How to Register a Sole Proprietorship in China

The People's Republic of China is the world's most populous country, with a population of around 1.4 billion. It is the largest economy in the world by PPP since 2014, the second-largest by nominal GDP since 2010, and the world's largest manufacturing economy. With the world’s fastest-growing consumer market, China is a great place to start your own company, with the most common type being a sole proprietorship.

Disclaimer: Be aware that this article is not a substitute for legal advice. Please always check official websites or seek legal advice before you take action.

Sole proprietorship in China

As the name implies, it is owned by a single individual who bears complete liability for the small private company. A Chinese sole proprietorship must be owned by a Chinese national. However, it is possible to invest in a small enterprise as such by setting up a Joint Venture (JV) that requires a Chinese partner or applying directly for a Wholly Foreign-Owned Enterprise (WFOE).

Most suitable business fields for a sole proprietorship are:

• Selling goods by offline retail stores
• Sales counter of agricultural products
• Restaurants, coffee shops
• Milk tea shops, flower shops
• Gymnasiums, yoga gyms
• Bars and Liquor shoppes
• Grocery, cooking-oil food stores
• Handmade articles, workshops
• Aquatic products counter, etc.

Depending on your chosen business field, you will not only have to register the sole trader, but will also need special permits and licenses for certain types of businesses, like a restaurant.

Sole traders cannot apply for import and export licenses and permits to operate international businesses.

Conditions for setting up a sole proprietorship

• The investor is a natural person;
• It has a legal enterprise name;
• The enterprise has registered capital contributions by the investor;
• It has a fixed production and operation site and necessary production and business conditions;
• The enterprise has the requisite employees.

Registration

Here are the documents required for registration:

• An application form for the establishment of a sole proprietorship enterprise signed by the investor ;
• The investor’s identity certificate;
• Proof of the domicile of the enterprise;
• Other documents required by the State Administration for Market Regulation (SAMR).

The individual-owned enterprises must register within 15 days from the determination of the following information below:

• Name and domicile of the enterprise
• Name and residence of the investor
• Amount and method of capital contribution of the investor
• Business scope

Applicants must submit the relevant documents to the SAMR and obtain an official business license and company a seal upon approval.

Opening a bank account

You will also need to open a local bank account. The process is easy and quick. You need to provide your original ID, approved business license and company stamps. Submit them to a local bank to obtain approval.

Taxes and VAT system in China

In 2000, China’s State Council through State Development (2000) No. 16 decided to eliminate the payment of corporate income taxes for sole proprietors or individual-invested enterprises. Instead, taxes on the production and operation of sole enterprises are levied on their individual income taxes.

Examples of individual income tax rates under the Income Tax Law on relevant annual taxable Income figures are:

• For income up to CNY 36,000, the tax rate is 3%.
• For income between CNY 36,001 and CNY 144,000, the tax rate is 10%.
• For income between CNY 144,001 and CNY 300,000, the tax rate is 20%.
• For income between CNY 300,001 and CNY 420,000, the tax rate is 25%.
• For income between CNY 420,001 and CNY 660,000, the tax rate is 30%.
• For income between CNY 660,001 and CNY 960,000, the tax rate is 35%.
• For income over CNY 960,0000, the tax rate is 45%.