How to Incorporate your Business in China Without Being Physically Present
How has the pandemic impacted the traditional incorporation procedure?
Due to the COVID-19 pandemic, there has been an adjustment to traditional incorporation procedures. One of the most apparent changes is opening corporate bank accounts. Although there may be different practices and due-diligence requirements from bank to bank, in general, the conditions are becoming stricter in a common push to prevent fraud, money laundering and any other illegal activities. As a result, banks were required to update their processes for opening corporate and personal bank accounts across China.
In practice, foreign companies need at least two accounts to fully operate in China, namely a CNY basic account and a CNY capital account. Basic accounts are the main CNY accounts for the company to collect payments from Chinese clients and pay salaries, rent and other costs. These accounts can also directly receive international process payments following local SAFE (The State Administration of Foreign Exchange) regulations. In contrast, capital accounts have the purpose of receiving capital injections from shareholders only. In specific Free Trade Zones like the one in Shanghai, foreign companies might not be required to open a capital account anymore, providing they use a basic account that uses CNY as its currency (view more details about the Chinese banking system).
Online-authentication may replace physical presence
Considering travel restrictions due to COVID-19, many companies and foreign individuals were confronted with the issue of not being physically present. This is an issue as the traditional bank account opening process commonly requires a legal representative to be present at the bank. While borders remain closed, this may not be feasible for the majority of investors.
As an alternative, some banks in China implemented video conferences to verify the legal representative's identity replacing the in-person visit at local banks. In addition, banks implemented on-site procedures where a bank officer also visits the business's physical location for verification purposes. Usually, a photo of the location with the company logo and a business license will be taken for the bank's internal compliance purposes.
How has the pandemic impacted the traditional incorporation procedure?
Due to the COVID-19 pandemic, there has been an adjustment to traditional incorporation procedures. One of the most apparent changes is opening corporate bank accounts. Although there may be different practices and due-diligence requirements from bank to bank, in general, the conditions are becoming stricter in a common push to prevent fraud, money laundering and any other illegal activities. As a result, banks were required to update their processes for opening corporate and personal bank accounts across China.
In practice, foreign companies need at least two accounts to fully operate in China, namely a CNY basic account and a CNY capital account. Basic accounts are the main CNY accounts for the company to collect payments from Chinese clients and pay salaries, rent and other costs. These accounts can also directly receive international process payments following local SAFE (The State Administration of Foreign Exchange) regulations. In contrast, capital accounts have the purpose of receiving capital injections from shareholders only. In specific Free Trade Zones like the one in Shanghai, foreign companies might not be required to open a capital account anymore, providing they use a basic account that uses CNY as its currency (view more details about the Chinese banking system).
Online-authentication may replace physical presence
Considering travel restrictions due to COVID-19, many companies and foreign individuals were confronted with the issue of not being physically present. This is an issue as the traditional bank account opening process commonly requires a legal representative to be present at the bank. While borders remain closed, this may not be feasible for the majority of investors.
As an alternative, some banks in China implemented video conferences to verify the legal representative's identity replacing the in-person visit at local banks. In addition, banks implemented on-site procedures where a bank officer also visits the business's physical location for verification purposes. Usually, a photo of the location with the company logo and a business license will be taken for the bank's internal compliance purposes.
Virtual office: a suitable temporary solution
The virtual address can be used as your company's legally binding address without travelling to China. It means that business owners can apply for business licenses even though they cannot provide physical office space at the time of application. The virtual address will be provided by the authorities of the Free Trade Zone, along with relevant paperwork to go through the internal bank account opening and compliance process, including but not limited to real-name verification of the legal representative and document and ID verification procedures. Currently, this solution applies specifically to Shanghai, and the address is usually located in a Free Trade Zone. It is worth keeping an eye on new policies as this solution might also be adapted in other provinces.
While the Chinese government has been striving to decrease bureaucracy and create a business-friendly environment, registering a company still has its challenges. The process remains rather complex as China maintains its commitment to its zero-covid strategy (i.e., international travel is limited, and targeted measures are taken if a new infection is detected upon entry or domestically).
Boarding requires pre-approval of authorities
In principle, entry into China is possible for foreigners from many countries. According to the announcement released by the MOFA (Ministry of Foreign Affairs) on 23 September 2020, foreigners with valid residence permits for work, personal matters, and reunion would be allowed to enter the country without needing to re-apply for new visas starting from 28 September 2020. This policy does not apply to foreign nationals from certain countries, such as the UK, France, Italy, Belgium, Russia, India, and South Africa. Foreigners are advised to always check the latest visa policy updates before planning any trips. The presentation of both negative certificates of RT-PCR and antibody (IgM) tests remain unchanged. However, it is important to add that all tests should be done in the same consular district but at different testing institutions in the case that several PCR tests are required.
It is also important to note that only direct flights from the country of origin are allowed. If this is not the case, the travellers will not receive boarding approval in the form of a digital green code from the local Chinese consulate. Those with non-direct flights to China are suggested to consult their local consulate to get pre-approval for an alternative one-time transit route.
If you do not hold a valid residence permit for China, you are required to apply for a visa in order to enter the country at present. However, kindly be informed that in this case, a special PU invitation letter might be necessary. In general, vaccination does not make travelling with new visas easier, as travellers who have already been vaccinated are subject to the same requirements. Moreover, the final vaccination must be completed more than 14 days before departure. After arrival a mandatory quarantine of at least 14+ days will follow. Please note that travel restrictions are subject to changes at short notice. As a traveller, you are always responsible for ensuring that you fulfil the requirements of your destination and potential transit country.
Working with a professional corporate service provider means that you will have a partner to walk you through the process with local knowledge and guidance on the right steps. Hawksford is an established provider of company registration and outsourced corporate services in China, with more than ten years of experience. We assist international companies with market entry and ongoing administrative operations, including business incorporation, bookkeeping, tax compliance, HR and payroll solutions and corporate governance.
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