Setting up a company or business in Hainan Island, China

Things you need to know when setting up a business in Hainan. Hainan provides many opportunities for foreign businesses, although its complexity, regulations and constant changes makes it difficult to keep track on what is required when doing business here.

Business Scope

The business scope is listed on every company’s business license. In China, a company’s operations are defined by its business scope, a one-sentence description of the industry(s) it is authorised to operate in. Choosing a business scope is done at the beginning of the registration process. The business scope defines which types of business a company can engage in and are approved by the Bureau of Industry & Commerce of the district of the city or the city where the Company is to be located and is printed on its business license along with other registered information such as its name, registered capital, and legal representative etc. In China, there are 4 types of business scope items: Common, Encouraged, Restricted and Forbidden.

What companies need to know is that they can only pursue the items listed on the business scope. Failing to be compliant to the business scope can imply a fine up to one year’s revenue. Additionally Foreign Invested Enterprises FIE’s are only permitted to issue invoices in consistence with their registered business scope. If a company provides services outside of its defined scope of activities, then it will be unable to issue invoices for those particular services.

The procedure to set up a Wholly Foreign Owned Enterprise is very similar regardless which WFOE you want to establish.

There are three types:

Consulting

Trading

Manufacturing

Each type has different requirements to be set up. A trading company usually needs to apply for an import/export license and consequently will be registered at Customs. For a manufacturing wholly-foreign owned enterprise (WFOE), one needs to have a factory space in an approved zone. For example, it is impossible for a manufacturing WFOE to register in the center of (large) cities in China.

Both domestic companies as well as foreign-invested enterprises (FIE), such as WFOE and a joint venture (JV), are restricted to their business scope. A Representative Office (RO) in China, since it only can represent the headquarters of a foreign company, is restricted only to marketing activities.

Generally, it is much easier to register a change of business scope in one’s existing WFOE category, rather than expand from a Service WFOE into a Manufacturing WFOE, for example.

After the Business License is issued, the Company can do business under its own name. But there are still some post-registration procedures like Foreign Exchange IC card, Tax Registration Certificate, Finance Registration Certificate, Statistic Registration Certificate, Custom Registration Certificate, Electronic Port IC Card etc. These are essential for the Company’s normal operation.

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