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Introduction to (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 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

Following are different types of WFOE. Commonly,

• If the WFOE only be allowed to manufacture here. we can say it's manufacture WFOE.
• If the WFOE is allowed to do Consultancy & Service, we call them Consultancy Service 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), you can check "FICE Registration" on the leftt menu for more information and details about FICE.

 

Advantages of WFOE

The advantages of establishing a WFOE, compared with other types of enterprises, include, but not limited to:

• Independence and freedom to implement the worldwide strategies of its parent company without having to consider the involvement of the Chinese partner;
• 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;
• Capability of converting RMB profits to US dollars for remittance to its parent company outside of China;
• Protection of intellectual know-how and technology;
• No requirement for Import / Export license for its own products;
• Full control of human resources
• Greater efficiency in operations, management and future development.

 

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$140,000 is a good idea for all kinds of WFOE, with USD$ 140,000 investment it's easy to get approved. Initial Paid-up would be 20% of the registered capital, the balance should be remitted within 2 years.

Registered capital is the amount that it's required to run the business until it can break even - the '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 about to support itself from it's own cash flow.

However the amount of registered capital is 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 could 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:

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	RMB 500,000 ~ RMB 1 million
Catering WFOE	RMB 500,000 ~ RMB 1 million
Manufacturing WFOE	RMB 1 million or USD 140,000

 

GENERAL TAX INFORMATION

Since Jan. 2008, China's new corporate tax rates begins 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. ( Corporate Income Tax Law of China ) All enterprises are required to report to the Tax Administration Department monthly, quarterly, annually. SDH provides part time accountant service for our clients, you are welcome to contact us for more information.

 

ANNUAL AUDIT REPORT

Any limited companies in Shanghai 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 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.

 

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.

Documents Required & Registration Procedures of WFOE Condition(s):

Consulting WFOE, Service WFOE, IT WFOE minimum registered capital: RMB 100,000 ~~ 500,000

For the Trading or Manufacturing WFOE registration in China, our suggestted minimum registered capital is still 140,000 USD or 100,000 EURO (20% as initial paid-up within 3 months and the balance 80% should be injected within 2 years)

 

Documents required

The above documents are enough to register a Trading WFOE, Service WFOE & Consulting WFOE. But you will have to prepare following extra documents if investors want to incorporate a Manufacturing WFOE in China:

 

Registration Procedures

Foreign investors are not allowed to directly submit the application documents of incorporate WFOE to the relevant authority in China. They must retain a PRC entity that is authorized or permitted by relevant authorities to act as a sponsor. The sponsor will submit all the documents to the examination and approval authority on behalf of the foreign investor. Procedures of setting up the Wholly Foreign Owned Enterprise in China are as following:

Obtain Import/Export license (Optional, Only for Trading WFOE)

 

Fee for WOFE Registration in China (Based in Shanghai)

Government Fee:

Procedures	Government Fee(RMB)
Company name approval	80
Company approval	10
Company bulletin	4000
Company registration(base on USD$200,000 capital)	1333
Business IC card	280
Company Seal	500
Organization Code license	228
RMB currency a/c IC card	250
Foreign currency a/c IC card	250
Tax registration	100
Custom registration	175
CPA's capital verfication report	3000
Statistical license	20
Finance license	20
Total:	10246RMB (~USD$1,517)

DISCLAIMER: The official registration filing fees above are subject to change without notice. We get our information directly from the government. We do our best to keep our web site up to date. The accurate amount will be billed separately with supporting official receipt issued by the Chinese Government.

Service Fee:

Service	Service Fee(RMB)
Consulting WFOE Registration	18,000
Service WFOE Setting up	18,000
Trading WFOE with Import/Export Licenses	26,000
Manufacturing WFOE	32,000

 

Part time accounting service of WFOE in China

Once your WFOE is officially registered. It's required to maintain properly accounting records in accordance with accounting standards in China and report taxes in both monthly (for business tax, individual income tax) and quarterly (corporate income tax) basis. The late submissions will face penalty and surcharges.

WFOE must register with the local tax authority for tax reporting method and applying for official invoice book which allow the WFOE to issue invoice to it's clients within China and abroad.

Our part time accountant could assist you and negotiating with your local officer to use the proper tax reporting method for your WFOE. And submit the tax reports monthly and quarterly on your behalf.

We can also advise you with tax planning opportunities this might help WFOE reduce the burden of tax of WFOE and its staff.

The details of our services are set out below and our fee schedule is set out in "Form B "

(1) Update the books of WFOE in accordance with the Chinese Accounting Standards;
(2) Prepare monthly financial statements for tax filing purpose and submit if applicable;
(3) File monthly Business Tax Return and Individual Income Tax Return;
(4) File Corporate Income Tax Return quarterly
(5) Audit of Financial Statements [if applicable]

Detailed Breakdown of Fees

The figures shown in the table below are estimations and actually costs will be discussed after review of the actual operation of your WFOE

Form B:

No.	Services	Period	Separate Costs	Package Cost
01	Update the books of accounts	Monthly	1,800RMB/Month	25,000RMB/Year
02	Business Tax Filing	Monthly
03	Individual Income Tax Filing	Monthly
04	Corporate Income Tax Filing	Quarterly
05	Audit of Financial Statements	Annually	5,000RMB/Year