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The Cost of Establishing and Maintaining an EB-5 Office.

The Cost of Establishing and Maintaining an EB-5 Office.

Do not assume that starting a business in China is the same as doing so in the U.S. In fact, you would do well to assume that nothing is the same in China as it is in the U.S. Of course, there are nominal similarities, but the actual process of establishing a business is radically different. Sometimes it is radically different in reality from instructions on paper, including the page you are reading.

 

It is going to be impossible to specifically determine what it will cost to establish a singular office in China, but you might consider this interesting insight. The website www.export.gov offers a questionnaire that helps yourself-assess whether or not you are ready to do business in China. The

twelve items you need to consider include financial resources sufficient to:

 

 Actively support marketing of products in China, including translating product collateral, participating in trade shows, and organizing customer informational seminars

 Engage the services of local attorneys or consultants to navigate China's system of international trade regulations, develop a sales contract that is enforceable in China, undertake due diligence investigations, and address any problems that arise

 Provide training for a Chinese sales agent or distributor in the United States, continuous guidance for conducting market research and planning sales goals.

 

The first rule of thumb might be to make sure that you have sufficient financial resources.

 

One of the first steps that you will need to take is to open a bank account and place a minimum of 30,000 Chinese Yuan (≈ $4,900) on reserve. This is required by Article 26 of the Chinese Company Law for a limited liability company (see Exhibit C).

 

Besides that, you will need to determine the correct business format that you want to establish. There are four options:

 

 Representative Office (RO)

 Foreign Invested Partnership Enterprise (FIPE)

 Wholly Foreign-Owned Enterprise (WFOE)

 Joint Venture

 

If you choose a Representative Office, you will not need to register any capital. In this case, the requirement is waived, since the activity of your office will be restricted to liaison activities as an extension of your existing U.S. business. Your in-country location is not allowed to invoice anyone for anything, nor is it authorized to receive any monies. It is strictly a facilitating office. Your U.S. business must have been in operation for a minimum of two years in order to qualify for RO status.

 

In 2010 China designated a new category of business called a Foreign Invested Partnership Enterprise, which also does not require a minimum amount of registered capital, but is able to issue invoices in China.

 

Wholly Foreign-Owned Enterprises and Joint Ventures require a minimum registered capital amount of 100,000 Chinese Yuan (≈ $16,300). That is just the amount you need to have sitting in the bank at all times.

 

You will need to have an understanding of which entity is best for your services overall. We recommend retaining the services of a qualified attorney and an accounting firm, both of which are intimately familiar with Chinese business law. The costs of these services are, of course, variable; but our caveat is, “you get what you pay for.” The path is too narrow and winding, and the pitfalls are too numerous, for even the most intelligent novice to try to blaze a trail.

 

There will be a plethora of licensing fees, none of which are very large, but be aware that these fees may feel like death by a thousand paper cuts. Handling these fees is where experienced legal and accounting advice is priceless. The export.gov website lists a dozen firms offering the services of expert in-house specialists on critical China operations, including market research &consulting, corporate formation, accounting, recruitment, payroll & HR outsourcing.

 

Expect that expenses for maintaining a small office in Beijing, including a local representative, a secretary, rent, a small apartment, utilities and office products and furnishing to start at about $5,000 per month. Office space rental, based on rates in Shanghai, is at an average of 8.3RMB/sq. meters/day.li For an 800 sq. ft. office space, that is about $3,000 per month. But in China, it’s a bit more complicated than that.

 

When renting conventional office space in China, you will encounter a “loss factor,” since at least some peripheral space, such as a hallway, is typically included. The average loss factor in China is about 20%. In other words, if you lease 800 square feet, you probably only get 640 square feet of actual usable space. When you begin your hunt for a place for your office, I recommend that you look for a Business Center Office, which is fully staffed and equipped.

 

Conventional office space in China is rented bare-bones. The space may require installing lighting and other build-out costs, as well as furnishings. While costs obviously will vary, a small survey of Business Centers in China indicated potential annual cost savings from $18,000 to more than $50,000 in ongoing expenses and as much as $80,000 savings in upfront expenses to establish a professional office suite.

 

Selecting a Business Center office location is like vacationing at an all inclusive resort. Attempting to “go it alone” will be like ordering a la carte at an expensive restaurant or dim sum at a Chinese restaurant. The following list shows typical costs that you may expect to incur per month in an ordinary office, but would be included in the cost of a Business Center office rental.

 

Staffing  $1,800

Benefits  $400

Leased Equipment  $250

Internet Service  $1,500

Maintenance & Repairs  $100

Leased Furniture  $250

Office Supplies  $100

 

One more thing . . . Not only do these necessities cost extra when you set up a stand-alone office, you have the additional hassle of finding them, whereas in an established Business Center they are available to you immediately.


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