With China’s increasingly open business environment, many foreign travelers want to settle down and carry out business activities after visiting China, but they will be confused at the first step: should they choose a domestic-funded entity or a foreign-funded entity? In fact, there is no need to be intimidated by the names “domestic-funded” and “foreign-funded”. Neither is absolutely good nor bad. The core is to see “whether you can register”, “what kind of business you want to do” and “how you want to operate”. Today, we will explain their differences, registration requirements and suitable scenarios in the simplest terms to help you choose quickly and avoid detours.
First of all, let’s make the two concepts clear. There will be no professional terms, and you can understand them at a glance. A domestic-funded entity, simply put, is “a company founded by Chinese citizens or Chinese enterprises”, with funds and shareholders all from China; a foreign-funded entity is “a company founded by foreigners or foreign enterprises”, with at least one party being foreign (including foreign individuals and foreign companies). Here, we need to clarify a key premise first: foreigners cannot randomly register domestic-funded entities, while foreign-funded entities are specially designed for foreign investors. This is the most core difference between the two and the basis for your choice.
Let’s start with the most concerned question: can foreigners register domestic-funded entities? The answer is: generally not, only one special case is allowed. Under normal circumstances, the shareholders of a domestic-funded company must be Chinese citizens or Chinese enterprises. Foreigners cannot register alone or be shareholders alone; but if you have obtained a Chinese Permanent Residence Identity Card (commonly known as “Chinese Green Card”) after coming to China, it will be different — with a Green Card, you can register a domestic-funded company and be a shareholder directly like a Chinese citizen. The procedures are exactly the same as those for Chinese citizens to register, without going through additional foreign-related procedures. This is also the choice of many foreigners who have settled in China for a long time.
If you do not have a Chinese Green Card, you can only choose a foreign-funded entity. Foreign-funded entities are mainly divided into two types, which are also very simple: one is that you invest and operate alone, without looking for a Chinese partner, which is equivalent to “calling the shots yourself”; the other is that you invest and operate together with Chinese citizens or Chinese enterprises, which is equivalent to “doing business in partnership”. Both types belong to foreign-funded entities, and the procedures will reflect the attribute of “foreign investment”, which is different from the registration process and review requirements of domestic-funded entities. But overall, it is very convenient. Now most industries in China allow foreigners to register foreign-funded entities. Only a few industries (such as education, medical care and finance) have some restrictions, and there is no need to worry about ordinary businesses.
Next, we will compare the differences between the two from 4 most practical angles in simple terms. You can find your own situation. The first angle: registration difficulty and speed. If you have a Chinese Green Card, registering a domestic-funded entity is very simple. Just like Chinese citizens registering a company, prepare your ID card and registration address, and you can complete all procedures in about 1-2 weeks. The review is also relatively loose, and there is no need to submit additional foreign-related certification materials; if you do not have a Green Card, registering a foreign-funded entity will have one more step than domestic-funded entities — you need to provide your passport notarization certificate and source of funds explanation (simply to prove that your money is legal). The review will be slightly stricter, but there is no need to worry too much. Now the process has been simplified a lot, and it can also be completed in about 2-3 weeks. As long as the materials are complete, it can basically pass. Moreover, there is no minimum registered capital requirement, so the capital pressure is relatively small.
The second angle: restrictions on operation. The advantage of domestic-funded entities is obvious: there are no special restrictions on operation. Whether it is doing domestic trade, opening offline stores, or cooperating with Chinese enterprises, it is the same as ordinary Chinese companies, without additional filing; and when bidding or cooperating with state-owned enterprises, it is sometimes more advantageous, because some projects will clearly require “only domestic-funded companies can participate”.
For foreign-funded entities, although they can do most industries, there are two small restrictions to note: first, a few industries cannot be done (such as some education and financial fields); second, if you do import and export business, you need to handle an additional import and export filing (the procedure is also very simple, which can be completed in a few days); in addition, daily operation is no different from domestic-funded companies. You can open stores, do trade, recruit employees, and also enjoy China’s tax preferential policies, especially in some pilot areas, the preferential intensity is still very large.
The third angle: operating costs and subsequent convenience. In terms of cost, there is little difference between the two. Whether it is registration fees, bookkeeping and tax reporting fees, or venue rental and employee salaries, they are basically the same. The core difference lies in the subsequent “visa and residence convenience”. It should be emphasized here: if you register a foreign-funded entity and serve as the legal representative or senior manager of the company yourself, you can apply for a Z Visa (Work Visa) with the registration certificate of the foreign-funded company, and then apply for a long-term residence permit after entering China. In this way, you can live and operate in China for a long time without frequently extending your visa; and now the new policy has relaxed visa conditions. Foreigners who urgently need to come to China for business and have no time to apply for a visa can directly apply for a port visa at the port to enter China, which is very convenient.
But if you register a domestic-funded entity (only allowed with a Green Card), although you can also apply for a work visa and residence permit, the process is different from that of a foreign-funded entity, and you need to provide more certificates related to the domestic-funded company. Overall, foreign-funded entities are more suitable for foreigners doing business in China in terms of the connection of “visa and residence”, which is also the core reason why many foreigners without a Green Card prefer foreign-funded entities. In addition, foreign-funded entities also have convenience in capital flow. For example, they can directly receive funds from abroad without going through complex foreign exchange filing procedures, which is suitable for foreigners doing cross-border business.
The fourth angle: suitable crowd. In summary, the suitable scenarios of the two entities are very clear, and there is no need to entangle. If you have obtained a Chinese Green Card after coming to China, and the business you want to do is cooperate with state-owned enterprises, participate in domestic bidding, or do not want to go through foreign-related review procedures, choose a domestic-funded entity, which is worry-free and has few restrictions; if you do not have a Chinese Green Card, whether you want to do business alone or in partnership with Chinese partners, you can only choose a foreign-funded entity — especially if you want to operate in China for a long time, need to apply for a long-term residence permit, or do cross-border trade and want to receive foreign funds conveniently, a foreign-funded entity is definitely a more suitable choice with convenient procedures and higher adaptability.
There are also a few small reminders, which are common pitfalls for foreign travelers. You must remember them. First, without a Chinese Green Card, never try to “register a domestic-funded company in the name of a Chinese citizen”. This operation is illegal. Once found, the company will be cancelled, and you may also face fines and deportation within a time limit, which is not worth the loss; second, when registering a foreign-funded entity, there is no need to entangle between “operating alone” or “operating in partnership”. Operating alone means you call the shots, and operating in partnership can help you use the local resources of Chinese partners. Choose according to your own business needs. The difficulty of procedures for both methods is similar; third, no matter which entity you choose, you must prepare a real registration address (must be a commercial address, not a residential address) when registering, and complete bookkeeping and tax reporting on time. These are the basis for legal operation. There is no need to feel troublesome. Now many professional institutions can help handle it on your behalf, saving you time and effort.
Finally, to summarize: the core of choosing an entity for foreigners doing business in China is two things: whether you have a Chinese Green Card and what kind of business you want to do. With a Green Card, you can choose either domestic-funded or foreign-funded entities, and prioritize your business needs; without a Green Card, directly choose a foreign-funded entity, which has higher adaptability, more convenient procedures, and can easily connect with visas and residence permits. Now China provides strong support for foreign investors. No matter which one you choose, as long as the procedures are compliant and suitable for you, you can carry out business smoothly and seize the opportunities in the Chinese market.
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