with us where our costing suit them but if our company set in China and if we fullfill above requirement we can also be settle.

    we are trying for set up in China from last 2 years but still not find any way, pls chk and advise if already have any option for us.

    Thanks

    Best Regards
    Bipul

    @Bipul;
    Thank you for your message. Your company is now at the stage where it needs to set up a Trading Company – called a “Foreign Invested Commercial Entity” (FICE) in China. This allows you to both import and export under your own license, and is as described in our article above. So you can buy from your Chinese supplier, and ship and send your own invoices to your primary customer in India. I will send you an email directly with more details. They are not expensive to set up, and are suitable for SMEs. However like all businesses they need commitment and attention to detail to be useful and profitable for you to operate. Best regards – Chris

    JB Bolderoff says:

    We are an Australian based company having products made for us in China
    It is part of our contract to supply parts to Chinese manufacturing companies so that they can incorporate these parts into our products
    We have to buy these parts in RMB and sell them to the manufacturer on RMB VAT invoices

    @JB: In this case you will need to set up a FICE as you need to provide your clients with RMB invoices. You can only do that with a subsidiary of your Australian company in China. I have sent you an email introducing you to my colleague Richard Cant – also an Aussie.
    Best regards – Chris

    Fazlul says:

    Hello
    I have been living in Xi’an, China since 2004 with my wife who is a local Han Chinese. Both of us are having growing interest in business to make fortune in China. We have got sort of sources/links of foreign animal feed producers who do think have potential business with Chinese feed producers. What we want is to communiate with chinese clients/feed producers and import feed/raw materials for them based on their requirement and items will be directly exported to the clients. We will get certain commissions from the foeign feed producers yearly based on sales amount in china. What I want to know what sort of company should I open here and whether my wife would be better option to register herself as the owner. Many thanks

    @Fazlul: I’d recommend you set up a FICE (Foreign Invested Commercial Enterprise) as discussed in the China Briefing magazine issue “Trading With China”. I would suggest setting that up through a holding company in Hong Kong of which both you and your wife can be directors and shareholders. That company then owns the FICE in China.
    The benefit to you is flexibility of currencies – you can receive dividends from profits either in China RMB or in Hong Kong which allows conversion into any foreign currency. It also provides you personally with more protection.
    If you set up a Chinese company everything is in your wife’s name, and you can only receive profits in RMB.
    You may email our Beijing office at Beijing@dezshira.com if you require further assistance with this structure or set up. It is not expensive.
    Best wishes – Chris

    Rajesh says:

    Hello dear we want to open a trading company in china i want to know about the requirements for a foreigner to invest in china like this if we want to export by our own company

    or if it is better to open a hongkong based company in china as indenting agents just for work as commission agents from china in case we dont export from our company infact factory will direct export

    @Rajesh – it will be more cost effective for you longer term to have your own trading company in China as this is permitted to hold its own import-export license and this cuts down on agents fees. So I guess it depends on the volume of goods you are planning on handling. If relatively small, its probably better for you to continue to use an agent.
    Best regards – Chris

    Rajesh says:

    Thanks Chris

    Can you please guide how can open office as agent, what are the requirements for that if we want to open a small office as commission agent for our company & for our other customers ,
    our area of interest is in shaoxing or ningbo & mostly in textiles fabrics or machinery

    @Rajesh – I have replied personally to your email address concerning this issue. As always we are happy to assist and one of our Dezan Shira & Associates offices in China will help you.
    Best regards;
    Chris

    Dear Crhis,

    First of all Congratulation for your website, it is very good and clear. I have a Hk company already and have been buying from china from a long time ago. I already have an office in China, but uses a friend’s location and export license. I would like to set my own company in china and apply to get the export license to get the tax refund. How should I proceed and how much it would cost per year?

    Thanks and regards,

    Jonas

    @Jonas – what you need is to set up a “foreign invested commercial enterprise” (FICE) which will give you the licenses you want. But here’s the rub – you need to rent your own premises to get that and you can’t be housed in someone else’s office. This issue of China Briefing Magazine explains in full: http://www.asiabriefing.com/store/book/trading-with-china-398
    If you need assistance with setting up in China, please email to us stating where you are in China to china@dezshira.com and our local regional office closest to where you are will be in touch to help guide you through the process.
    Best wishes
    Chris

    Buyankhishig Otgonselenge says:

    Hello

    I have this invention and my patent. Recently I’ve contacted Chinese manufacturer and they promised me to produce it for us. Our target market is the northern part of China Mainland. Do I need to establish my company in my homeland and create FICE in China?

    Best Regards
    Ms.Buyankhishig

    @Buyankhishih – Sainbainu.
    It is important that you also patented your invention in China. If not you really should get this done. You don’t need to set up a company in China unless you intend to sell the product there yourself. But if you do, you will need to set up a FICE. If you need further assistance please contact our Beijing office at beijing@dezshira.com
    Best regards;
    Chris

    Buyankhishig Otgonselenge says:

    Hello Chris

    Thank you for your immediate reply. I like your “Sainbainau”. It is great. And thank you again. I have one more favor. I need to know everything about setting up an trading company in China Mainland from legislation to tax and cost of renting office in city. I know it ranges from region. But I need some figures to finish my financial model. You probably understand how hard is to collect such information from China, because everything is in Chinese.

    Best Regards
    Buyankhishig

    Mateus C says:

    Hi Chris!
    Great information, congrats!
    We’re planning to open an Trading Company in China, so we can provide our own invoices and consolidadeted shipment from many industries in China to costumers overseas. We need an office structure and one or two chinese employers.
    What about the costs (taxes) and minimum investiment to open an FICE in China?
    For bank money transfers, is it better to have this company based in Main Land or HK?
    Thanks in advance!

    @Mateus: Thanks for your message – I’ve passed your comment onto one of our inhouse lawyers and they will contact shortly via your email to discuss the situation with you. I appreciate your thinking of our firm.
    Best regards;
    Chris

    Saimo says:

    Hello Chris

    We already have business with Chinese suppliers. In the mean time, we need to make invoice for our client, but the problem is sometimes supplier or importer try to avoid us and plan to proceed on their own. As a result, we need to send them our own invoice.

    Please advice me what i can do to avoid this kind of hassle. Actually i was planning to have a trading company in China; so that we can buy good and ship them on our own.

    But some of my friends inform me, we can’t take license from China. But what we can do is, stablish a Hong Kong company and operate business in China. I want to know, is it true?

    Waiting for your valuable comments.

    Regards
    Saimo

    Maria Kotova says:

    Hi Saimo,

    We have replied personally to your email address concerning this issue.

    Kind Regards,
    Maria

    Muhammad says:

    Hello Chris

    Firstly, thanks for such a valuable information in the easiest possible manner.
    I have been importing a lot from China and now to I wish to set up my own trading company so to make my sourcing more cost effective and efficient. Can you please advise on how to start the procedure of setting up an FICE.

    Looking forward for your early response.

    Thanks

    Mark says:

    Hi Chris,

    I am interested in setting a trading company up in Ningbo China please give me some information and rough costs involved in setting a company up with the least capital needed to do so.

    Rgds
    Mark

    Hi Chris?

    Can you please advise on how to start the procedure of setting up an FICE.
    I look forwar to hearing from you soon.

    Best Season’s Greetings,
    Muzaffar

    Hagil says:

    Dear Chris,

    We are a HK trading company that specializes in baby footwear. We currently work with a factory in Guangdong which helps us transport the goods to HK where we take over. We have recently created our own brand and would like to enter the Chinese market. We have had alot of interest from Chinese buyers at recent fairs. What would be the best way to setup business in China? It seems like a wholesale FICE would suit our needs. Please send me some information on the steps needed to start this process.
    Thanks,

    Harry

    Khursheed Akhtar says:

    Hello Chris,

    Thanks in advance for such valuable advice.We are a trading company currently importing alot from China to India and exporting to our clients abroad.This entire process of importing and then exporting is affecting our costings.We are now planning to setup one Trading office in China so that we can save on duties and export directly from there.
    We want to know the procedures involved in doing the same and the cost involved.Please advise us on the same.
    Thanks,
    Khursheed

    Mujju says:

    hi,

    we are a Mumba India based trader. Our company deals in Engineering product. we already source these item from China and supply here in India.

    Our maximum customers wanted to import goods on their own license.

    But our company does not exists in China, now we are planning to setup a office in china, we are very new to this, we cannot take a step ahead how to setup a office in china, how about Chinese Government rules in china. I need to discuss about this with you in details, if anybody can help us for the same.

    We are small scale company, we need to work step by step.

    we are trying for set up in China from last 2 years but still not find any way, pls chk and advise if already have any option for us.

    Thanks

    Best Regards
    Mujju

    Ann says:

    Hello,
    If conflict breaks out in North Korea, or Trump decides to change certain trading policies with China, is it still a good idea to open a trading company in China at this point in time?

    20% of our purchases are out of China, and sales to China are about 15%. Would this still be a good idea?

    Appreciate any input. Thank you

    Ann

    Paul Allan says:

    Opening a trading company in China who has done this and is a Hong Kong company really neccessary ?
    Who can supply me a list of steps to complete this?

    China Briefing says:

    Hi Paul,

    Thank you for your inquiry. Please contact our corporate establishment specialists here http://www.dezshira.com/services/corporate-establishment for more information.

    siddharth doshi says:

    Hi Chris,
    I’m planning to open a company in China for export products for our demand in our home country India, but before we need to open a company in Hong Kong, Please can you provide us the details of procedures of pros and cons of our project Thanking you in advance

Comments are closed.