China WFOE Formation
China WFOE is short for China Wholly Foreign Owned Enterprise (WFOE or WOFE) is a Limited liability China 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, after 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. With that, any enterprise in China which is 100% owned by a foreign company or companies or foreign individuals can be called as WFOE or WOFE.
China WFOE formation-Different Types of China WFOE
There are different types of China WFOE for foreign investors to select when they do the China WFOE registration; the types are defined in accordance with the different business activities.
If the WFOE only be allowed to manufacture here. We can say its manufacturing WFOE.
If the WFOE is allowed to do Consulting & Service, we call them Consulting WFOE.
If the WFOE is allowed to do Trading, Wholesale, Retail or Franchise in China, we call them Trading WFOE or FICE (Foreign-Invested Commercial Enterprise)
China WFOE formation-Business Scope of China WFOE
According to WFOE regulations, "Foreign investors are permitted to setting up a 100% foreign owned enterprise in industries that are conducive to the development of China’s economic benefits, and not prohibited or restricted by China government." In China, Business scope of a business is a "one sentence description" covering all of the present and future activities of the WFOE; it is essential this encompasses every envisaged scope of future activity. The WFOE can only conduct business within its approved business scope, since April first of 2014, the China Centre government carried out one new policy to relax the restriction in the business scope, Generally business scope includes investment consulting, international economic consulting, trade information consulting, marketing and promotion consulting, corporate management consulting, technology consulting, manufacturing, etc. After China's entry into WTO, more and more business is open to WFOE especially in Trading, Wholesale and Retail business, check the Catalogue of Guidance to Foreign Investment.
China WFOE formation-Registered Capital of China WFOE
Registered capital of China WFOE is the amount that it's required to run the business until it can break even - the 'registered capital' is a guideline only. Although the head of China’s State Administration of Industry and Commerce (SAIC) announced in April of 2013 that the registered capital is greatly lowered to registered a WFOE in China, but 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 about to support itself from it's own cash flow.
The recommend registered capital and paid-up capital guides for various industries according to our practice in China, for instance Beijing, Shanghai, Guangzhou, Shenzhen are given below:
Consulting WFOE RMB 100,000 ~ RMB 500,000
Service WFOE RMB 100,000 ~ RMB 500,000
Hi-Tech WFOE RMB 100,000 ~ RMB 500,000
Trading WFOE / FICE/ Retail RMB 500,000 ~ RMB 1 million
Food & Beverage WFOE RMB 500,000 ~ RMB 1 million
Manufacturing WFOE RMB 1 million or USD 140,000
Initial Paid-up would be 20% of the registered capital, the balance should be remitted within 2 years, or it would be 100% of the registered capital to be paid-up within 6 months of the business registration license issue date.
China WFOE formation-Advantages of China WFOE
The advantages of incorporation a WFOE, compared with other types of enterprises, include, but 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 their 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.
China WFOE formation-Office address of China WFOE [Very important]
Before submit the application forms of forming a WFOE in China, the foreign investor must rent a plant (manufacturing WFOE) or an office in advance, the office of WFOE can't be in a residence building, it should be commercial office building, Both residence and commerce (R&C) combined building and Virtual address is also able to register a WFOE in China main cities. But if the WFOE needs to apply for special permission license or employees’ working permit, then a normal office building in China for register a WFOE is a must. The minimum area for the China WFOE registration is 30M2; it should be bigger for the area if some special license such as food circulation license needs to be applied. Tannet will recommend our clients to take the commercial building office for the China WFOE registration in the future prospect.
China WFOE formation-Company name of China WFOE
Choosing the business name the official company name of a WFOE in China should be in Chinese. The Chinese name should be formatted as: first word -company name/product (For instance: MCK; second word: activity (For instance: business consulting); third word: location/name of city (For instance: Shanghai, Beijing); fourth word - company structure. (For instance: Co., Ltd.) With that a company called MCK register in Beijing engages Business Consulting Service LLC will be called: MCK business consulting (Beijing) Co., Ltd. The name then has to be registered with the local Administrative Bureau for Industry and Commerce (SAIC). The use of the word 'China' or 'International' in their Chinese name, have to have a minimum capital of US$10,000,000 instead of US$ 100,000. These words will have to be avoided therefore , although they are permitted in the non-Chinese name. Prior to any of the following applications, the investor(s) should reserve a name for its prospective WFOE with the local SAIC. This is called "Name Pre-registration" in China. SAIC requires that a proposed name and FIVE-EIGHT alternative names be provided. The State Administration of Industry and Commerce (SAIC) has the final say in whether a name is allowed or not.
China WFOE formation-General Tax Information of China WFOE
Since Jan. 1, 2008, China's new corporate income tax rates begins with 25% although some industries still enjoy a lower rate which is15%, 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 above. All enterprises are required to report to the Tax Administration Department monthly, quarterly, annually. Path To China provides part time accountant service for our clients, you are welcome to contact us for more information.
China WFOE formation-Annual Audit Report of China WFOE
Any limited companies in China should summit annual audit reports to the relevant authorities. The audit reports are including: balance sheets and income statements for their annual Chinese audit. The annual audit and licenses renewal 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. (June 30th is the deadline of an annual audit report submission and licenses renewal in China)
China WFOE formation-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 to oversea 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 Registered Capital to home countries is forbidden during the term of business operation.
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