How to Start a Business in Shenzhen Without a Legal Entity

 

The rules and regulations for foreign companies to do business in China are considered to be strict, depending on the type of industry.

But it is possible for foreign companies to do business in China without WOFE or another type of entity.

Such companies can, for example, sell and import goods into China, have their products manufactured in China, sell their services in China.

There are still various issues that should be considered and which can make doing business in China complicated.

These issues are explained as below:

• Issue 1: a local entity is required for issuing ‘fapiao’

When selling goods and/or services in China, local companies need to issue a ‘fapiao’ which is an official Chinese invoice. This document is important since, without this, local companies won’t be able to deduct Corporate Income Tax and deduct input VAT from their output VAT.

• Issue 2: employees can only be hired by a local entity in China

Both Chinese citizens and expats are allowed to work only for local companies registered in China.

• Issue 3: it is difficult to receive payments from the client without a local entity

Since there are strict Foreign Exchange controls in China and all exchanges in China are administrated by the State Administration of Foreign Exchange (SAFE), if you don’t have a local entity, it is complicated to receive payments.

The Solution to the Above Issues

One of the proposed solutions is the setting of a WFOE in China. In this way, your company can have a local entity and also conduct profit-making activities.

But companies can make use of another solution called PEO or employment outsourcing.

This is probably the best solution in terms of costs and time spent to start the business in Shenzhen. And this is a solution that does not require you to have a local entity in the country.

Basically, investors can rely on local experts in employment and labor law to legally hire the employees on their payroll. These employees will continue to work for you, while the PEO company will manage all the HR and employment relationships.

Employment outsourcing is the most reliable, rapid, and compliant way to have employees hired to work for you in Shenzhen.

Such PEO agencies act as an employer of record (EOR) for your employees directly hiring employees to work for you on your projects.