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Wholly foreign owned enterprise formation in China

Last Updated: 23 July, 2014

[Since March 1, 2014] No. minimum registered capital is required for WFOEs with scope of business of consulting, Trading, retailing, information technology etc. in China. There are minimum registered capital still required for some industries for instance: Banking, Forwarding etc. You may find detailed information about registered capital, required documents and procedures to establish a WFOE in below cities:

firstFirst tier cities: SHANGHAI BEIJING SHENZHEN GUANGZHOU

2nd 2nd tier cities: HANGZHOU CHENGDU CHONGQING TIANJIN WUHAN

3rd 3rd tier cities: NINGBO SUZHOU XI'AN

Since China still maintains foreign currency control policy, it's still advisable to choose registered capital within RMB 100,000 ~ RMB 500,000 as the minimum registered capital for Consulting WFOE, Service WFOE, Hi-Tech WFOE registration in Shanghai, Beijing, Shenzhen, Tianjin, Guangzhou, Hangzhou, Ningbo, Suzhou, Chengdu, Chongqing, Wuhan, Xi'an and many other cities of China. (Investor could inject the above capital within 2-10 years) Information provided below will guide you to:

In Mainland China, there are 4 modes of business presences for foreign investors: WFOE(65%), Representative Office(20%), FIPE(10%), Joint Venture(5%). About 65% of PtC's clients chose WFOE as their China business entity since a WFOE could freely conduct it's business in China like anyone Chinese domestic companies, a roughly comparison between these 4 modes, check the Comparison Chart.

 

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. Full control of human resources
  6. Greater efficiency in operations, management and future development.
  7. newInvestor's parent company does not have to be established for more than 2 years while for Representative Office, it's parent company is required to have been established for more than 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). RMB 100,000 ~ RMB 500,000 (Approx. USD$15,000- 75,000) is the advisable as minimum investment capital to be approved for Consulting WFOE, Service WFOE, Hi-Tech WFOE registration in China. After the approval, initial paid-up capital should be injected within 3 months which could be 20% of the registered capital, the balance should be remitted within 2 years.

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 run 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, Ningbo & Hangzhou are given below:

Consulting WFOE* RMB 100,000 ~ RMB 300,000 (Approx. USD$ 15,000- 50,000)
Service WFOE RMB 100,000 ~ RMB 300,000 (Approx. USD$ 15,000- 50,000)
Hi-Tech WFOE RMB 100,000 ~ RMB 300,000 (Approx. USD$ 15,000- 50,000)
Trading WFOE / FICE RMB 300,000 ~ 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 500,000+ (Approx. USD$ 75,000+)

 

SOCIAL SECURITY IN CHINAnew

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 audit 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. Find it here about required documents, procedures and cost to deregistration a WFOE in China. Contact our offices below to get a free review of your WFOE.

More information about WFOEs:

Contact Our Regional Partners in Holland, Beijing, Shenzhen, Shanghai, Ningbo, Hangzhou or Hong Kong for more details:


Office Time: Monday To Friday 0900AM-1730PM


Europe Office:
Regional Manager: Ms. Nancy Liu (Holland)
E-mail: nancy.liu@pathtochina.com [or Request For Proposal]
Tel: (31) 65.140.4722 GMT+1 (You can inquire in English)

Shenzhen & South China Office:
E-mail: bill.su@pathtochina.com [or Request For Proposal]
6009 Yi Tian Road, Suite 2306, New World Tower,Shenzhen 518035
Tel: (86-755) 6128.6800 (You can inquire in English, Cantonese and Chinese)
Mobile: (86) 136.8649.3886
Regional Manager: Mr. Bill Su

Beijing & North China Office:
E-mail: gifty@pathtochina.com or [Request For Proposal]
5/F CBD International Mansion, 16 Yong'An Dong Li, Chao Yang District, Beijing 100022, China [-MAP-]
Tel: (86-10) 5166.4212 (You can inquire in English and Chinese)
Tel: (86-10) 6563.7624
Regional Manager: Ms. Gifty Jia

Guangzhou Office:
161 West Lin He Rd., 23F, Tower A, Center Plaza, Guangzhou, 510620
-Request For Proposal-
Tel: (86.20) 6113.5690
Consultant: Mr. Forest Liang (You can inquire in English and Chinese)
liang@pathtochina.com

Shanghai & East China Office:
E-mail: lijun@pathtochina.com[or Request For Proposal]
1038 West Nanjing Road, Suite 2508, 25 Floor, Westgate Tower, Shanghai 200040, China [-MAP-]
Tel: (86-21) 5108.8535 (You can inquire in English, Chinese and Shanghainese)
Regional Manager: Mr. Li Jun

Hong Kong Office:
E-mail: simon@pathtochina.com [or Request For Proposal]
Suite 1701, HeNan Building, 92 Jaffe Road, Wanchai, Hong Kong[-MAP-]
Tel: (852) 6877.8862 (You can inquire in English)
Regional Partner: Simon Lee
Fax: (852) 8198.0080


Hangzhou Office:

E-mail: grace.lim@pathtochina.com [or Request For Proposal]
Hangzhou Liaison Office: Suite 4202, 4/F, Euro America Center[-MAP-]
18 Jiao Gong Rd., Hangzhou 310007, China
Regional Consultant: Ms. Grace Lim
Tel: (8621) 6218-9991 (You can inquire in English and Chinese)


Ningbo Office:

E-mail: dong@pathtochina.com [or Request For Proposal]
Ningbo Office: 396 KaiMing Street, Suite 1420, Haishu, Ningbo, 315010[-MAP-]
M: (86) 137.8000.3181 (You can inquire in English and Chinese)
T: (86 574) 8716.4655
Regional Consultant: Mr. Dong Dong


Other Cities of China:
E-mail: info@pathtochina.com
Regional Manager: Mr. Stuart Firestein (You can inquire in English)
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