Recent reforms have occurred to make it simpler for companies, including foreign invested companies, to incorporate businesses in China.
Over the last few years, significant steps have been taken to make it simpler for companies, including foreign invested companies, to incorporate businesses in China. In fact, the Chinese government has cut the national average time it takes to establish a company from 33 days to 23 days in the last 5 years, thanks to major reforms of the company registration procedures. Some of these reforms included:
- replacing the need to obtain approval from China's Ministry of Commerce for foreign direct investment in industries which are permitted and encouraged to mere on-line filing;
- eliminating the need to provide a business feasibility study;
- replacing the paid-in capital approach with the subscribed capital system;
- abolishing the requirement for certified public accounting firms to perform an audit to verify that the capital has been contributed (except for companies entering specific sectors such as financial institutions, securities companies and insurance companies);
- abolishing the need to pay registered capital within a certain time or contribute 30% of the registered capital of limited liability companies in cash; and
- removing the minimum investment requirement for companies, except ones in specific sectors.
It is even quicker to incorporate businesses in the 11 free trade zones set up across China, where there are fewer regulatory restrictions and expedited approval procedures.
These developments were followed by a Chinese government announcement on 17 May 2018 about additional steps to be taken to further simplify the business incorporation process in China, with a commitment to cut the company incorporation timeline to just 5 days. This would be better than the average time of 8.5 days seen in OECD countries.
The government has called on Chinese company registration authorities at all levels to achieve this by:
- reducing the current time required to incorporate a business by more than 50% to 8.5 days or less by the end of 2018 in major cities and nationwide by the end of June 2019;
- subject to specific exceptions, allowing the company name pre-approval application to be submitted when submitting the company incorporation application (no longer a condition precedent to submitting the incorporation application);
- executing paperless incorporation by digitalising the entire incorporation application process so that registration may be completed online;
- doing away with Public Security authorities approving company seal engravings and replacing the requirement with a filing system, as well as allowing companies to freely choose engraving service providers, which must complete the entrusted engraving within 1 day;
- requiring the tax authorities to provide company invoices within 2 days of first time application submissions by newly-incorporated companies; and
- cancelling the requirement to conduct regular examinations for the renewal of company social insurance registration certificates.
It is too early to tell whether these potentially significant developments will be delivered to the extent envisaged and within the expected timelines. However, on paper, these are very useful for foreign companies wishing to set up in China because the incorporation remains a burdensome task. The developments send another message that the Chinese government wants foreign businesses to establish themselves in China and we are hopeful that these progressive steps forward will be shortly seen in, at least, first-tier and second-tier Chinese cities. We will keep readers updated about these reforms and other related developments.