5 Steps to Setting up a WOFE in China

The acronym WFOE stands for "Wholly Foreign-Owned Enterprise," which we will be using throughout this article. Sometimes, it is incorrectly referred to as a "Wholly-Owned Foreign Enterprise" (WOFE).

Since foreign investors can establish WFOEs in China, it should be no surprise that the rules and regulations associated with establishing a business in China have been modified recently.

WFOE, the most common type of foreign-invested enterprise in China, is like a Limited Liability Company (LLC) specifically designed for foreign companies' ownership.

It's the preferred investment option because it grants complete independence and authority to the foreign parent company.

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 trademark research from relevant authorities to ensure transparency and avoid trademark conflicts and issues.

In addition to the above, you will also need to submit a document outlining your company's business scope.

Registration of the WFOE 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 (may vary depending on the specific location and situation) to be issued the WFOE's Business License.

WFOEs in China can be subject to stamp duty tax on various contracts and agreements used during their operations.

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.

Registered Capital

China removed minimum capital requirements in 2014, but some cities and industries might still impose them. The amount depends on the location, the type of industry, and the planned expenses to ensure your business can operate for a while.

There is no longer a minimum requirement for registered capital, but choosing an appropriate amount to contribute to your WFOE remains important.

This amount reflects the initial investment you plan for the WFOE's operations.

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.

Income Tax Considerations

WFOEs also have to pay a 25% corporate income tax (CIT) on their taxable income in China.

Additionally, China provides a range of tax benefits to draw in foreign investment. These perks might involve lower tax rates for certain industries or locations, tax holidays during certain periods, and tax deductions.

Ready to Launch Your WFOE in China?

Having a business in China provides exciting chances. By following these steps, you can manage the process of setting up a WFOE and start your business successfully in China's developing market.

Another type of FIE, aside from wholly owned foreign enterprises, is a Foreign Invested Commercial Enterprise (FICE), but that’s another topic if you want to be involved in activities like wholesaling, retailing, franchising, commission agency, and import and export.

Looking for help setting up a WFOE in China? 

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