The Chinese government has simplified the process of setting up a foreign company by rolling out the five-in-one business license. This cuts a great deal of the red tape associated with the previous business registration process.
In recent years, the Chinese government has publicly reiterated its stated goal to promote entrepreneurship and create a more business-friendly environment in the face of a rapidly evolving Chinese economy. In April 2017, Li Keqiang, China’s head of government, called to cut unnecessary business certifications and licenses, signaling that the government may finally be ready to double-down on implementation.
China feels a sense of urgency to speed up business reforms for a number of reasons. First, implementation of the ambitious economic reforms laid out in 2013 has been sluggish. To maintain credibility, Xi’s government will need to match big talk on reform with results. Second, as various economic concerns come to the forefront of the attention of the Chinese government, including concerns about imbalances in the economy, the generally slowing pace of growth, and troublesome public debt, pressure mounts on the Chinese government to engage in structural reforms so as to keep the business environment vibrant and prevent a hard landing of the economy. Nevertheless, China has become a more business-friendly environment in recent years. Though China still ranks light-years behind developed countries in overall business environment quality, its position has greatly improved in the World Bank’s Ease of Doing Business index.
The Five-in-One Business License
The five-in-one business license that foreign businesses can apply for includes the standard business license itself, the tax registration certificate, the organization code certificate, the social security registration certificate, and the statistical registration certificate. The requirement to obtain the five-in-one license in 2018 covers existing wholly foreign owned-enterprises, branch offices, and representative offices. Sole-proprietors are exempted.
The business license is required for many key business duties including opening a bank account. The business license contains a number of key pieces of information including the company’s registration number, official company name, registered capital amount, legal representative, and the corresponding registration bureau. It is usually viewed as a badge of company’s legitimacy. Companies typically display their business license, such as in a storefront window. Prospective customers may expect to see a copy of the business license.
Business Tax Registration Certificate
The tax registration certificate contains, among other things, the tax number, taxpayer name, and business scope. Previously, companies would apply for the certificate with their local tax bureau within 30 days of receiving their business license.
Organization Code Certificate
Like the business license, companies will often give customers or prospective clients a copy of the organization code certificate to demonstrate their legality and legitimacy as a business. The Chinese government created the organization code certificate system to aid the development of a digital database for all organizations in the country.
Social Security Registration Certificate
Contribution to China’s social security system is mandatory for employers, and businesses are required to register in that system. The social security registration certificate was included in the previous three-in-one business license and has now been absorbed into the five-in-one business license.
Statistical Registration Certificate
Some regions, including Shanghai and Guangzhou, have eliminated the statistical registration certificate. Statistics collection in China is now fully digitized with the use of the Online Reporting System.
What’s Changed for Businesses?
Foreign business in China historically complains about the quantity of red-tape involved in setting up and operating a business. The five-in-one business certificate should bring the red-tape for business registration down to a fraction of what it was. This could reduce the length of the registration process by weeks, in some cases. Previously, companies would have to apply for a business license with the local Administration for Industry and Commerce, and one-by-one proceed to the tax bureau, the social security administration, etc. Businesses now will only need to make a single application online.
The Digitization of Business Registration
In 2017, the State Administration for Industry and Commerce laid out a plan to completely digitize the business registration process, including the issuance of electronic business licenses. The system includes online application filing, uploading supporting documents, and e-signatures. The digitization of business registration will reduce turn-around time by integrating the documentation workflow.
Implications for Existing Businesses
Business will need to update their documents and obtain the digitized, five-in-one license. China’s authorities have pushed existing businesses to have their business licenses updated by the start of 2018. Failure to update business certificates with the new system may create complications and extra costs related to taxation, issuance of fapiao (or official invoices), and social security payments.