The acronym WOFE stands for “Wholly-Owned Foreign Enterprise” and we will be referring to the abbreviation for the sake of this article.
It should come as no great surprise that the rules and regulations associated with establishing a business in China have been modified in recent years.
This is why owners and similar stakeholders need to be made aware of how these modifications may apply to their future plans as well as what steps should be taken in order to ensure a smooth transition into this burgeoning marketplace.
Let us take a look at the minimum requirements if you hope to establish a company in order to remove any confusion from the equation.
1. Approving the Name of Your Firm
The first step involves deciding upon a name for the firm. Metrics to address will include:
- The region of incorporation
- The type of business
- The industry
- The title of “company limited”
It is important to conduct the appropriate amount of research in order to ensure transparency as well as to avoid any trademark issues.
Registration of the WOFE with the State Market Administration Regulation (“SMAR”) and reporting with the Ministry of Industry and Commerce (“MOFCOM”)
You will need to submit several documents to the SMAR via the new online filing system.
These include, but are not limited to:
- Articles of Association
- Office lease agreement
- Standard government forms
- Power of Attorney
Once the application form has been submitted, it will generally take around 10 days to be issued the WOFE’s Business Licence.
2. Obtaining an Official Company Seal
A company seal in China is more legally powerful than a signature.
It is therefore used to validate all important documents.
This seal is mandatory and it can be obtained by contacting the Public Security Bureau (PSB).
Assuming that this seal has been provided, you must also possess several additional seals:
- A financial seal
- A legal representative seal
- A customs seal (assuming that the company is trading)
It is also recommended that your financial director maintains responsibility for the seals mentioned above in order to avoid any confusion or mistakes.
3. Opening up a Renminbi and Foreign Exchange Bank Account
Your firm will be required to have a minimum of two bank accounts:
one valued in the renminbi (RMB) and another designated for foreign currencies (known as a capital contribution account).
Please note that the RMB account is the only means to legally withdraw money in order to accommodate for day-to-day operations and this account is normally the one that will be used to address tax obligations.
4. Import and Export Concerns
If your company is involved with imports or exports, you will require a customs registration certificate as well as an import-export license.
This enables you to transfer between different currencies as well as to deal with refunds alongside VAT obligations.
5. Addressing VAT Requirements
Some businesses will fall into the category of “small-scale taxpayers”; entities that do not exceed 5 million RMB in annual sales.
The remaining are known as “general taxpayers”.
General taxpayers who earn more than 5 million RMB annually can issue special VAT rates to their customers.
In order to be approved for this status, an application form must be submitted to the relevant local tax bureau.
As many previous steps have been removed from the equation, confirmation will normally take no longer than five business days.
Please note that it is not possible to revert back to a small-scale status once the general taxpayer status has been enacted.
As this is only a brief overview of the steps involved in order to establish a wholly foreign-owned enterprise in China, it is always best to obtain advice from a seasoned professional.
You will be able to avoid any confusion while ensuring that your firm is actively adhering to all of the relevant rules and regulations.
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