Market Entry Report – Doing Business in China

Now the world’s second-largest economy and long since the most populous nation on earth, China lies at the eastern edge of Asia, bordered by several of the region’s most prominent nations, including Russia, India, and Pakistan, and sharing maritime borders with South Korea, Japan, Vietnam, and the Philippines.

market entry china

China’s earliest civilizations stretch back to prehistory, but the country was ruled by a series of grand imperial dynasties for centuries – until 1912 when the old system was replaced by the Republic of China. In 1949, the Communist Party established the People’s Republic of China and, after a period of socialist rule, opened to the world with economic reform in 1978. In accordance with the Foreign Investment Law of the People’s Republic of China (FIL) and its implementation regulations, which came into effect on 1 January 2020, China has implemented a system of pre-entry national treatment plus negative list management for the administration of foreign investment.

Under these circumstances, it is becoming more important for investors to get familiar with the changes in China’s business landscape, identify areas of risk, and accordingly take steps to mitigate their exposure. Only in this way investors can stay nimble and opportunistic in an otherwise challenging time.

Foreign Investment in China

China is now taking concrete and effective measures to open its door wider, including the introduction of Foreign Investment Law, favorable tax schemes, as well as the liberation of specific industries. Taking an active approach to developing a fair business climate for both domestic and foreign enterprises, China has recently revised its Trademark Law and Anti-Unfair Competition law to benchmark leading practices across the world.

Registering a Company and Establishing an Entity in China

The company is required to have a legal entity established in order to process payroll. They require an entity before they sign the labor contract with the employees. Foreign employers can register the following entities in China:

  • Representative Office (RO): Registration time is around two months.

  • Wholly Foreign-Owned Enterprise (WFOE): This is a form of limited liability Company in China. The registration time is around four months.

For more detail regarding setting up an entity in China, please click the “connect” button above and we will reach out with the most comprehensive process plan for your business.

Business Taxation

Unlike common-law countries, the taxation system in China is based on law, not precedent. China’s major tax laws are passed by the People’s Congress, and regulations for implementation are formulated by the State Council.

Starting from January 1, 2008, the Enterprise Income Tax Law and the Enterprise Income Tax Implementing Rules provide unified income tax treatment for both domestic enterprises (DEs) and FIEs with a tax rate of 25%.

Monthly individual income tax reporting

Information required for completion of this document is as follows:

  1. Monthly Individual Income Tax Summary

  2. Detail Information

The document can be filed by the Employer or their authorized agent and must be submitted to the Local Tax Bureau. The document is required to be signed by the employer.

More info on corporate and individual tax and Chinese tax calendar will be available in our full country report.


There are currently two accounting regulation systems in China, ASBE1 and CAS 2006.2 CAS 2006 is substantively converged with IFRS,3 and ultimately, will be adopted by all companies, except for small enterprises that elect to adopt ASBE.

Please find more detail about reporting principles and requirements in our full report.

Payroll in China

China’s payroll system includes numerous associated statutory regulations. Failure to comply with payroll statutes can lead to costly penalties. Employers have a responsibility to withhold income tax from employees – and report those taxes before the 15th of each month. Social Security contributions must be paid on the same schedule.

In addition to tax withholding, important components of the payroll process include:

  • Registering new employees in the payroll system

  • Registering new employees with Social Security

  • Salary calculation and payment arrangements

  • Delivery of payslips, which may be electronic

  • Maintaining payroll records for at least 5 years

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Want a 360° understanding of local regulations and how to make your market entry efficient and cost-saving? HSP has the answer. Specialized in Chinese and global legislation, our team offers the following integrated statutory compliance services covering accounting, corporate law, VAT, and corporate income tax. Advantages include one point of contact, multiple competencies, and a proven standardized process guaranteeing high quality and timely delivery, as well as access to key information for compliance, reporting, and planning purposes. Additional benefits are control of cost-fixed fees, flexibility, and a large and well-balanced team.

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