I.Introduction to the Establishment of Branch Offices in China
- A branch office established in mainland China (Shanghai, Shenzhen, Xiamen) refers to a non-independent legal entity that operates as a branch of the parent company and is subject to its control in terms of business operations, funding, personnel, and other aspects. It does not possess independent legal status as a corporation.
- A branch office does not possess independent legal or economic status and does not have its own charter. It is set up using the assets of the parent company to cover its costs. When establishing a branch office in mainland China (Shanghai, Shenzhen, Xiamen), the company name only needs to add the words “Branch” after the name of the parent company.
- The process of setting up a branch office in mainland China is relatively simple. With the increasing prosperity of international trade, especially in China, many countries have invested in establishing trade companies or branch offices in China to import and export goods locally.
- Inter Area with many years of practical experience in registering companies in Shanghai, Shenzhen, and Xiamen in mainland China, we provide our clients with more than just basic assistance in registering branch offices/subsidiaries in China. We offer comprehensive services, including consultation on setting up a company in China, preparation of application documents, local registration with the industry and commerce bureau, and subsequent accounting and agency services.
- If a client wishes to register a company in the free trade zone in Shanghai, Shenzhen, or Xiamen in mainland China, Inter Area can provide one-stop services to enable investors to truly operate locally and receive attentive care for all business matters. This allows investors to invest with confidence and focus on expanding their business in the market.
II. Main Characteristics and Regulations for Setting up Branch Offices in China
- The branch office in China is not an independent legal entity, and the property it actually possesses and uses is part of the assets of the parent company, which is included in the parent company’s balance sheet.
- A China branch office is a branch of a company that needs to go through the normal company registration process and provide relevant registration information of the parent company.
- China branch offices do not have their own articles of association or formal corporate governance bodies such as boards of directors for making business decisions and carrying out operations.
- A China branch office does not have an independent name; its name only needs to add the words “branch office” after the name of the parent company.
III.Types of foreign investment enterprises' establishment of branches in China
A. Operating branch office.
An operating branch office can fully conduct business activities, sign economic/contracts, and issue invoices.
◎ Taxation: If there is a profit, the enterprise income tax must be paid. If the operating branch office issues invoices in the same month, it must also pay value-added tax in the local area.
◎ Accounting: When establishing a branch office in China, it adopts independent accounting, conducts comprehensive and systematic accounting for the business operations and results of the branch office.
The management has an independent organizational form, a certain amount of funds, and opens an account at a local bank. It can independently conduct business activities, enter into economic agreements with other units, calculate profits and losses independently, design accounting institutions separately, and equip accounting personnel. It also has a complete accounting work organizational system.
B. Non-operating branch office.
A non-operating branch office can only conduct sales coordination and service contacts, but cannot engage in business operations.
◎ Taxation: Although there is no business income and no profits, there is no need to pay corporate income tax/value-added tax. However, tax declarations must be made every month.
◎ Accounting: A non-operating branch office adopts non-independent accounting, which means that the daily business data related to the business operations of the branch office are reported to the higher-level unit on a daily or periodic basis for accounting. Generally, a certain amount of working capital is allocated by the head office, and the non-operating branch office engages in business activities. All income is fully turned over to the head office, and all expenses are reimbursed to the head office. It does not calculate profits and losses separately but only records and calculates a few main indicators for simplified accounting.
IV.Establishing branch/subsidiary companies in China has the following benefits
- Establishing a branch company in mainland China is conducive to business operations, and the requirements for financial and accounting systems are relatively simple.
- A branch company is not an independent legal entity, and the circulating taxes are paid in the location where the company is located, while the profits are consolidated and taxed by the head office. In the initial stage of business operation, the company often incurs losses, but these losses can be offset against the profits of the head office, reducing the tax burden.
- The profits delivered to the head office by a branch company in China usually do not need to pay advance income tax.
- The capital transfer between the branch company and the head office in China does not involve ownership changes, and therefore does not incur tax burdens. This creates significant differences in tax benefits between the head office and the branch company. Registering a company in China as a branch significantly enhances operational flexibility in business strategy.