The Business Scope of a Trading Company

To fulfill its commitments made for its WTO accession, from 11 December 2004, China allows wholly foreign-owned trading company to be established in China. According to the Regulations on the Administration of Foreign Investment in Trade Sector (2004) (“the Regulations”), enacted by the Ministry of Commerce, the business scope of a foreign-invested trading company may include: (1) to be a trade agent; (2) wholesale; (3) retail; (4) franchise; (5) export and import.

According to the above Regulations, the categories of the goods to be traded by the trading company should be specified in the company's business scope, for example: wholesale and export of textile, electronic products, furniture, plastic products, hardware, etc.

Registered Capital
China has clear policies regulating minimum registered capital and investment amounts for foreign investment projects.
1．Minimum Registrerd Capital Amounts
As stipulated in China’s Company Law, minimum registered capital for limited liability corporations is based on the nature of the industry. For manufacturing industries it cannot be less than RMB 500 thousand. The miminum registered capital for various industries according to current laws is given below.

(1)Foreign funded banks, joint venture banks: minimum registered capital of RMB 300 million in a freely convertible currency；
(2)Foreign funded financial institutions, joint venture financial institutions: RMB 200 million in a freely convertible currency；(3)Joint venture tour operators: not less than RMB 5 million；
(4)Joint venture advertising agencies: not less than USD 300 thousand ；
(5)International joint venture freight forwarding enterprises: not less than USD 1 million ；
(6)Foreign funded investment oriented enterprises: not less than USD 30 million；
(7)Foreign Limited Liability Joint Stock Companies: not less than RMB 30 million;
(8)A wholesale company should be at least RMB 500,000 (about USD70,000), and for a retail company should be at least RMB300,000 (about USD40,000).

The examination and approval authority may require a higher amount of the registered capital pursuant to the categories of goods which the company is going to trade. For example, if the company wants to trade automobile, a higher amount of registered capital would be required.

The registered capital does not need to be contributed when applying for the registration of the company. After the company being registered, 20% of the registered capital needs to be put into the bank account of the company within 90 days after the registration.

The requirement of the registered capital is to ensure that the company will have enough funds for its operation after being registered. The registered capital is to be used for the expenditures of the company, and it is not allowed to be returned to the investor(s) unless the company is to be terminated (dissolved). 

 
2．Regulations concerning the ratio of registered capital to total investment
In Interim Measures Concerning the Ratio of Registered Capital to Total Investment Amount of Sino-Foreign Equity Joint Venture Enterprises, the State Administration for Industry and Commerce provides the following policies regulating the ratio of registered capital to total investment for foreign funded companies. :
 
(1)If total investment is equal to or less than USD 3 million, registered capital must be at least 7/10 of the total investment. ；
(2)If total investment is above USD 3 million but less than or equal to USD 10 million, registered capital must be at least 1/2 of the total investment. If total investment is less than USD 4.2 million, registered capital must be at least USD 2.1 million. ；
(3)If total investment is above USD 10 million but less than or equal to USD 30 million, registered capital must be at least 2/5 of the total investment. If total investment is less than USD 12.5 million, registered capital must be at least USD 5 million.；
(4)If total investment is above USD 30 million, registered capital must be at least 1/3 of the total investment. If total investment is less than USD 36 million, registered capital must be at least USD 12 million.；
(5)Foreign funded companies that for whatever reason cannot meet the guidelines listed above should report to the Ministry of Commerce, and any corresponding modifications must be jointly approved by the Ministry of Commerce and the State Administration of Industry and Commerce.
at least 1/3 of the total investment. If total investment is less than USD 36 million, registered capital must be at least USD 12 million.；
(5)Foreign funded companies that for whatever reason cannot meet the guidelines listed above should report to the Ministry of Commerce, and any corresponding modifications must be jointly approved by the Ministry of Commerce and the State Administration of Indu

The Government Fees for the Registration of a Trading Company

The government fees include relevant registrations fees, such as the Industry and Commerce Registration Fee, which is 0.08 % of the registered capital, and other registration fees such as the tax registration fee (RMB30), code registration fee (RMB150), customs registration fee (RMB150). If, for example, a company's registered capital is RMB500,000 (USD62,000), the total amount of government fees is around RMB1100 (USD136).

Documents Needed for the Registration of a Trading Company

The following basic documents are required to be submitted to the relevant government departments:

(1)  Identification certificate (such as passport or business registration certificate) of the investor(s);

(2)  Bank Reference Letter issued by bank of the investor(s);

(3)  Documents (such as an office tenancy contract) to prove the use right of an office of the company in China;

(4)  Application Letter for the establishment of the company;

(5)  Feasibility Study Report on the establishment of the company;

(6)  Articles of Incorporation (Articles of Association) of the company;

(7)  Letter with the pre-registered name of the company, issued by the registration authority;

(8)  Name(s) of the board director(s) of the company;

(9) The categories of goods to be traded by the trading company;

(10)  Agreement between/among the investors.

All the above documents shall be in Chinese. If some of them are in foreign language, they need to be translated into Chinese.

We will help our clients to prepare the documents needed. On the above list, documents from item (3) through item (10) could be drafted by our law firm for our clients.

Taxation

According to the Chinese tax laws and regulations, there are mainly two kinds of tax which a trading company needs to pay. One is called the Value Added Tax (VAT), the other the Corporate Profit Tax.

Generally speaking, there is no export tax for exported goods, except for a few kinds of goods specified by the tax regulations. A trading company may get the Value Added Tax (VAT) refunded for the exported goods after the company has been recognized by the tax authority to be qualified to be a General Tax Payer, whose annual turnover must reach or exceed RMB one million and eight hundred thousand (RMB1,800,000, about USD222,000).

Director(s) of a Trading Company

The investor may appoint himself or other Chinese or foreigner to be the director(s) of the Company.