SHANGHAI – To register a foreign-invested enterprise (FIE) or a representative office (RO) in China, it is a prerequisite to own or lease an office premise (as the place of business). The State Administration of Industry and Commerce (AIC) requires proof of a place of business for the registration of all FIEs. As such, the FIE must possess all legal documents pertaining to the premise as required by the Chinese government.
Although the Administrative Regulations on Company Registration promulgated by the State Council in 2005 stipulates that the AIC is in charge of the business registration of foreign invested companies, in reality, most business registrations have been delegated for processing at the local AIC level.
Wholly Foreign-Owned Enterprise
When registering a Wholly Foreign-Owned Enterprise (WFOE), if the intended office premise is owned by the same individual or entity applying for business registration, the applicant needs to show a Certificate of Premise Ownership (CPO) issued by the real estate authority and submit a copy of this to the local AIC.
Most CPOs explicitly indicate the purpose of the premise. When the application is for business registration, the AIC does not accept CPOs which state that the premise is “for residence” purposes. According to the Property Law of China, a residential premise can only be used for commercial purposes upon unanimous consent of all the stakeholder neighbors, and completion of all legal procedures to convert the purpose of the premise from residential to commercial use.
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If the office premise is leased from another individual or organization, the applicant is required to produce the original lease agreement with a minimum one-year lease term, as well as a copy of the CPO of the property. The landlord should be an AIC registered business. Usually, a copy of the business license carrying the official stamp of the landlord’s company is also required. The scope of business on the business license should include “lease of commercial housing,” “lease of office premise,” or “lease of commercial equipment.”
In addition, both parties to the lease agreement should complete lease registration and record-filing procedure at the local real estate authority within 30 days following the agreement’s conclusion. The real estate authority will review the lease agreement and the relevant ownership certificate. Upon confirmation that the lease is legitimate, the authority will issue a Housing Lease Certificate, which legally allows the property to be used for manufacturing or business operation activities. The certificate will also serve as useful evidence should a dispute over the lease agreement arise in the future.
If a CPO cannot be produced for AIC registration due to legitimate reasons, a certificate issued by the local real estate administration authority, sub-district office, neighborhood committee, or the administrative institution of the development zone will be required to prove the legitimate ownership of the property by the applicant or the landlord.
If the place of business is registered at a hotel or a restaurant, a copy of the business license for the hotel or restaurant with their official chop needs to be submitted to the AIC.
Foreign Invested Commercial Enterprise
In addition to completing the checklist of office premise requirements for WFOEs, foreign invested commercial enterprises (FICEs) engaged in retail business need to undergo additional legal procedures for opening a retail shop in China.
China’s Administrative Measures for FICE stipulates that foreign investors establishing a FICE while applying for opening a retail shop should be in compliance with the relevant development scheme of the city. This generally requires the foreign investor to obtain the approval documents from the local office of the Ministry of Commerce (MOFCOM) before being able to complete business registration with AIC.
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If an established FICE intends to set up a shop, apart from obtaining approval from the local MOFCOM, the FICE should also have passed the required cooperative annual inspection of FIEs, which is conducted jointly by several government departments including AIC, local tax bureau, and local MOFCOM. The registered capital must have been paid in full as well.
Furthermore, the land use rights certificate and/or lease agreement for the premise of the shop are usually required to be presented upon application in both scenarios.
For registration of a representative office (RO), the lease agreement and a copy of the CPO are also required. Establishing a representative office for foreign companies in China requires special attention when choosing a suitable premise for AIC registration. Because an RO is technically not a Chinese enterprise but an extended arm of the overseas parent company in China, the local AIC will usually more closely scrutinize their registered office premise and imposes special requirements for RO registration. Detailed rules vary by region.
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For example, in Shanghai, the local AIC previously required that an RO can only be registered at commercial office premises that are approved by the Public Security Bureau (PSB) to house ROs. This requirement is no longer mandatory. However, the registered office of an RO still needs to be for non-residential purposes, and if the local PSB determines that the premise is not suitable for registering the RO, the AIC will not process the RO application.
Average Rental Costs
Grade A office premises are basically first choices for registering FIEs. They are usually guaranteed to be approved for business registration. Besides, they are generally located in the commercial center of cities and offer high quality infrastructure.
Most cities now have a large number of Grade A buildings, with prices mostly driven by location. According to the latest Greater China Property Market Report released by Knight Frank, Grade A office rents in first-tier cities stayed firm during the fourth quarter of 2013. In Shanghai, the average rents for Grade A buildings has risen to RMB278.1 per sqm per month by the end of 2013. The Grade A office rents in Beijing dropped a little in the fourth quarter due to the plentiful supply, but still reached RMB381.5 per sqm per month. Meanwhile, the Grade A office rents in Guangzhou was RMB176.1 per sqm per month.
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