A limited company in China owned by non-Chinese identity is called a Wholly Foreign Owned Enterprise. The short form WFOE or often called WOFE as it is easier to say. It’s a Limited liability company under Chinese Law and wholly owned by the foreign investor(s). When China’s entry into the WTO, 100% ownership gradually was introduced.
1. WFOE Categories
• MANUFACTURING WFOE – Company is permitted to manufacture here.
• CONSULTING WFOE – Company is permitted to do Consulting & Service.
• TRADING WFOE OR FICE (Foreign-Invested Commercial Enterprise) – Company is permitted to Trading, Wholesale, Retail, or Franchise in China.
2. The benefits of incorporating a WFOE.
• The company s as part of sting up a WFOE the company will register with exchange control and so able of converting Chinese Yuan profits to US dollars or other foreign currencies for remittance to its parent company outside of China;
• Manufacturing WFOE has the ability to import or export for its own goods;
• Unlike a Rep. office which has to use HR company to hire staff and are not permed to this themselves. A WFOE has control of human resources.
• Also, unlike a Representative Office and being able to issue invoices to their customers in CNY (RMB) and receive revenues in CNY;
• Not like in a Joint Venture the company is independent and has the autonomy to implement the own strategies or of its parent company, without considering the involvement of the Chinese partner JV partner;
3. Business Scope
In line with Chinese law, “none Chinese” investors are permitted to set up a totally foreign owned company in industries that have prohibited or limited by China Lawmakers. There are “prohibited,” “restricted” and “encouraged”. It is sensible to fully understand the interpretation of these groupings. The business scope of a commercial enterprise your company should consider present planned and for a later future undertaking of the WFOE. The WFOE can only conduct business within its approved business scope, issue invoices, as are permitted on your business licence. Any amendments to the business scope require further application and approval. The business scope of a Chinese company is not as wide and universal as in other jurisdictions. With China’s entry into WTO, increasingly more business.
4. Registered Investment Capital
Registered Capital Is 1,000,000 CNY (RMB) which is about USD$160,000 is a good idea for all kinds of business scope for a WFOE. Some WFOE can be registered at a lower amount. But having said this, it’s easy to get approved If the full amount is registered. The first payment would probably be 20% of the registered investment capital as part of the registration process, the rest is a duty to be remitted within 2 years over the companies Investment account.
The registered capital is not Share capital. The intention being of Registered capital is the amount that it’s required so the company self-sufficient breaks even. If you need a minimum registered capital, such as RMB 30,000 can be obtained for example a consulting WFOE and depending on the locale government department.
The registered capital is dependent on features like business scope and Location. Local government base its decision feasibility report and your projected cost.
5. Company address is a registration precondition
Before one can start to apply to register a WFOE in China, it is necessary to rent a plant if it’s a Manufacturing WFOE or an office The WFOE must choose a commercial building. Virtual Offices can’t be used. Any normal office building in China will be expiable to register a WFOE.
According to Chinese regulations, one room or one unite (as registered with register with the government authority of register real-estate exchange) can register just one company. An already taken office can’t be registered again.
Registered address and operation location should be the same, even though it’s common in China that companies registered in one address conduct business in another.
Moving will mean all the licences should be updated to the new address and if moving to a new district could mean tax audit.
6. Chinese Company Name
A Company name must be in Chinese. The name has to be composed as follows:
1. Starting with the company name or Location, (locale Chinese always start with location, WFOE can choose)
2. Always after given name then followed: scope of business
3. Location or City name (if location not I front it will be in Brackets)
4. Then “Company” followed by the equivalent of Limited
The name will be registered at the local Administrative Bureau for Industry and Commerce (SAIC). If you want to use the word ‘China’ or ‘International’ in their Chinese name, the requirements are a little higher. There is, for example, a higher minimum capital. Many international companies have been not able to register in this way. The first part of the register is to apply for the name for your WFOE with the local SAIC. The decision is made by The State Administration of Industry and Commerce (SAIC)
7. Business Licence (Certificate of Incorporation)
A business licence is a formal document of a Company in China, like a Certificate of Incorporation in other jurisdictions. It states a company’s basic information such as the company’s name in Chinese, incorporation date, registration address, the scope of a business, registered capital, investor name.
After having acquired a certificate from the tax authority, you are now legally entitled to open foreign exchange and CNY (RMB) accounts and can start to hire staff, sign contracts, apply for a work permit and residence permit and the WFOE is now in a company incorporated in mainland China.
8. General Tax Information
Tax rates begin with 25% even though some industries still can get a lower rate as 15%, the tax rate hinge on the location and the business scope. All companies are obliged to report to the Tax Administration Department monthly.
9. Annual Audit
All enterprises in Mainland China are required to carry out annual compliance procedures as required by various governmental departments. It is essential to know the deadlines. Failure to comply may result in penalties or even revocation of business licences. Normally, one file an Annual Audit Report within 3 months of the tax year ends. However, the June 30th is the deadline for an annual audit report submission and licenses renewal in China