The P.R. of China offers several possibilities for foreign individuals and enterprises to do business in China. The incorporation of a local subsidiary is often required when having a small team employed in China: it provides staff with a local office space, a China-based human resources administration, and direct control over business operations in the country.
New Horizons’ legal team can assist with selecting the most relevant form of local presence while taking care of your incorporation procedure and legal entity administration in China. As an experienced PEO, we can easily transit your team from employment outsourcing to your own China-based entity.
The Sales Office is the simplest form of organization in China. It requires no capital investment and the setup can be achieved within a couple of days.
It is one of the most used forms of local presence since most of the foreign businesses only need in-country representatives for business development. Indeed, it is common practice to rely on local Chinese partners for import, export, trading, and logistics purposes, while all financial operations are controlled directly from the headquarters abroad.
The Sales Office set-up only requires a single collaboration agreement with New Horizons as your global Professional Employment Organization (PEO) to ensure local compliant employer of records’ services, as well as a registered office provider for the lease agreement in the preferred working location. From a legal perspective, all the office and employment liabilities in China are transferred to New Horizons, which reports directly to the foreign company’s headquarters.
When a foreign company wants to maximize control of its staff via its own HR, legal, and administrative departments, the Representative Office (RO) is the appropriate solution.
As for the Sales Office, this type of local presence doesn’t allow foreign businesses to conduct any business activity but offers security when hiring and payrolling a local team. The office and employment liabilities are under the direct legal responsibly of the headquarters of the foreign company. It ensures the incorporation of all the employer of record duties and liabilities, instead of relying on a PEO partner. Instead, New Horizons offers incorporation, payroll and tax services for both the RO and its staff, and acts as an external services provider.
On the other hand, it limits the flexibility of hiring staff in different cities – only possible throughout the opening of additional local branches, or via New Horizons’ PEO solution. In practice, it is widely used for the hiring of large teams for marketing support activities in China.
Wholly Foreign Owned Enterprise
When targeting direct control over payments/invoicing operations in China, the type of structure required is a Wholly Foreign Owned Enterprise (WFOE, sometimes also referred to as WOFE).
This type of legal entity is a limited liability company with entire foreign ownership. It allows a foreign company to locally conduct business activities in China with customers, clients, and partners, therefore offering the possibility to limit the roles of third-party operators (such as distributors, importers, factories, etc.). Its main advantage is to incorporate both the employer of record duties and liabilities, along with getting control over local operations. Consequently, this structure maximizes flexibility for doing business in China. It increases the parent company’s local autonomy and controls while enabling profit making in China.
In practice, the WFOE is usually incorporated by New Horizons while the first staff is already hired through our employer of record entity, in order to ensure local presence throughout the entire incorporation process. Once the company is incorporated and the business license issued, the staff employment ownership is transferred from New Horizons umbrella company to the newly created WFOE.
A joint-venture is the most complex form of organization in China, due to the necessity of partnering with a local Chinese company. New Horizons can assist with the legal support in all major cities in China.
While the incorporation process takes several months – after round of negotiations in order to determine the final structure of ownership of the JV -, it allows the foreign company to benefit from a local partner experience and in-country network. The JV can conduct business in China as a normal Chinese company, under the terms and conditions of the partnership regarding profit sharing, technology ownership, and operational control.
This type of local presence is required when targeting a restricted sector of activity or when the support/experience of an exclusive local partner is needed. On the other hand, the management and performance of the JV requires a specific set of skills and experienced managers, from both the foreign company and its Chinese partner.