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Wholly foreign owned enterprise formation in China

Last Updated: May 17, 2012

[ NEWS! ] RMB 100,000 ~ RMB 500,000 is the minimum registered capital for Consulting WFOE, Service WFOE, Hi-Tech WFOE registration in Shanghai, Beijing, Shenzhen, Tianjin, Guangzhou, Hangzhou, Ningbo, Suzhou and many other cities of China. Information provided below will guide you to:

Wholly Foreign Owned Enterprise (WFOE)

Introduction of WFOE

The Wholly Foreign Owned Enterprise (WFOE) is a limited liability company wholly owned by the foreign investor(s). In China, WFOEs were originally conceived for encouraged manufacturing activities that were either export orientated or introduced advanced technology. However, with China's entry into the WTO, these conditions were gradually abolished and the WFOE is increasingly being used for service providers such as a variety of consulting and management services, software development and trading as well.

The registered capital of a Wholly Foreign Owned Enterprise (WFOE) should be subscribed and contributed solely by the foreign investor(s). A WFOE does not include branches established in China by foreign enterprises and other foreign economic organizations. The Chinese Laws on WFOE do not have a clear definition of the term of "branches". The term of "branches" should include both the branch companies engaged in operational activities and representative offices, which are generally not engaged in direct business activities. Therefore, branches and representative offices set up by foreign enterprises are not WFOE.

Different types of WFOE

There are many businesses for WFOEs. The following are frequently chosen by our clients:

1. If the WFOE manufacture here, we call it a it's Manufacturing WFOE.
2. If the WFOE is allowed to do Consultancy or Service, we call it Consultancy (or Service) WFOE.
3. If the WFOE is allowed to do trading, wholesale, retail or franchising in China, we call it a Ttrading WFOE or Foreign-Invested Commercial Enterprise (FICE). (You can check "FICE Registration" on the right menu for more information and details about the FICE)

Advantages of WFOE

The advantages of establishing a WFOE include, but are not limited to:

1. Independence and freedom to implement the worldwide strategies of its parent company without having to consider the involvement of the Chinese partner;
2. Ability to formally carry out business rather than just function as a representative office and being able to issue invoices to customers in RMB and receive revenues in RMB;
3. Capability of converting RMB profits to US dollars for remittance to its parent company outside of China;
4. Protection of intellectual know-how and technology;
5. No requirement for Import / Export license for its own products;
6. Full control of human resources
7. Greater efficiency in operations, management and future development.
8. Investor does not have to be established for more than 2 years while Representative Office's parent company is required to have been established for over 2 years.

Business scope

One of the most important issues in WFOE application is business scope. Business scope needs to be defined and the WFOE can only conduct business within its approved business scope, which ultimately appears on the business license. Any amendments to the business scope require further application and approval. Inevitably, there is a negotiation with the approval authorities to approve as broad a business scope as is permitted. Generally business scope includes investment consulting, international economic consulting, trade information consulting, marketing and promotion consulting, corporate management consulting, technology consulting, manufacturing, etc. With China's entry into WTO, more and more business is open to WFOE especially in Trading, Wholesale and Retail business.

Registered and paid up capital

Registered Capital: USD$140,000 is a decent investment capital for many types of WFOE. (with USD$ 140,000 investment it's easy to get approved). Initial Paid-up could be 20% of the registered capital, with the balance being remitted within 2 years. RMB 100,000 ~ RMB 500,000 (Approx. USD$15,000- 75,000) is the minimum investment capital to be approved for Consulting WFOE, Service WFOE, Hi-Tech WFOE registration.

Registered capital is the amount that its required to run the business until it can break even - the 'minimum registered capital' is a guideline only. If you do looking for a minimum registered capital, for instance RMB 30,000 (which is impossible to establish a WFOE in China) this means you will run out of money pretty soon, which leads to increased costs in reapplying for permission to increase capital, additional licensing fees and renewals of business licenses and so on. The WFOE needs funding via it's registered capital until it's able to support itself from its own cash flow.

However the amount of registered capital needed is also dependent upon factors like scope of business and location. In reality, local authorities will review the feasibility study report (and check the lease contract) approve the investment on a case-by-case basis; reduced registered capital can be negotiated in some cases.

The minimum registered capital guides for various industries according to our practice in China, for instance Beijing, Shanghai, Guangzhou, Shenzhen are given below: (Updated: Jun 23, 2009:, Pudong District authority in Shanghai announced in a meeting with PTC that they are stopping to approve the registered capital less than RMB 300,000 in Pudong District; Updated: Nov 18, 2009 Jing'an District authority in Shanghai will not approve a WFOE with registered capital less than USD 140,000 Updated: August 1, 2011: Changning District authority in Shanghai will not approve a WFOE with registered capital less than USD 100,000.)

Since Nov. 18, 2009 Some other districts of Shanghai already refused to approve registered capital below RMB 300,000 since the begin of 2009, while there were no official announcment from those districts. In Beijing, Hangzhou, Shenzhen local authorities are still OK with RMB 100,000 (Approx. USD$15,000) as registered capital.

Consulting WFOE*	RMB 100,000 ~ RMB 500,000 (Approx. USD$ 15,000- 75,000)
Service WFOE	RMB 100,000 ~ RMB 500,000 (Approx. USD$ 15,000- 75,000)
Hi-Tech WFOE	RMB 100,000 ~ RMB 500,000 (Approx. USD$ 15,000- 75,000)
Trading WFOE / FICE	RMB 500,000 ~ RMB 1 million (Approx. USD$ 75,000- 140,000)
Food & Beverage WFOE	RMB 500,000 ~ RMB 1 million (Approx. USD$ 75,000- 140,000)
Manufacturing WFOE	RMB 1 million or USD 140,000

 

SOCIAL SECURITY IN CHINA

A new rule on foreign employees’ social security in effect starting October 15, 2011. It is said that if a company hires a foreign employee, the company shall register this employee with the local social security authority within 30 days of the employee receiving their work permit.

GENERAL TAX INFORMATION

Since Jan. 2008, China's new corporate tax rates range from15% to 25%. (the rate depends on the places where the company is registered and the industry that a company engaged). Please check the latest Corporate Income Tax Law of China, ( 193KB: Corporate Income Tax Law of China ) All enterprises are required to report to the Tax Administration Department monthly, quarterly and annually. Path To China provides part time accounting services for our clients, you are welcome to contact us for more information.

ANNUAL AUDIT REPORT

Any limited companies in China should summit annual audit report to the relevant authorities. The annual cost is about RMB 6,000. Any company will be subject be to a fine if the Annual Audit Report is not submitted in a timely manner.

PROFIT REPATRIATION

China Government allows Foreign Invested Enterprises remit their profits out of the country and such remittances do not require the prior approval of the State Administration of Foreign Exchange (SAFE). Dividends cannot be distributed and repatriated overseas if the losses of previous years have not been covered while dividends not distributed in previous years may be distributed together with those of the current year. Repatriating the rRegistered capital to home countries is forbidden during the term of business operation.

TERMS AND TERMINATION

In China, terms of 15 to 30 years are typical for a manufacturing WFOE (although some may have a longer term). It is also possible to obtain extensions of the WFOE's duration. For projects in which the amount of investment is large, or the construction period is long and the return on investment low, projects producing sophisticated products using advanced or key technology provided by the foreign partner, or for projects producing internationally competitive products, the term of WFOE may be extended to 50 years. With special approval from the State Council, the term may be even longer than 50 years.

The WFOE may be terminated under certain conditions. For example, the inability of the WFOE to operate due to heavy losses, or in the occurrence of an event of force majeure, etc.

DE-REGISTRATION

To closing down or de-registration a WFOE in China would be much more complicated than establish a New WFOE. It could be stuck there if the liquidation report can't be approved by local tax authority, thereafter, investor has to spend great amound of time on the closure of a WFOE. Contact our offices below to get a free review of your WFOE.

More information about WFOEs:

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