Expanding Your Business in China: Incorporation vs. Employer of Record (EoR)

Every company considering international expansion has two options – setting up a legal entity - Incorporation or using an Employer of Record (EoR). Choosing between an Incorporation or Employer of Record in China depends on your business goals and the speed at which you need to enter the market.

Incorporating a business in China

Incorporation involves establishing a fixed offshore firm that operates with a legal and physical presence in a foreign country. This usually includes registering the company with local authorities, setting up a branch office, and eventually forming a subsidiary within the host country.

Foreign investors can typically choose from three common business structures when setting up in China:

1. Wholly Foreign-Owned Enterprise (WFOE)

2. Representative Office

3. Joint Venture Company
   

Wholly Foreign-Owned Enterprise (WFOE)

A WFOE is 100% foreign-owned and does not require a Chinese partner. As a limited liability company, it exists as a separate legal entity from its investors, and it can directly employ staff, issue invoices, and receive payments.

Hiring employees A WFOE can hire local staff without using employment agencies. There are no restrictions on hiring foreign workers, although factors like the company’s investment, tax payments, and local staff numbers influence how many foreign employees it can bring on board.

Minimum registered capital China’s Company Law requires the registered capital to be determined by shareholders, with a minimum of RMB 1. However, the government typically assesses whether the proposed amount is enough to cover working capital for the first 1–2 years.

Set up time Establishing a General WFOE takes about two to three months, excluding any special licences.

Representative Office

A representative office cannot engage in profit-generating activities, collect payments, issue invoices, buy property, or import production equipment. It is usually set up for marketing or research purposes to better understand the Chinese market.

Hiring employees A representative office cannot directly employ staff; it must go through an employment agency. It is also limited to hiring up to four foreign employees.

Minimum registered capital There is no capital requirement.

Set up time Establishing a representative office takes around one to two months.

Joint Venture

A joint venture is a limited liability company formed by a foreign investor and a Chinese company, with the foreign party owning at least 25% of the entity.

Hiring employees A joint venture can directly hire both local and foreign staff without using an employment agency.

Minimum registered capital There is no minimum capital requirement.

Set up time Setting up a joint venture takes about two to four months.

Work permits

Foreign workers are categorised into A, B, and C groups, with most applicants falling under category B. To apply for a visa under category B, the applicant must first secure a Foreign Work Permit (FWP) notification letter from the State Administration of Foreign Experts Affairs (SAFEA), followed by a Z visa from the Chinese embassy in their home country. Upon entering China, the Z visa is valid for 30 days, during which the applicant must apply for the FWP and then a work-type residence permit from the Public Security Bureau (PSB).

Benefits of incorporating in China:

• Incentives for foreign and local businesses

• Access to the world’s largest market

• Affordable production and manufacturing costs

• Limited personal liability

• Creation of corporate identity
  

Using an Employer of Record service in China

An EoR allows a company to hire staff in a foreign country without setting up a legal entity. The EoR serves as the official employer, while the client company makes decisions regarding hiring, roles, and dismissals.

During expansion, an EoR can provide:

• Quick market entry – firms can start operating as soon as they hire staff in China.

• Compliance with local labour laws.

• Risk minimisation when entering new markets.

• Efficient recruitment of staff in the new market.

• Local HR expertise to manage payroll and operational requirements.

• Lower costs compared to traditional company formation.

• The EoR assumes legal responsibility for the employee, removing liability from the client firm.

• Flexibility for maintaining staff after closing an entity or for company deregistration.

Incorporation vs EoR in China: Which to choose

If your business is expanding to China and needs to hire staff, consider the following options based on your goals.

Reason 1: Explore the market If your goal is to explore market potential, build contacts, and prepare for entry, you may hire staff legally in China before incorporating.

• Representative Office:

  • Must employ staff

  • Can support foreign work permits

  • Must rent an office

  • Cannot trade

  • Must convert to a WFOE or JV if future trading is required

• PEO with EoR service:

  • Can legally employ staff

  • Has low overheads

Reason 2: Support existing customers/suppliers If you need staff to support customers, manage marketing, or liaise with suppliers, and invoicing/payment will occur outside China:

• Representative Office:

  • Must employ staff

  • Can support foreign work permits

  • Must rent an office

  • Cannot trade

  • Must convert to a WFOE or JV if future trading is required

• PEO with EoR service:

  • Can legally employ staff

  • Has low overheads

Reason 3: Start trading immediately If you need to start invoicing and making payments in China immediately, you must incorporate:

• Joint Venture:

  • Foreign companies partner with Chinese companies and hold at least 25% of the business

  • Can directly hire employees

• Wholly Foreign-Owned Enterprise (WFOE):

  • 100% foreign-owned

  • Can directly hire employees

  • Can issue invoices and conduct business

You may also outsource employer registration and HR functions to a PEO to reduce administrative tasks.

Other factors to consider

Familiarity with Chinese regulationsInternational regulations vary by country, and breaching them can lead to significant penalties. Using an EoR helps reduce compliance risks, allowing you to focus on other aspects of your expansion.

The scale of your business expansion Assess the level of investment you're willing to make. If this is an experimental move, starting with an EoR can help you evaluate the risks and benefits before fully committing to incorporation.

China’s economic state China remains a top destination for businesses looking to expand globally. The 2022 Catalogue of Encouraged Industries for Foreign Investment, effective from 1 January 2023, continues to promote foreign investment in advanced manufacturing and service industries. Business and personal travel have resumed since early 2023, and further policies to support foreign businesses are expected.

While incorporating a WFOE is a traditional choice, using an EoR like Woodburn offers a faster and more cost-effective path to expand into China. Through the EoR model, Woodburn handles all compliance, payroll, tax filings, and regulatory matters.

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Woodburn Accountants & Advisors is one of China’s most trusted business setup advisory firms.

Woodburn Accountants & Advisors is specialized in inbound investment to China and Hong Kong. We focus on eliminating the complexities of corporate services and compliance administration. We help clients with services ranging from trademark registration and company incorporation to the full outsourcing solution for accounting, tax, and human resource services. Our advisory services can be tailor-made based on the companies’ objectives, goals and needs which vary depending on the stage they are at on their journey.

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Talk to an expert

Schedule a 30-mins complimentary, no-obligation call to see how Woodburn can help you. Book a call with our Head of Business Advisory - Kristina Koehler-Coluccia.

Topics we can advise on include:

• Company Registration

• Cloud Accounting & Financial Reporting

• Cloud Payroll Services

• Tax & Audit Services

• Recruitment

• Employer-of-Record

• Visa Application

• Trademark Registration

• Switch to Woodburn

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