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[How To]: Start a Company as a Freelancer

Does it guarantee you a work visa? Here Are 10 Things To Keep In Mind
Mar 15, 2021 | 12:00 Mon
How To: From the directly and minutely useful to information on living your best self in the world. How To is our regular column on how to accomplish things in the city.
People start businesses all the time! In Expat circles, it might be because they have an idea that they think is really going to take off, or it might just be because they'd like to be able to sponsor their own working visa or to issue invoices as a freelancer. We've already written an article outlining the basic steps of the process but what do people who have actually gone through with it have to say? We talked to a few WFOE (Wholly Foreign Owned Enterprise) owners and gathered together their experiences.


The Cost Is More Than You Think


The total cost… depends. Of course it depends! It always depends. One new business owner advised to not start the company setup process unless you have 20-30,000rmb on hand.

We spoke to a few agencies and walked through their pricing structure. First, there's company and tax registration, plus opening a bank account and associated government fees, which will cost around 6,000rmb. Then there's chaperoning the work permit and residence permit through, which costs around 3,000rmb. Additional fees can include health checks for the work visa (500rmb), the work permit's government fee (500-800rmb), as well as getting a background check and authentication, which can all cost about 3-4,000rmb and take between three to five months.

This is only for one agency, but in general, we've heard back that the basics of getting a business established can cost between 15-20,000rmb. That's not counting the ongoing costs like office renting and accounting that will start from day one.

How Much Registered Capital Do I Need?


Upon set up, you're asked to list a registered capital amount when you register the company. In theory that's at least 50k USD. However, in most cases, this amount doesn't actually need to be paid and injected into the company. This payment can be postponed to 30 years, and still extended. And if you close the company beforehand, the payment can be skipped.


How Much Will It Cost Me Paying All Those Taxes?


First off, you are required to have an accounting company to do your books. Usually, the company you choose to set up your company also provides this as an ongoing service to you. Cheaper local companies can cost less than 500rmb/month for basic tax filing, plus around 150rmb/month for fapiao issuing, which you'll need to get paid for anything.

The taxes themselves are the other costs. The only certainties in life are taxes and death. Company's face revenue tax (营业税) every time you issue an invoice (fapiao 发票), the rate depends on the type of business and what type of business license (营业执照) you have. If your company is a restaurant, the revenue tax is either 1% or 3%. A consulting company is usually 6%, and some business types like trading pay up to 13% revenue tax. However, a lot of small companies get exceptions and don't have to pay any revenue tax if their revenue doesn't exceed 300,000rmb per quarter. Keep all this in mind when discussing the type of business license when you set up your company.

Then you need to pay individual income tax (个人所得税) on the salary you give yourself, more on that here. And, if your company earns more money than it spends, you need to pay profit tax (利润税) on remaining revenue not deducted. Profit tax is usually 10% but can go up to 20% for certain types of businesses.

Let's do a rough calculation with a consulting company:
You issue fapiaos for 100,000rmb to your clients, and you pay yourself a 50,000rmb salary.

The taxes you'll be paying now is:
6% on the 100,000rmb revenue = 6,000rmb
Income tax on your 50,000rmb salary is around 12,000rmb
Profit tax on the 50,000rmb profit you are making: 5,000rmb

Do I Need an Office?


Yes. You also need a physical office. For the company registration portion most use virtual addresses, but later down the line, you'll also need a year-long physical office rental agreement to open a corporate bank account at a bank. This was a new rule introduced in July 2020, due to ongoing fapiao fraud. Even a token office, meant for having a fixed address, could cost you around 6,000rmb/year. Once your company is registered and your bank account is all set up you could just keep the virtual office and work from anywhere. If you plan on hiring staff, keep in mind that most residential buildings are not entitled for commercial work. SmartShanghai has listings for downtown offices here.

So altogether, you're looking at an additional 13,000rmb per year just for keeping a company from flatlining.


It Will Almost Certainly Take Longer Than You Think


Registering a company and getting a business license can be shockingly easy; with a competent agent, it's just a matter of paying some money, signing some forms and scanning some documents. It takes a couple of weeks.

However, since you'll probably want to hire yourself and sponsor your own work visa. You'll have to get the immigration and labor bureaus involved, and you might have to get additional documents like a background check from your home country. That makes the process much longer. Along the way, any one step can trip you up and add on an extra month or two.

It's best not to rely on a rigid timeline because obstacles are inevitable, whether it's a hang-up at a consulate or an issue with previous work visas (for example, past job descriptions which don't match up with the scope of your current visa). From the people we've spoken to, it can take anything between three to six months. One company owner thought the process would be done in a few months but ended up counting into six months plus. The closed borders were a big drag.


Pay Attention to the Business Scope and Where You Register the Company


When initially registering the company, you need to list a business scope, and if you expand services in the future, the business scope also needs to cover that new area. Agents will recommend that your initial scope be both as wide and as accurate as possible. Adding to the scope doesn't cost anything and can be done on your own, though some scopes might need special licenses.

Another issue is where you register. Different cities and districts have different tax incentives for different kinds of companies. Look around to see which one suits you best. A Free Trade Zone may be beneficial if you plan to have an export-import business. However, be aware that while Shanghai might be the right place to register your company, if you're planning to hire and pay employees in Beijing, you'll need to set up a branch office there.


So, What's a Legal Representative?


Every company in China needs to have a legal representative (法人). This can be an employee, but in most small companies one of the founders takes this position. As the legal representative, you are legally responsible for the company, such as with compliance to environmental, tax, business laws and such. In other words, if something goes wrong, you're the one facing the music. In a worst-case scenario, you might not be able to leave the country if there are any ongoing legal cases against your company. Previously, some foreigners chose a family member abroad to offload the legal risks to someone who's not planning to visit China. However, for a few years now, the legal rep must be physically present at least once a year.

Will I Automatically Get a Work Visa?


In terms of perks, as the legal representative of a company, you can get a work visa without the typical requirements of two-years of work experience and a bachelor's degree (though this rule is city specific). So, if you didn't manage to get a work visa through the regular channels, setting up a company is a workable option. We did hear from one business owner who went through the process that the company must have a shareholder if the legal representative doesn't have a college degree.


It Costs Money to Shut Down a Company


If it doesn't work out, the good news is that shutting down a company can be done by an agent after you've left the country. The tax account, corporate bank account and social insurance account will all need to be closed, along with the deregistering of the company license. The process takes about three months, and up to a year if the accounting books are messy. Agents can conduct the service for between 6,000-10,000rmb.


So Is It Worth the Hassle in the End?


Are you a glass half full or a glass half empty type of person? One source told us it added much more stress into his life, including a time-consuming investigation by the police and the whole process felt like a second job. He definitely would not do it again.

But another only regretted they didn't do it sooner and advises others that the process is not as daunting as it seems at first. A good sense of humor helps too.

***
If interested in starting up your own company, head over to SmartShanghai's Business Registration directory in our Business Directory.

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