By Maria Kotova and Matthew Zito
Success in China means being able to adapt. Foreign-invested enterprises (FIEs) that thrive in the world’s second largest economy are those that can stay abreast of China’s ever changing tax and regulatory environment, especially in terms of locating the most favorable areas for company operations. For the savvy business owner, this can even mean relocating to a new premises to secure long-term gains.
However, as a company’s business address is a part of its core registered information (along with its business scope, registered capital and company name), any change to this information is a complex process, comparable to newly registering a company. In Part 1 of this two-part article, we provide a list of the do’s and don’ts of changing your business address, based on Dezan Shira & Associates’ over twenty years of experience in facilitating foreign investment into China.
A company’s registered address and its actual operational office must be housed in the same office space, as Chinese law forbids companies from being registered in one place while actually operating in another. Except in certain pilot areas, it is forbidden to share an address with another company (foreign or domestic) – only one company may be registered at a single address.
Dezan Shira & Associates recently assisted a client in changing over their China operations from a representative office (RO) to a service WFOE. Typically, the new WFOE would be set up first, and the RO would then be deregistered after employees had been hired by the new entity. In this case however, the company wanted to keep their existing office space for the WFOE, but the premises were already registered under the RO.
We advised them to split the space into two units, creating two separate registration addresses. On deregistering the RO, the new WFOE changed the registered address back to a single space, thus retaining the office space without having to disrupt their daily operations. Whether or not it is permitted to partition an office in this way should be confirmed with local authorities on a case by case basis.
Unscrupulous or simply unaware landlords can also pose a risk. We have seen a number of cases where our client has been assured by a landlord that they can register in a certain building, only for us to later discover that the address is already occupied by another company. We therefore recommend that our clients provide us with the proposed address before signing a lease agreement, so we can ensure that no other companies are registered there.
Another reason for checking the address in advance is that some buildings cannot register foreign-invested enterprises, and landlords who have previously leased only to domestic companies may be unaware of this.
Next, knowing what kind of company can be registered at a given address is absolutely essential. Where you can legally register your company can vary depending on what kind of entity it is. For example, one of our clients works with dangerous goods, which requires that their business premises also meet the requirements to obtain a Dangerous Drugs (DD) license. The landlord assured our client that they could obtain the license at his address and the registration process was initiated. However, when the address turned out to be unlicensed for such activities, the client’s application for a DD license was denied and operations were delayed while looking for a new premises.
Generally, landlords must provide a copy of the landlord ownership certificate, which explicitly includes a category for “用途” or “purpose of usage.” This should again be confirmed with the relevant authorities.
Finally, whether or not your company is registered in a special zone (such as a district with tax incentives or discounted rental terms to encourage investment) may affect your eligibility to change addresses. You may be under an agreement not to move out of the area for a certain number of years, and may even be asked to pay back any certain incentives (tax or otherwise) as a penalty for breaking the agreement.
Recently, our firm dealt with the case of a large manufacturing company which had set up in XX district in Shanghai. The company’s registered address was in a special zone and the government provided generous incentives on condition that the company would not move out for at least 10 years. In the meantime, the company had expanded its business scope to include painting, not realizing that only certain premises are licensed to house such operations. For this reason, the company was forced to choose between dropping its newly-expanded business scope or moving out of its original premises.
These are just some of the risks to be on the lookout for when changing your company’s registered address in China, which can nevertheless provide a lucrative boon to company operations – whether in terms of securing preferential tax treatment or expanding your business scope into a new, profitable venture. Or you may simply have grown tired of that same old view out the boardroom window and decided it’s time for a change. In any case, the legal and tax professional at Dezan Shira & Associates have the expertise and experience to guide your company through this process, as will be outlined in Part 2 of this article.
Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira 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 China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email firstname.lastname@example.org or visit www.dezshira.com.
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