Update: The Chinese government has removed requirements, such as the mandatory minimum registered capital, and streamlined the application process nationwide for registering a WFOE in China. The result is the cost of company formation in China has been significantly reduced.
Company Formation in China: Registering a WFOE
A Whole Foreign Owned Enterprise (WFOE) is the most common legal structure for foreign invested businesses in China with 77% of all foreign invested businesses choosing this structure. This type of company is suitable for most types of businesses including, but not limited to; trading, manufacturing and assembly, consulting and management services.
Acheva & Associates provides affordable company formation services in China. Please see below for pricing.
A WFOE is considered to be a profit driven organization in China which engages in value added commercial activities. It is therefore not allowed to operate at a permanent loss.
Characteristics that apply to all WFOE:
- Must be funded entirely by non-Chinese individuals or corporation
- Subject to Chinese legal and statutory requirements
- Can hire local staff
- Can hire foreign staff
- Can operate at a loss, but not permanently
- Corporate Income Tax (CIT) rate of 10-25% depending on the industry and the business scale. Most often this is 25%.
- Profits can be repatriated back home without special approval from State Administration of Foreign Exchange
- The entire process takes up to 10weeks
- Can engage in trading activity of self-manufactured products
- Can engage in assembly
- Import VAT can be deducted
Consulting or Service WFOE
- The broadest form of WFOE
- Quickest and easiest form of legal entity to set up
- Products for export are tax exempt
- Import VAT can be deducted
- Can apply for import & export licenses
- Can register with customs authorities for faster goods clearance
Step 1: Choosing a name
The first step to registering a WFOE in China is deciding a name for the legal entity. The name is required to include 4 pieces of information;
Enterprise name + industry + Location + legal structure
XYZ Consulting Shanghai Ltd.
The legal entity name must be in Chinese. Furthermore, the legal name of your business is subject to approval by the State Administration for Industry and Commerce before registrations. Some additional restrictions to the Chinese language which may be used in the legal name apply.
Acheva & Associates can help you choose a suitable Chinese language name for your legal entity and ensure it applies successfully on the first attempt.
Step 2: Renting/Leasing Office space
Before establishing a legal entity, you must have a legal address for your business. This is an important decision for any business as some areas of China carry good/bad reputations which can affect sales, business development and government relations. This decision should be made carefully as the process of transferring a business to another jurisdiction is a costly and lengthy process for any business
Acheva & Associates provides virtual offices for rent at affordable prices.
Wherever you decide to lease office space, we recommended that a clause be added to the leasing contract stating that in case the WFOE application is rejected, the lease can be voided.
Step 3: Application Process
The Ministry of Commerce of the Peoples Republic of China must approve all foreign direct investment in the country and are guided by the Catalog of Investment Projects Subject to Governmental Approval. Most companies with registered capital under 10m USD, foreign direct investment is typically unrestricted.
- An application must be files with the Ministry of Commerce including a (a) feasibility study, (b) Memorandum and (c) Articles of Association.
Acheva & Associates acts as an agent on your behalf for preparing the required documents for application. The process takes approximately 15 working days for the Ministry of Commerce to review the application and issue its approval.
- Once the approval has been given by the Ministry of Commerce, the business license can be applied for at the State Administration of Industry & Commerce. The business license is then issued within 10 working days.
Please see the required documents below for business license application.
Note: There is no required minimum registration capital as of 2016.
Step 4: Steps following company formation
After being issued the business license, the newly formed legal entity can apply for the following.
- Application of statutory stationaries (company chop)
- Company bank account (Basic RMB account t & Foreign Exchange Account)
- Registration with the tax authorities
- Registration with the Customs office, if a Trading company
- Application for Alien Employment Permit
- Application for Foreign Work visa (for expatriates)
Time required is approximately 10 working days.
Step 5: Monthly & Annual Compliance requirements
Chinese limited liability companies, including WFOE, are required to submit monthly/quarterly tax filings, in Chinese, as opposed to once annually.
Furthermore, all WFOE are subject to an annual examination by the Administration of Industry and Commerce and are asked to submit a report addressing the following issues.
- Registered capital & whether it has been paid according to the conditions of application for business license
- Whether the company operates according to its approved activities
- Changes in registration details such as legal address
- Financial details such as profit & loss, due taxes, customs duties, and foreign exchange compliance with Chinese law
Basic Company Formation
- Review of documents
- Name selection assistance
- Application of business license
- Application of Company Stationaries
Complete Company Setup
- All the services of Basic Company Formation
- Opening of bank accounts (RMB & FX)
- Registration with tax authorities
Statutory Compliance requirements
- Monthly & Quarterly VAT reporting
- Quarterly & annual Corporate Income Tax filing
* Annual Compliance requirements cost is based on transaction volume and other value added services.
Required Documents for Business License Application:
- For individual investor: Passport copies of shareholders certified by Chinese embassy or consulate.Corporate investor: Certificate of Incorporations, Articles of Formation or Equivalent document certified by Chinese embassy or Chinese consulate.
- Bank Reference Letters from shareholders bank declaring good standing.
- Passport copy of Designated Legal Representative (managing director for China WFOE) and passport copy of Parent company’s director if a corporate shareholder.
- 6 passport photos (size: 2’ inch) of Designated Legal Representative (managing director)
- Resume of Designated Legal Representative
- 2 copies of office lease contracts, 2 copies of real estate ownership certificate, and two copies of landlord identification scanned
- For Trading WFOEs only: The latest annual audit report copy from the parent company: provided by a Certified Public Accountant (CPA) and Customs HS Code of proposed Import/Export products
Note: All copies that must be certified by the Chinese Embassy or Consulate overseas, must have the physical copy mailed to China.