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 initially 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.
Under Chinese law, a Wholly Foreign Owned Enterprise is a limited liability company that is wholly owned and capitalized by foreign investors (You) and operated without a local (Chinese) partner. This provides you with greater control over your business’s operations, revenue and profit targets. Since it is a separate legal entity, it also limits your liability to the contributions made to the registered capital of the WOFE.
Different types of WFOE
There are many businesses for WFOEs. Our clients frequently choose the following:
- If the WFOE manufacture here, we call it its Manufacturing WFOE.
- If the WFOE is allowed to do Consultancy or Service, we call it Consultancy (or Service) WFOE.
- If the WFOE is allowed to do trading, wholesale, retail or franchising in China, we call it a Trading 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:
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 customers in RMB and receive revenues in RMB;
- CapaThe capability converting RMB profits to US dollars for remittance to its parent company outside of China;
- Protection of intellectual know-how and technology;
- Full control of human resources
- Greater efficiency in operations, management, and future development.
- New Investor’s parent company does not have to be established for more than 2 years while for Representative Office, its parent company is required to have been established for more than 2 years.
One of the most critical issues in WFOE application is a business scope. The 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, the 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$15,000- 75,000) is the advisable as minimum investment capital to be approved for Consulting WFOE, Service WFOE, Hi-Tech WFOE registration in China. Keep in mind, there’s no initial paid-up capital should be injected. The capital could be injected within 30 years or never. Registered capital is the amount that it’s required to run the business until it can break even – the ‘minimum registered capital’ is a guideline only.
If you do looking for a minimum registered capital, for instance RMB 30,000 (which is impossible to run a WFOE in China) this means you will run out of money pretty soon, which leads to increased costs in reapplying for permission to increase capital, additional licensing fees and renewals of business licenses and so on. The WFOE needs funding via its registered capital until it’s able to support itself from its own cash flow.
However, the amount of registered capital needed is also dependent upon factors like the cope of business and location. In reality, local authorities will review the feasibility study report (and check the lease contract) approve the investment on a case-by-case basis;
The minimum registered capital guides for various industries according to our practice in China, for instance, Beijing, Shanghai, Guangzhou, Shenzhen, Ningbo & Hangzhou are given below (Keep in mind, there’s no initial paid-up capital should be injected.
Consulting WFOE* (Approx. USD$ 15,000- 50,000)
Service WFOE (Approx. USD$ 15,000- 50,000)
Hi-Tech WFOE (Approx. USD$ 15,000- 50,000)
Trading WFOE / FICE (Approx. USD$ 75,000- 140,000)
Food & Beverage WFOE (Approx. USD$ 75,000- 140,000)
Manufacturing WFOE (Approx. USD$ 75,000+)
Documents Required & Registration Procedures of WFOE
Since 2016, No Paid-up Capital is required for the foreign investor to establish a Consulting, Trading or Information Technology business etc in Shanghai. Below is the required documentation for WFOE formation in Shanghai. (Item 1,2,7,8 should be prepared before visiting Shanghai:
- Certificate of Incorporations, Articles of Formation or Equivalent document certified by the Chinese embassy or Chinese consulate overseas. As f For individual investor Passport copies of Investors need be certified by Chinese embassy or consulate
- Bank Reference Letters from investor’s bank
- Passport copy of:
(i) Parent company’s director
(ii) Shanghai company’s Legal Representative (managing director)
(iii) Shanghai company’s supervisor
- Registered capital; Business Scope; 8 proposed Chinese names of China company
- Office address in Shanghai:
(i) Leasing contracts
(ii) Certificate of real estate ownership
(iii) Landlord identification
6.Letter of Authorization
The above documents are good enough to register a Trading WFOE, Service WFOE & Consulting WFOE in Shanghai. For a manufacturing WFOE establishment in Shanghai, you will also need:
- Purpose and estimated investment
- WFOE’s operational structure and number of employees
- Permission for land use, environment evaluation report
- Products, size of production, detailed list of equipment, and business plan
- Environmental protection measures
- The requirement for utilities such as power and water supply.
Foreign investors are not permitted to directly submit the application documents to incorporate a WFOE to the relevant authority in Shanghai. 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 authorities on behalf of the foreign investor. Procedures for setting up a Wholly Foreign Owned Enterprise in Shanghai are the following:
Name registration with the Shanghai Administration of Industry and Commerce (SAIC).
- Certificate of Approval by the Shanghai Municipal Commission of Commerce
- Apply for Business License with SAIC
- Chops made by Public Security Bureau (PSB) of Shanghai
- Organization Code License by Shanghai Technical Supervision Bureau (TSB)
- Tax Certificate by Taxation Bureau of Shanghai
- Registration and Approval with State Administration of Foreign Exchange (SAFE)
- Open foreign currency and RMB bank account
- Inject capital from investor’s overseas bank account
- Capital Verification Report by Certified Public Accountant (CPA)
- Apply for permanent Business License with SAIC
- Financial certificate registration
- Statistics license registration
- Import/Export license (applicable for Trading & Manufacturing WFOE)
- Value Added Services: Free Visa service, 2 months accounting service
ONE-STOP Services in Free Trade Zone:
- Investment consulting, project approval consulting and some other services.
- Company registration, accounting service, and bank account opening service.
- Virtual registered address, including the virtual and actual address for company registration, the warehouse, and small-sized warehouse containing cold storage that suits for the import and export of food, agricultural products, and wine.
- Foreign trade consulting, the right to import and export, customs registration, and inspection and quarantine.
- Visa invitation, legal service and business consulting service.
Company registration process of Free Trade Zone :
- Name approval how to setup company free trade zones
- Foreign investment approval
- Application of business license
- Organization code certificate
- Tax registration
- Foreign exchange registration
- Bank account opening
- Finance, statistics, customs, inspection, and quarantine.
Accounting Service in Free Trade Zone :
- The application of the general taxpayer
- Equipment configuration
- Application of invoice
- Export rebates
- Financial reporting
- Preparation of statement
- Final settlement and annual audit.