Guide to Setting up a Wholesale and Retail Shop (FICE) in Shanghai, China

FICE here we refer to limited liability company wholly owned by a foreign individal or corporation and that engaged in importing, exporting, wholesaling and retailing business.

INTRODUCTION

From 1 December 2004, a new investment vehicle has been made available to foreign investors - the Chinese government is allowing and encouraging foreign investors to set up "Foreign Investment Commercial Enterprises" (FICEs) in China to conduct wholesale, retail and other permitted businesses. This type of business entity possesses the total right of trade and business. It can conduct import/export activities by itself, independent of the local import and export company and does not require the setting up of a manufacturing company.

Furthermore, from 1 March 2006, FICEs are permitted by law to apply and obtain approval documents from the local municipal Foreign Economic Relation and Trade Commission in Shanghai, instead of from Ministry of Commerce in Beijing.

The FICE is a limited liability company wholly owned by a foreign investor. It is a legal person. The foreign investor has sole responsibility for its profits and losses. The liability is limited to the amount of registered capital injected into the entity. The FICE is able to implement strategies that effectively conform to the interests of its overseas parent company. To carry on different trading businesses, it must have the required permits and certificates.

To establish a FICE in Shanghai, a foreign investor has to submit the necessary incorporation documents to various authorities for registration. It is advisable for the foreign investor to entrust an authorised consulting body or agency to handle the tedious submission and application processes.

Definition of Investor

The foreign investor may be a foreign company, enterprise, economic organisation, or a natural person.
(1) For a company/enterprise, the Certificate of Incorporation, Bank Reference Letter, and latest Audit Report are required.
(2) For a natural person, the Identity Certificate and Bank Reference Letter are required.

Note:

(1) The Certificate of Incorporation/Identity Certificate has to be certified by a Notary Public and the Chinese Embassy in the investor's country.
(2) The Bank Reference Letter is issued by the bank in which the foreign investor has a working or trading account and has to be signed by an authorised bank officer.

Capital Contribution

A FICE's minimum registered capital has to conform to relevant provisions of the Company Law. In accordance with prevailing laws and regulations, the minimum registered capital required for a wholesale and retailing business are RMB500,000 and RMB300,000 respectively.

In addition, the registered capital has to match the actual business activities.

The amount of the initial capital contribution cannot be less than 15% of the registered capital or the minimum statutory amount of registered capital.

The investor is allowed to contribute registered capital in cash, in kind, or in the form of technology/intellectual property rights, or other non-monetary properties that may be assessed on the basis of currency. The amount of the capital contribution in cash can be no less than 30% of the registered capital.

SCOPE OF BUSINESS OF A FICE

According to the "Administrative Measures on Foreign Investment in Commercial Fields", a FICE can undertake the following business activities:

• Wholesale: Sale of goods and provision of relevant auxiliary services to retailers, industrial, commercial and institutional users, and other wholesalers;
  - For FICEs engaged in the wholesale business, commodity import and export are allowed.
  
• Retail: Sale of goods and provision of auxiliary services for individual or collective consumption at a fixed location or via television, telephone, mail order, Internet or vending machines;
  - For FICEs engaged in the retail business, import of commodities for marketing and purchase of domestically-made products for export are allowed.
  
• Commission Agency: Sales agents, brokers, auctioneers or other wholesalers selling another wholesaler's goods and providing relevant auxiliary services based on a contract to gain commission fees;
  
• Franchising: Authorising others to use one's own trademark, trade name, business model, or business method etc. by signing a contract in exchange for remuneration or franchising fees.

REGISTRATION

Step 1: Choosing a business name

The Chinese name should be in the following format:

• First part - company name;
  
• Second part - activity;
  - If the company is in the retail business, it has to use the Chinese words "shang mao", meaning "business and trade");
  - If it is in the wholesale business, it has to use the Chinese words "mao yi", meaning "trade").
  
• Third part - Shanghai;
  
• Fourth part - company structure.

Use of "China", "Sino" and "International" are not permitted in the Chinese name unless permission is given, although they are permitted in the non-Chinese name.

Step 2: Reservation and Application of Name

Prior to any of the following applications, the investor should reserve a name for its prospective FICE with the Shanghai Administration of Industry and Commerce (SAIC). The SAIC requires a proposed name and three alternatives.

Step 3: Registration of Approval Certificate

After completion of the Name Approval Notification, the Approval Letter and Approval Certificate are the next to be registered.
(1) For a FICE intending to be in the retail business, approval from the Shanghai Economic Committee is required. The Articles of Association, Feasibility Report, Lease Agreement of the proposed store, etc. should be submitted at the time of application. For FICEs not in the retail business, the registration procedure starts from item (2) below.
(2) The foreign investor has to apply using similar documents such as the Articles of Association, Feasibility Report etc for the Approval Letter and Approval Certificate from the Shanghai Foreign Economic Relation and Trade Commission. The municipal approval authority will review all documentation.
(3) If the documents are in order, the authority is able to approve and issue the certificates within 10 to 15 working days.

Step 4: Registration of Business Licence

Within 30 days of obtaining the Approval Certificate, the foreign investor will need to register and apply for a Business Licence for the FICE from the municipal SAIC. The foreign investor is also required to submit similar documentation to the Shanghai Foreign Economic Relation and Trade Commission for approval and filing.
Once the Business Licence is issued, the FICE is deemed to be a legal person duly organised and existing under PRC laws. It will have full operational rights to operate a business in China within the scope of its Business Licence.

Step 5: Registration of Organisation Code Registration Certificate

This is purely a procedural step. The Organisation Code Bureau will issue certificates within 1-3 working days.

Step 6: Registration of Tax Registration Certificate

Once your Organisation Code Registration Certificate is approved, you may apply for a Tax Registration Certificate at the local tax authority. At the same time, you should also apply for the company seal and legal representative seal. Together with the Approval Certificate, Business Licence and other documents, the formal application form affixed with the seals should be submitted to the authority for examination and approval.

Step 7: Other Certificates

• Statistics Registration Certificate issued by the Statistics Bureau;
  
• Foreign Exchange Registration Certificate issued by the Foreign Exchange Supervision Bureau;
  
• Finance Registration Certificate issued by the Finance Bureau;
  
• Customs Registration Certificate issued by the Customs Bureau.

Others

Having obtained approval from the tax and foreign exchange authorities, you are legally entitled to open USD Capital and RMB Basic Accounts. You may then proceed with capital injection, capital verification and certificate renewal.

INFORMATION AND DOCUMENTS REQUIRED

General

• Name and address of the FICE;
  
• Lease agreement of the FICE;
  
• An application for establishment of the FICE;
  
• Feasibility Report covering items such as technological process, equipment, raw material supply, market survey, economic results, infrastructure facilities, expected profitability, etc;
  
• Articles of Association of the proposed FICE;
  
• Catalogue of import and export commodities being applied for by the FICE;
  
• Names of the proposed chairman and members of the FICE board of directors and their appointment letters;
  
• Original Bank Reference Letter of the FICE investor;
  
• Original Certificate of Incorporation of the FICE investor;
  
• Latest Audit Report of the FICE investor;
  
• Other documents as may be required by the approval authority.

For Establishing a Store

Existing foreign investment commercial enterprises applying to establish a store have to meet the following conditions:

(1) Meet relevant regulations on urban development and urban commercial development;

(2) Participate on time and pass the joint annual review on foreign investment enterprises;

(3) The registered capital of the enterprise has been paid up.

• An application letter;
  
• Articles of Association modified accordingly;
  
• Feasibility Report pertaining to opening of the store;
  
• Board's Resolutions on opening of the store;
  
• Lease Agreement of the store and a copy of the Real Estate Certificate (landlord);
  
• Capital Verification Report of the FICE;
  
• Copy of latest Audit Report of the FICE;
  
• Copy of the Incorporation Certificate of the FICE investor;

TIME AND GOVERNMENTAL CHARGES

The processing time is within 60 working days if all supporting documents and additional information are provided.

The total government charges for the establishment of a FICE are estimated to be between USD1,500 and USD2,000.

The total government charges for establishment of a FICE and a store together are estimated to be between USD2,500 and USD3,000.

For further information or assistance, please call us:

Hong Kong Office: +852 2341 1444
Shenzhen Office: +86 755 8268 4480
Shanghai Office: +86 21 6439 4114
Beijing Office: +86 10 6874 8420

or send email to enquiries@bycpa.com.