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Open WFOE in China

Updated on Friday 08th January 2021

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Entrepreneurs from abroad have a multitude of possibilities for doing business in China’s generous industries. A Wholly Foreign-Owned Enterprise (WFOE) can be the proper option for such business persons, as they can benefit from complete ownership of their company shares in China. The registration process of a WFOE in China has been simplified in recent years to allow foreigners to set up their operations in a fast and competitive manner. Instead of dealing with the language barrier in this country and the probable misunderstandings in this sense, we recommend you talk to our company formation agents in China when opening a company, including a WFOE in China.
 

What is a WFOE in China?

 
WOFE in China is the limited liability company which can be easily established by foreigners interested in having complete ownership in the enterprise, without considering a state-owned part of the shares. The registration process starts with the Trade Register in the chosen city and with the required documents for submission, such as the Articles of Association in accordance with the Company Law in China. Such documents will mention how the WFOE will operate on the Chinese territory and will offer detailed information about:
 
  • •    the owners (their names, their nationality, and country of residence);
  • •    the company name after a verification with the institutions in charge;
  • •    the board of managers and their responsibilities in the company;
  • •    the registered minimum share capital of CNY 30,000 deposited in a bank account;
  • •    the representative agent for the WOFE in China (he/she must have residency in China).

 

Do I need a feasibility report for a WOFE in China?

 
Yes, one should know that the local authorities can verify and establish a feasibility study report before approving the investments you wish to implement in China. If you want to open a company in China and especially a WFOE, we remind that you can benefit from complete support offered by our team of company formation representatives through the local offices in the main cities like Shenzhen, Guangzhou or Beijing, and also in other important metropolises.
 

Can I open a bank account for a WFOE in China?

 
Yes, WOFE in China needs two bank accounts, one for the foreign currency capital, and the second one as the standard RMB bank account. The latter one will be used for the company’s financial operations in China and it will be the only bank account necessary for the imposed tax payments in China. As for the capital sent from abroad, the foreign currency bank account will be used in China.
 
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What are the trading WFOE requirements in China?

 
If your WOFE in China deals with import and export activities, a customs registration certificate is necessary for this matter. Besides that, an import-export license is mandatory for changing the foreign currency into the local one. These documents are issued by the Entry-Exit Inspection and Quarantine Bureau in China and by the Ministry of Commerce of the People’s Republic of China.
 

Business license requirements for WFOE China

 
Before commencing the activities as a WOFE in China, the State Administration of Industry and Commerce in China issues the necessary business licenses. Depending on the operations, one can obtain a certificate from the tax authorities if he or she wants to set up a financial company. As soon as the business license is obtained, the owners of WFOEs in China can apply for work and residence permits, can hire staff and can consider the services offered by an accounting firm.
 

The benefits of WFOEs in China

 
A Wholly Foreign-Owned Enterprise or WOFE in China, presents a series of advantages which are appealing to foreign investors who want to have a business with complete control. For instance, a WFOE has an independent legal entity, meaning that there is no need for a Chinese partner. Also, there is no need for a special license if the company activates in the trading sector and the stockholder liability is restricted to the original investment. A WFOE China provides complete protection to patents and trademarks, in compliance with the international laws. Compared to a joint venture, a WFOE registration is much easier and more than that, there is full control in matters of hiring staff, meaning that the entrepreneurs can decide on both local and foreign workforce. Another advantage related to the WFOE in China is that there is no need to wait for the approval of the State Administration of Foreign Exchange in order to repatriate the profits of the business in China. In the case of dividends, these can also be repatriated if there are no losses in the company for the previous business year. Setting up a WOFE in China is subject to simple formalities which allow foreign investors to enter easily the Chinese market in most of the sectors. However, it is best to observe the areas in which foreign investors are not allowed to place their operations, like state-owned enterprises or businesses. We kindly invite you to get in touch with our team of company incorporation specialists in China and ask for complete details and information about how you can set up a WFOE in China.
 

Are there limitations for a WFOE in China?

 
Even though China WFOE formation is not difficult, it is necessary to provide complete attention to the entire process which involves appointing the board of managers, establishing the business scope and observe the governmental rules and see if there are any restrictions. As an example, foreigners cannot activate in the mining sector or in the production of TV satellites. The Ministry of Commerce and especially the Administration of Industry and Commerce in China will issue the approvals for businesses in China. Proof of the provenience of the foreign capital for establishing a Wholly Foreign-Owned Enterprise (WFOE, sometimes incorrectly WOFE) is required by the authorities.
 

Deciding for the business scope of a WFOE China

 
 
When deciding for a WOFE in China, it recommended to establish from the very beginning the business scope and plan the company in detail. An entrepreneur will have to settle the business activities, the number and the nationality of employees, the type of clients for which the business is directed. The owners of a WFOE in China will have to decide in time on the business scope and expectations, in agreement with the Chinese market and the sector in which the company will place the operations. Activating as a foreign investor in sectors involving wood, leather, chemicals and mineral resources is allowed in China. Moreover, the Chinese authorities encourage such sectors and the ones involving the industrial raw materials, being aware of the potential in this area.
 

The management of a WFOE in China

 
The company’s agenda and business implications are normally established by a board of managers or by an executive director, in agreement with the shareholders of the WOFE in China. At least one supervisor is needed in the firm, in charge of the company duties’ performance and of the management staff. In the case of large companies in China, it is good to know that a board of at least three supervisors is needed and recommended. As for the general manager, this can be appointed from the board of directors. He or she will be directly responsible for the daily business operations. As for hiring staff in a WFOE in China, one must know that there are no restrictions regarding the foreign employees who can work in the company.
 

Changing the business scope of a WFOE in China

 
There are cases in which the owners of a WOFE in China decide on changing the direction of the business. Even though it might take time, this is not an impediment if all the requirements are respected. The owners of the business will have to agree and decide on changing the business scope. A new business license is necessary for this matter, plus filling out the registration form provided by the entitled authorities. Even though the business is registered for tax purposes, the owners will have to observe if there are any changes to consider in this direction. You can also talk to our specialists and ask for help in VAT registration in China.
 

Profit repatriation of a WFOE in China

 
WFOEs in China are subject to permissive legislation and tax structures which allow foreigners to return the profits in the home country. It is good to know that the State Administration of Foreign Exchange in China does not impose particular requirements regarding the profit repatriation or further approvals in this sense. The only condition in this matter is to return the earnings as soon as the business year has ended.
 

Post-registration part of a WFOE in China

 
As for the post-registration part, after the temporary business license is released, the WOFE in China must make a number of formal registrations at various Chinese governmental entities, in order to obtain personalized authorization for documents on behalf of the newly created company. The opening of a RMB (the official currency of China) account for coping with usual expenses and a foreign capital account as well, in order to receive foreign currency, will be also needed.
 
Investors who need guidance with opening a limited liability company in China can contact our Chinese law firm, who can offer more details about the specific procedures. They can also help you obtain the EORI number.
 

Other information regarding business registration of WFOE in China 

 
In order to encourage the formation of foreign companies in China, the Shanghai Free Trade Zone has been created in 2013 and as a result, there is no compulsory minimum share capital needed for company incorporation in this zone. An important aspect on WOFE in China is the large number of double tax treaties that China has signed with other countries in order to avoid double taxation. This matter outlines an important advantage for foreign companies that look forward to expand their operations in China through a branch or other business forms.
 

Facts about trademarks in China

 
Your WFOE in China needs to have a special trademark, apart from the existing ones on the market. The trademark separates your WFOE in China from other companies. A trademark is a sign that can comprise numbers, colors, words, and combinations of elements and can be easily registered in China. It is important to note that the Trademark Law in China protects companies against possible breaches and misinterpretations of business brands. Company owners have the right to register a trademark in China respecting the general rules and making complete verifications in the first place. The submission process of a trademark in China can be attentively measured by one of our company formation specialists in China who can also help you set up a WFOE in a fast and reliable manner. The formalities for trademark registration can be overseen by our agents, so feel free to discuss further details with us.
 

Opening a restaurant in China

 
If you want to open a restaurant in China as a foreign entrepreneur, a WFOE can be an ideal choice for business. The incorporation of a WFOE in China is straightforward and can be overseen by our specialists in the field. Besides preparing the Articles of Association, the documents that contain information about the owners, activities, general rules, voting rights, etc., one must pay attention to the health and food hygiene licenses, the environmental permits, and the alcohol permit for restaurants in China. The authorities will verify the equipment of the future restaurant in China, in order to align with the standards imposed by the laws. The rules of WOFE in China can be entirely explained by one of our company formation representatives in China.
 

Opening a travel agency in China

 
Many entrepreneurs from overseas decide on travel agencies in China, a business that generates huge profits on a yearly basis. The same WFOE represents the proper option for starting such a business in China. Travel agencies in China can provide inbound and outbound touristic packages, accommodation, plane tickets, and more. A tour operator in China is a great business idea, so if you would like to register a WFOE in this country, feel free to discuss all the terms with one of our specialists in company formation in China.
 

Taxation of WFOE in China

 
The VAT in China is set at a 13% rate and it applies to most goods and services for sale purposes. Your WOFE in China must be registered for taxation, including VAT, one of the most important taxes in the country. If you have a restaurant, a hotel, or activities in the logistics and transportation sector, the VAT rate is set at 9%. The financial and insurance services are subject to a 6% VAT rate in China.
 
The corporate income tax is another important tax in China that must be observed by domestic and foreign entrepreneurs. CIT ranges between 10% and 25%, in accordance with the type of business established in China. A fixed corporate income tax of 15% applies to WFOEs established in special regions of China. If you would like to know more about the taxation of WFOEs in China, you are invited to talk to one of our company formation agents in China and ask for help.
 

Making investments in China

 
It is a known fact that China is the second-largest economy in the world and the top destination for a large number of international companies that enjoy the business climate and the profits generated here. The dynamic economy, the stable and open market, the low labor costs, and a wide range of business opportunities make China on top of the list of investors looking for profits, development, and business recognition. WFOE is the simplest business structure available in China and the choice of international entrepreneurs who want streamlined procedures for company incorporation. Logistics and transportation, a skilled and multilingual workforce, plus a series of tax exemptions in China’s special economic zones represent huge business advantages to foreign entrepreneurs in this country. The following facts and figures highlight the economy of China:
 
  1. Almost USD 1,770 billion represented the total FDI stock for China in 2019.
  2. The 2020 Doing Business report ranks China 31st out of 190 economies in the world.
  3. US, Japan, Germany, Singapore, the Cayman Islands, Hong Kong, and the Virgin Islands are the main investors in China.
  4. China was the second-largest FDI recipient in the world, after the USA in 2019.
  5. Regional developments enter the attention of Chinese authorities who want to attract more FDIs.
 
 
If you are interested in additional details about the WFOE registration in China, we invite you to contact our Chinese team of company incorporation specialists at any time.
 
 
 

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