It was a high hitch to set up a business company before year 2005, which required not only the paid-up capital of RMB50, 000,000 (US$6, 700, 000), but also the annual import/ export turnover of more than US$30 million. Also you need to submit the application directly to the Business Department in Beijing. This process is called “Special Approval”. That's why many foreign investors were not able to get the license. Only 314 business companies were set up from 1990 to 2004 in the past 15 years, which means only about 21 companies per year. If your company is not as big as KFC, McDonald, Wal-Mart, IKEA, Carrefour, Costco… you definitely have no chance to get the business company license. However, this monopoly condition has been changed since December 2004, as China has committed to open this business field to all foreign investors while joining WTO.

About 1, 200 business companies had been formed in 2005 (57 times of the past 15 years, which is only 21 companies per year). It is expected about 6,000 business companies to be registered in 2008. Nowadays, to set up a business company or a franchise in China is as easy as in USA, HK, Singapore or Taiwan.

For the past 15 years, the license control for business company was as stern as the registration of a bank or an insurance company. But after 2005, the investors as below should have an immediate attention:
1. Foreign owned company registered under China local residence. 2. Representative Office.
3. Trading Company based in 15 Free Trade Zones (FTZ).
4. Foreign owned factory in China. 5. Foreigners intending to run a business company in China.

Although business company has been open to foreign investors for more than three years, there are a lot of foreign investors still using shell co. to operate illegally. This kind of business operation has limitations, never having a chance to expand their business and carrying out full level of marketing & management. Also the foreigners are unable to enjoy tax-free on withholding tax and other tax incentives. Foreigners can't set up branches or chain stores in China because of illegal operation. They do cash transaction all the time without issuing invoice. If these illegal activities are exposed, they will face harsh tax punishment & criminal charge.

A foreign rep. office in China could only rent a bonded warehouse for distribution. But if the rep. office could be changed into business company type, it can rent any domestic warehouse where there is no longer supervised by customs. This can save much time and expenses in export / import procedures.

There is a better option for those trading companies registered in 15 Free Trade Zones (FTZ). Liquidate the trading company which was already set up in FTZ, and set up a new business company in other domestic cities in China. By this way, it will solve three problems, that is, FTZs’ export / import rights, invoice agent and more widespread branches set up outside FTZ for agents in bonded area.

Business company can be set up in major cities. Before 16 March 2007, most foreign trading companies were set up in Special Economic Zones (SEZ) such as Shenzhen, Zhuhai, Shantou, Xiamen, Hainan, Shanghai Pudong… as the corporate income tax is 15%. After establishing the company in SEZ, this headquarter can be used to set up branches in other cities without paid up capital. The annual dividend of the branch can be consolidated to HQ to enjoy the preferential tax rate of 15%. After the implementation of China New Corporation Tax Law, the corporate income tax is 25% regardless of domestic or foreign owned, which makes the enterprises do not need to consider the location of establishment. If enterprises meet the following requirements, the tax rate can further be reduced to 20%. 1. Annual tax payable less than RMB300,000; 2. Total employees less than 80; 3. Total access less than RMB10,000,000. The minimum registered capital is varied among cities, Dongguan city is ranking in the highest which required USD 428,000 of registered capital.

License of business company has been open to foreign investors since 11 Dec., 2004. It is quite a new knowledge and procedure for foreign investors and related government departments. Since March 2006, Beijing also released the authority of approval to provincial & municipal governments. It speeds up the time of approval from 3-6 months to 45 days. The license is valid for 30 years whereas in the Mid and West areas could be up to 40 years.

Business companies engaging in the following 3 categories must be approved by Beijing Ministry of Commerce:
1. Business sales through TV, telephone, mail order, internet, auto vending machine and so on.
2. Business involves in steel, precious metal, iron, mineral, fuel oil, natural rubber...
3. Store or shopping mall surface area exceeds 5,000m² (53,800f²/ 1,515ping)

Retail-typed business company can only import the retailing products listed in business scope, yet there is no limitation on domestic purchase. The registered capital must be paid up within two years, the initial paid-up capital accounts of 15%, but capital should be totally paid up when setup branch. The regulations for chain store are as below:

One region is defined as provinces (Jiangsu or Guangdong) and municipalities (Shanghai, Tianjin or Chongqing).