Shanghai Legislation

Doing Business in China: Every You Need to Know About Company Registration in China


China's business has been going strong in the past decades, enjoying double-digit growth in the past 30 years. As the world's largest economy, it is a very attractive location for business expansion. Shanghai especially, as the country's biggest city and global financial hub is getting much attention from businesses all around. To help companies prepare themselves for business, Links created a legislative page of the main employment laws and best practices in Shanghai. Please note that all the information listed below are to be used as a general guideline, for more detailed accounts of laws and regulations, please visit the official governmental websites.


How to Register a Company in China?

These are your options when registering a business in China.

  • Wholly Foreign-Owned Enterprise (WFOE) in China
    Registering your company as a WFOE allows a foreign company to operate in the Chinese market while still being completely owned by foreign investors. It is a business entity formed in China entirely with foreign capital. This legal structure is the most common and effective at taking advantage of the vast consumer base in China. A WFOE is set up as a limited liability entity and is taxed according to local legislation.

  • Representative Office (RO) in China
    A Representative Office (RO) is a popular method for foreign companies to explore and test the Chinese market. This structure has various operational limitations such as conducting profit-making activities or hiring local Chinese.

  • Employer of Record (EOR)
    An EOR enables foreign companies to legally hire foreign and local employees in China. Many foreign companies, not wanting to go through the hassle of establishing a legal presence, choose to hire an EOR to take care of HR functions for remote workers.

Read More: How to Set Up a Presence in China: Use PEO/ EOR Secondment!

 Benefits of WFOE, EOR & RO

  • Wholly Foreign-Owned Enterprise (WFOE)

Benefits of a WFOE include the freedom to implement the worldwide strategies of its parent company without having to consider the involvement of a Chinese partner, the ability to formally carry on business rather than just a representative office function, the ability to issue invoices to their customers in RMB and receive RMB revenues, cheap labor, and no requirement to share profits with a Chinese counterpart. 

  • Representative Office (RO)

The RO is an excellent means by which a foreign company can become further involved in the Chinese market. Advantages include that there is no registered capital required, it is easy to control compared to other business types in terms of HR or tax issues, and it is the fastest, least expensive and easiest way to set up a business in China.

  • Employer of Record (EOR)
    If you want to expand your business into China but aren’t ready to set up a full legal entity, EOR is a good choice for you. It is a cost-effective solution to setting up a presence in China. It allows you to test the market before fully committing to opening an office in China. If you already have an overseas contractor and want to convert them into an employee, EOR is ideal. It is a good option for many because financial costs and compliance risks involved in maintaining a foreign corporate entity are too high for the potential benefits of setting up a presence in China. 

Read More: Foreign Businesses Setting up in China: Shanghai Legislation

Company Setup in China

1. Company Registration

Company registration is required for any person/ company conducting business in China.  A branch office of a foreign company must also register with the Administration of Commerce and Industry.


2. Tax Registration

New set up enterprise receives the business license as a legal person and other organization unified social credit code (referred as the “unified code”) from the Administration of Commerce and Industry, does not need tax registration, and no longer required to apply tax registration certificate from October 2015. After the completion of the supplementary information collection, the business license with uniform code can be used instead of the tax registration certificate.

3. Bank Account set-up

This can be done once registration has been completed. For WFOE, you need to set up an RMB basic account and a foreign currency capital contribution account. Foreign investors for RO should open a bank account in China, as well. Requirement varies between different banks. 

Typically documents required will include:

  • the ID card of legal representative
  • business license
  • Applicant's ID card
  • Company chop and other documents requested by the bank

Benefits of Doing Business in Shanghai

1. Central Location
Shanghai is at a central location along China’s coastline. Shanghai has become a major trading port, China’s largest industrial city and the Financial Center in the Far East. Shanghai has become one of the most important economic hubs of the country and the world.


2. Port
The Port of Shanghai faces the East China Sea to the east, and Hangzhou Bay to the south. Shanghai is China’s top sea port. Shanghai has overtaken Singapore as the world’s busiest container port.


3. Infrastructure
Milestone progress has been made in building the “Three Ports and Two Networks”, referring to the Deep Water Port, Aviation Port, and Information Port, railway and highway networks respectively. The spill-over economic effect of this increased infrastructure has been greatly enhanced.


See here to read about more benefits of doing business in Shanghai.

Read More: Now is the Best Time to Expand Your Retail Empire into Asia


Considerations When Doing Business in Shanghai

Social Security & Mandatory Pension Schemes

In China, full-time employees are compulsory to submit Social Contribution, the specific insurance are pension insurance, medical insurance, unemployment insurance which are submitted by employer and employee accordingly and work-related injury insurance and maternity insurance which are submitted by employer only. The amount of social insurance is based on their average monthly income of last year. The rate of contribution differs in each city.

Employment Law

Employees’ Compensation

Security Fund of wages in arrears will be charged once a year. Each Legal Entity receives the notice in every October.


Work Permits

As a general rule, any person other than those having the right of abode or land in China, must obtain a visa/permit before coming to China for the purpose of taking up employment.

Visas for foreigners to work in China as professionals are under the General Employment Policy, considerations for visa approval for each applicant include:

  • Over age 18 and good health
  • Good security clearance and no record of serious crime
  • Good education background with proven professional capabilities and relevant experience
  • Confirmed offer of employment for a relevant job vacancy that is not easily filled by the local workforce
  • Hold a valid passport or other international travel certificate that can replace your passport

Once all required documents have been submitted to the Immigration Department, it takes about four weeks to process the visa application.


Minimum Wages

The authorities in Shanghai adjust the statutory minimum wage in each April.  Since 1st April 2018, wages for full-time workers will be raised to RMB 2,420 per month, while wages for part-time employees will be raised to RMB 21 per hour.


Maximum Working Hours

The Employer shall practice a working hour system under which labourers shall work for no more than eight hours a day and no more than 44 hours a week on average. An employer shall ensure each employee to have at least one day off for a week. 


Paid Annual Leave

Employees who have worked over one year, he / she shall entitle the annual leave with pay. The accumulated work age of the employee which is less than 10 years, the annual leave is 5 days; more than 10 years and less than 20 years, the annual leave is 10 days, more than 20 years, the annual leave is 15 days.


Rest Day

Employees employed under a continuous contract are entitled to not less than one day of rest per week.



The employee with below situation, the employer is able to terminate the employee and without notice period:

  • Be proved not qualify on recruitment requirements during the probation period
  • To seriously violate labour disciplines or the rules and regulations of the employing unit
  • Serious dereliction of duty, malpractice, causing significant damage to the interests of the employer
  • To be investigated for criminal responsibilities in accordance with the law

The employee with below situation, the employer is able to terminate the employee, but should provide the formal written notice 30 days in advance:

  • The employee illness or non-work- related injury, complete the medical period, the employee can engage neither in his original work nor in other work arranged for him by his employer
  • The employee is incapable of fulfilling his / her job and remains so after trained or position adjusted
  • A major change in the objective conditions of the labor contract, which has resulted the failure to perform the original labor contract and the agreement on the change of labor contract cannot be reached through negotiation between the two parties

Refer to the clause 25 & 26 of “Labor Law of the People's Republic of China”

Severance Payment & Long Service Payment

The employer terminate the labor contract with the employee or the labor contract completed and employer not renew. The employer should pay the severance payment to the employee.



Benefits In Kind

Employers are not obligated to provide employees with additional medical insurance and additional housing fund. It’s a choice for companies to provide these as benefits to their employee.


Share Options

Employees have to pay salaries tax on any benefits associated with stock-based awards arising from your office or employment.


New Employees

Upon hiring new employee(s), the employer must report the personal details of the new employee(s), date of commencement and the terms of employment to the staffing agency within one month of the commencement date.


Discrimination Laws

China generally stipulates that all persons are equal before the law and the law shall prohibit any discrimination on any ground. This principle is materialized through the enactment of the following ordinances: Labourers shall not be discriminated against in employment, regardless of their ethnic community, race, gender, or religious belief.


Statutory Benefits

Maternity Leave

Female employees meet the Population and Planned Parenthood Statute of Shanghai City are eligible for 128 days maternity leave and get birth allowance paid monthly and medical benefits from social Insurance centre.


Paternity Leave

In accordance with the laws and regulations, a new father shall enjoy the paternity leave for 10 days, the salary of the spouse during the leave period shall be paid according to his normal attendance.



In terms of the provisions of Shanghai, during the first year in the company, the medical treatment period shall be 3 months. After each year of work, the medical period is increased by one month, but no more than 24 months.

The standard of sick pay should be determined by the length of the medical treatment and the working age of the employee. If employee's disease or non-work-related injury takes a continuous leave within 6 months, the enterprise shall pay the sick leave salary according to the following standard :

  1.  continuous working age of less than 2 years, paid 60% of monthly salary;
  2. Continuous working age more than 2 years and less than 4 years, paid 70% ;
  3. Continuous working age more than 4 years and less than 6 years, 80%;
  4. Continuous working age more than 6 years and less than 8 years, 90% ;
  5. Continuous working age of 8 years and above, 100%. 


Financial Filing

1st January to 31st December of each year.


Income Tax Calculation

Individual income from wages and salaries shall be taxed at progressive rates ranging from 3 percent to 45 percent of which the tax threshold is 3500 RMB (4800 RMB for foreigners). Social insurance and housing fund amount and some other items stipulated by the law are tax-free income.


Tax Payment to Authority

Employer withhold the tax and arrange the payment to authority. Employees earning more than 120, 000 RMB annually need to report their income directly to the tax authorities during March of each year.


Submission Methods

Employer complete the monthly submission. The employee can get the record via government’s website. 



Bank Accounts and Paying Salaries

The method used for wage payment is autopay or cash normally. The majority of Chinese employees are paid on a monthly basis.  

For each pay period, employees will be paid the basic salary, allowances, bonus, commission, overtime, other ad hoc payments as required.


13th Month and Bonus Payments

Although not required by law, it is common practice for employers in China to give employees a bonus at the end of the year. The bonus amount is determined by the company. Alternatively, companies provide employees with a 13-month salary.



Local Information

Public Holidays 2019

Holiday Name 2019 Holiday
New Year's Day Dec. 30 2018 - Jan. 1 2019
Chinese New Year Feb. 4 - 10
Qingming Festival Apr. 5 - 7
May Day May. 1 - 4
Dragon Boat Festival Jun. 7 - 9
Mid-Autumn Day Sep. 13 - 15
National Day Oct. 1 - 7


Summer / Winter Working

The work must stopped once temperature over 40℃; Over 37℃, lower than 40℃, the working hour should be within 6hours;  The employee entitle to get the high temperature allowance from June to September. See here for more information.


Local office working hours and Time Zone

Working Hours: 09:00-12:00 a.m.  13:00-16:00 p.m.
Standard time zone: UTC/GMT +8 hours


Links International is a leading payroll outsourcing provider across Asia Pacific and supports payroll in over 15 countries. If you’re interested to explore the idea of payroll outsourcing, EOR, or Visa application please do not hesitate to contact us.
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