Guide to Company Formation and Tax Rates in China 2026

For companies looking to enter the Chinese market, 2026 means both great opportunities and serious regulatory changes. The new Company Law, which will come into effect on July 1, 2024, the new VAT Law that will take effect in 2026, and rapidly digitizing administrative processes necessitate a complete reconfiguration of the entire roadmap from company formation to tax planning.

Why is the 2026 Window Critical for Establishing a Company in China?

China has long been an attractive manufacturing and consumption hub for foreign investors. However, as 2026 approaches, the landscape is shaping up not only under the title of “cheap production” but also “strict regulation and data compliance.”

Three main factors make 2026 critical:

• New Company Law (Effective July 1, 2024): Tightened rules regarding capital commitments, corporate governance, and transparency for both domestic and foreign companies. The requirement to actually contribute the promised capital within a reasonable time closes the era of high but unpaid capital on paper.
• New VAT Law (2026): The VAT system that has been in place in China for years is being placed under a “law” for the first time. This means a clearer and stricter framework regarding VAT rates, exemptions, invoicing (fapiao), and e-invoicing practices.
• Digitizing administrative processes: Most provinces are expected to have popularized company registration portals, e-signatures, and remote identity verification by 2026. While application times are shortened, tax, social security, and licensing processes are also leaving a completely digital footprint.

In addition, the Foreign Investment Law (FIL), the Personal Information Protection Law (PIPL), and foreign exchange (FX) controls place not only company formation but also long-term compliance and data governance at the center of the business plan.

Types of Companies for Foreign Investors in China

As of 2026, the three main structures preferred by foreign investors are:

• WFOE (Wholly Foreign-Owned Enterprise) – A limited company with 100% foreign capital.
• Joint Venture (JV) – A structure established with a local partner, which may be legally or practically mandatory in certain sectors.
• Representative Office (RO) – A structure that cannot generate income and can only conduct representation and marketing activities.

Additionally, there are differentiated regimes with tax and administrative incentives in free trade and special zones such as Hainan Free Trade Port, Qianhai, Hengqin.

Comparison of WFOE, JV, and RO

If operational control and brand management are critical, WFOE is often the most sensible option. In areas with sectoral restrictions, a well-structured JV may be the only practical way.

WFOE Establishment Process (With 2026 Framework) – Step by Step

1. Strategic Pre-Preparation

Establishing a company in China requires strategic decisions before filling out forms:

• Scope of Activity (business scope): You must clearly state what you will do, such as trade, consulting, manufacturing, logistics, e-commerce, etc., in your license. Tax types, special permits and licenses, and even VAT rates will be shaped according to this activity.
• Selection of Company Structure: If full control is a priority, WFOE is preferred; if entry into certain regulated sectors is necessary, JV comes into play. There may still be a requirement or actual pressure for a local partner in some sectors.
• Registered Capital and Payment Schedule: The new Company Law expects your capital commitment to be “realistic” and to be actually invested within a certain period. In practice, most regions see approximately 5-year payment schedules. Very low capital can raise questions in banking relationships, visa, and residency processes.

Common reference levels encountered in consulting practice:

• Trading companies engaged in import-export: Approximately 300,000 USD of registered capital is recommended.
• Consulting companies: Approximately 100,000 USD of registered capital is generally considered sufficient.

These figures are not legal minimum capital requirements but are levels that create a perception of “serious operation” in practice with banks and authorities.

2. Name and Address Selection

There is a standard structure for company names in China:

[City] + [Brand/Title] + [Activity Description] + Co., Ltd.

For example: “Shanghai Silk Road Consulting Co., Ltd.”

• You will apply to the local Market Regulation Administration (AMR/SAMR) for name approval.
• Registered address is mandatory in most regions; you can use a real office or an authorized virtual office address. The lease agreement is one of the parts of the incorporation file.

3. Required Documents

You must prepare all documents in Chinese or ensure they are professionally translated. A typical WFOE file includes:

• Articles of Association
• Feasibility Study Report – A feasibility report describing your business model, market positioning, investment, and profitability projections
• Documents or passport copies of foreign partner(s), notarized and apostilled
• Bank reference letter
• Lease contract and proof of address

Typically, the following positions need to be appointed in a WFOE:

• Legal Representative: The person who legally binds the company. According to Chinese legislation, they carry significant authority and responsibilities.
• Supervisor: Oversight role over management; its importance has increased with the new Company Law.
• Finance Manager / Finance Supervisor: In practice, most provinces expect this position to be held by a Chinese citizen or at least strongly recommend it.
• Information and documents of at least one foreign investor (individual or company).

4. Application and Obtaining Business License

• After preparing all documents, you apply to the relevant AMR/SAMR unit for a business license.
• The approval period varies by region and sector, but in practice, a timeline of around 10 business days often emerges.
• After obtaining the license, the following steps are completed:
  • Tax registration
  • Social security and housing fund registrations
  • Customs registration (if there is import-export)
  • Sector-specific additional licenses (in logistics, education, fintech, etc.)

5. Company Seals (Chops) and Bank Accounts

In China, company seals are considered even more binding than signatures in most cases:

• Company chop (main seal)
• Financial chop
• Legal representative chop
• Invoice (fapiao) chop

To reduce the risks of internal fraud, it is crucial to manage the control of these seals with task separation rather than concentrating it in one person.

On the banking side, typically:

• RMB account (for local transactions and VAT)
• Foreign currency account (for capital inflow, profit distribution, import-export payments)

is opened. Foreign exchange and capital movements are closely monitored under the foreign exchange control (SAFE) rules.

Corporate Income Tax (CIT) in China as of 2026

Standard Rate and Scope

The standard corporate income tax rate is 25% in China. This rate applies to:

• Worldwide earnings of resident companies established in China (subject to certain exceptions),
• Income from China-sourced revenue of non-resident companies with a business establishment/permanent representative in China

applies.

Discounted Rates and Incentive Regimes

As we enter 2026, there are significant CIT incentives at both sectoral and regional levels:

• High and New Technology Enterprise (HNTE): The corporate income tax rate for high and new technology companies is 15%. HNTE status is granted based on R&D spending, intellectual property, and technology intensity criteria.
• Technology-advanced service enterprises: Certain technology-intensive service businesses can also benefit from 15% CIT advantage.
• Software and integrated circuit (IC) design companies: In some sub-segments, there are highly advantageous regimes with CIT exemption for the first 5 years and a reduction to 10% for subsequent years.
• Small and thin-profit enterprises: For the period 2023–2027, the effective tax rate can drop to approximately 5% on taxable income up to 3 million RMB.
• Regional incentives:
  • Western Regions: For designated incentivized sectors, 15% CIT (2011–2030 period).
  • Special regions such as Hainan Free Trade Port, Qianhai, Hengqin: Particularly in the service sector, tourism, modern logistics, and high technology fields, rates can drop to 15% along with additional VAT incentives.

Therefore, correctly structuring the area of activity + location + size can radically reduce your corporate tax burden.

New VAT Law in 2026: What Changes?

The VAT regime that has been in place in China for a long time has so far progressed through regulations and notices. The new VAT Law coming into effect in 2026 brings the system to a more predictable and tightly monitored structure.

The main outlines of the new framework:

• Definition of VAT rates at the law level: While basic rates for goods, services, real estate, and financial transactions are maintained, exemptions and discounts are now tied to more limited and clear conditions.
• Invoice (fapiao) and e-invoice obligation: As of 2026, the e-invoice (electronic fapiao) application is widespread at the national level. The VAT refund and discount mechanism is entirely based on digital records.
• Types of VAT taxpayers: The distinction between “general taxpayer” and “small-scale taxpayer” is maintained, while turnover thresholds and transition rules are updated.
• VAT refund on exports: For exporting WFOEs, VAT refund processes require stricter document and system compliance; however, when structured correctly, it provides a significant advantage that strengthens cash flow.

The new VAT Law necessitates bringing tax planning to the table from the stage of selecting the type of company and defining the scope of activity, rather than being a “post-establishment step.”

Withholding Taxes, Profit Transfer, and Foreign Exchange Controls

One of the critical topics for foreign investors is the burden of profit transfer from China to the parent company and the associated withholding tax burden.

• Dividend withholding: Generally, a 10% dividend withholding tax is applied. This rate can drop to 5–7% for many countries through double taxation avoidance agreements (DTAA).
• Interest and royalty withholding: Mostly at a 10% rate; similar rates may apply for technical service fees.
• Foreign exchange control (SAFE): Capital inflows and outflows and profit distributions are subject to the rules of the foreign exchange control authority SAFE. If legal profit distribution and document set are ready, there is no general prohibition on profit transfer; however, proper procedural planning is essential.

Transfer pricing, related party transactions, and management fee/royalty structures are also closely monitored by the Chinese tax administration. It is expected that this area will tighten further in 2026.

Company Formation, Payroll, and Compliance: Why Professional Support is Essential?

Establishing a company in China is not just about obtaining a business registration number. The type of company, location, capital structure, tax incentives, VAT regime, payroll and social security registrations, data compliance, and foreign exchange transactions are interrelated decision sets that affect each other in a domino effect.

A poorly structured WFOE or JV can lead to:

• Higher tax burden than expected,
• Inability to receive export VAT refunds,
• Delays in banking and foreign exchange transfers,
• Blockages in residence and work permit processes for foreign personnel

Corpenza transforms its expertise in company formation in Europe and globally, international tax, payroll (EOR), posted worker, and investment-based residency/citizenship into a strategic advantage for entering complex markets like China. For companies planning to establish a WFOE or JV in China:

• Selection of the most suitable company type and location according to target sector and scale,
• Tax optimization within the framework of HNTE, regional incentives, and the new VAT Law,
• Correct legal structures for foreign personnel deployment, payroll/EOR, and posted worker scenarios,
• Alignment of international accounting standards with local Chinese requirements

can provide end-to-end solutions.

Especially for groups operating in multiple countries, integrating the Chinese leg into a compliant global tax and mobility strategy with European, Middle Eastern, or American operations can significantly reduce long-term costs.

Conclusion: What Should You Focus on When Establishing a Company in China as 2026 Approaches?

• Regulatory timeline: Analyze how the new Company Law and the 2026 VAT Law will affect your capital, management structure, and VAT obligations from the outset.
• Correct structure selection: Objectively evaluate both operational control and sectoral restrictions when deciding between WFOE, JV, and RO.
• Capital and cash flow: Determine your registered capital from the perspective of your actual operational needs, banking expectations, and five-year payment plan.
• Tax incentives: Be sure to test your potential to benefit from HNTE, small and thin-profit enterprise regimes, and regional CIT reductions.
• VAT and invoicing infrastructure: Establish an accounting and ERP infrastructure compliant with e-invoicing and VAT refund processes under the new VAT Law.
• Long-term compliance: Address data protection, foreign exchange control, transfer pricing, and employee mobility as a whole.

When you consider these elements alongside the dynamics of the Chinese market and your own global strategy, the 2026 window can turn into a period filled with opportunities rather than risks.

Important Disclaimer

The information in this text is for general informational purposes; it does not constitute legal, tax, or financial advice. Chinese legislation, tax rates, and administrative practices can change frequently and rapidly. Before making investment or company formation decisions, be sure to check current official sources and local legislation; seek support from professionals who are knowledgeable about the subject in China and your own country for your specific situation. Corpenza and the author cannot be held responsible for any direct or indirect damages arising from decisions made based on this text.