When foreign investors decide to establish their presence on the Chinese market they can choose between opening a branch or a subsidiary. In order to make this decision, entrepreneurs need to consider the market needs and the long-term goals for their company in China. The differences between the two business forms are relevant and can influence the manner in which the enterprise will perform.
Our lawyers in China can provide personalized advice so that you can make the best business choice based on your needs. Business investors will be able to make the best decisions for their company once they have a good understanding of the differences between a branch and a subsidiary and also a good image of the business particularities in China.
A branch in China
A branch company can be opened by a registered mainland Chinese company or by a foreign company that wants to establish its business presence in China. This type of company does not have its own legal entity and it is not independent of the parent company. It must share the name of the head company and this can be done simply by adding the Chinese word for a branch at the end of the company’s name.
Any operations performed by a branch in China must be in line with the parent company’s business scope. The branch does not need a board of directors and the parent company is fully liable for the debts and obligations of the Chinese branch. This extensive liability is the main difference between a branch and a subsidiary. Our Chinese attorneys can help you with more information about liability and how it affects your company.
A subsidiary in China
Unlike the branch, the subsidiary is a separate legal entity in which the parent company owns shares. The two companies do not need to have the same name and the parent company’s control is limited to the amount of share capital invested in the company. For example, it can appoint or dismiss board members. A wholly owned subsidiary in China has 100% of its share capital owned by the parent company. If this is the case, then the parent company has complete control over the subsidiary. Our Chinese attorneys can tell you more about the company incorporation procedure in China which you will have to observe if deciding to open a subsidiary. Some business activities in China will require special permits and our lawyers can help you obtain them. Here is an infographic that explains the attributes of branches and subsidiaries in China:
What are the conditions for opening a branch in China?
Foreign companies looking to establish a branch in China can activate under the rules of a WFOE (Wholly Foreign-Owned Enterprise) which suits most the business needs of investors in this country. Even though this is a dependent legal entity, the ownership in China is 100%. Legal support can be provided by our team of lawyers when following the main requirements for a branch registration:
•the minimum share capital of RMB 100,000 needs to be drafted in a local bank account in China;
•just like all companies, the Articles of Association are the main documents of the firm which need to be drafted at the time of branch registration;
•a declaration attesting the fact that the foreign company wants to open a branch in China needs to be provided to the registration authorities;
•the registration for tax purposes and social contributions are also mandatory for a branch registration;
•appointing a representative for your branch in China is also needed;
•the business address of your branch needs to be mentioned by the Articles of Association.
Large companies from abroad can decide on more than just one branch, as long as one of them is the head office in China. All the legal aspects can be entirely explained by our Chinese lawyers who are your disposal if you are a foreign investor looking to incorporate a business in China.
What are the conditions for opening a subsidiary in China?
Subsidiaries are also known as Foreign Invested Enterprises, are independent legal entities and the owners can enjoy 100% ownership. Even if it is not complicated to register a subsidiary in China, it is though recommended to ask for legal assistance and skip any misunderstandings that might occur. Just like in the case of branches, a subsidiary can run under the rules of a WFOE as long as the Articles of Association are provided to the authorities. The same minimum share capital of RMB 100,000 is available for opening a subsidiary in China as soon as a bank account in the local currency is open. A statement showing that the foreign company wants to establish a subsidiary in China is part of the documents which need to be prepared. A subsidiary needs to be registered for tax purposes, just like in the case of a branch. The difference between a branch and a subsidiary is that the second one addresses more to large companies with varied activities. However, most of the branches are found in the banking sector, but not limited to this. Do not hesitate to get in touch with our Chinese attorneys for more information in this matter. They can also help you with the EORI application for your company.
The benefits of a branch vs. the benefits of a subsidiary
The activities of a branch can be implemented in a fast manner and the company can rapidly start the operations on the market, and there is no need to worry about the licenses, as these are already established. A branch does not need to have a board of directors, as a representative may be sufficient for specific activities in the firm. An important advantage of a subsidiary in China is that the company can run the operations under a different name than the parent company. There is no obligation to use the same title as a subsidiary in China, and more than that, you can establish other activities too. As for mutual advantages, we mention that both branches and subsidiaries can be easily registered in China, they can hire local staff and benefit from a series of tax benefits. Even though there are fewer formalities when it comes to the registration of a branch or of a subsidiary, it is recommended to have a lawyer by your side who can exactly explain all the requirements for establishing a branch or a subsidiary in China. In most cases, the legal support will be considered vital, especially for foreign entrepreneurs who are for the first time in China as businessmen. Let us provide you the needed assistance when opening a branch or a subsidiary in China and do not hesitate to get in touch with our team of attorneys in China.
For a better understanding of the differences between a subsidiary and a branch in China, please watch the video below: