All You Need to Know About Setting Up a WFOE in China
WFOE in China

WFOE in China

Our consultants are experts in company set up all across China. Having assisted SMEs and multinationals for more than a decade, we are able to assist companies to get set up fast and easy. Get in touch with us with the contact form at the bottom of the page for a free consultation on how you can get started to setup WFOE In China.

WHAT IS A WFOE IN CHINA

A Wholly Foreign-Owned Enterprise (WFOE), sometimes spelled WOFE, in China is a Limited Liability Company (LLC) which is established exclusively by the foreign investor’s capital (“wholly foreign-owned”). Our free WFOE white paper explains what a WFOE is and details the requirements and procedures for setting up a WFOE in China.

Receive of our FREE  ‘Ultimate Guide for Setting Up a WFOE in China’  by completing the form on the right-hand side of the page!

HOW THE WFOE ENTITY ORIGINATED

In the early days, the concept of WFOE was established with the aim of boosting manufacturing and exporting activities in China and there existed entry barriers for service-related companies. However, once China officially became a part of World Trade Organization in November 2001, tariffs on agreed products were reduced and market access was granted to foreign investments in many industries of which technology and service industry were the most dominant one. As of recent years, for most foreign investors in China a WFOE has become the preferred entry mode to access the Chinese market.

TYPES OF WFOEs IN CHINA

As the most commonly used vehicle investment vehicle into China, the process of setting up a WFOE has been clearly defined, but the type of WFOE needs to be selected according to your specific needs. Three types of Wholly Owned Foreign Enterprises can be distinguished, namely the:

  1. Consulting WFOE
  2. Trading WFOE
  3. Manufacturing WFOE

Consulting WFOE

This type of entity is licensed to operate as a consulting business within the service industry.

Trading WFOE

This type of entity is licensed to carry out trading, whole-sale, retail and franchising activities. In order to import and export goods to or from China, an additional license would need to be obtained.

Manufacturing WFOE

This type of entity is licensed to manufacture and assemble products in China. While the registration process is similar to that of the two above mentioned types of WFOEs, there is an additional requirement of an environmental impact assessment that needs to be carried out.

HOW MUCH DOES IT COST TO OPEN A WFOE IN CHINA?

The cost of setting up a WFOE typically varies depending on the type of WFOE you intend to setup, as well as any extra requirements the type of business activity may require, such as extra licenses, permits etc. The are 2 main costs involved in setting up a WFOE, namely:

  1. Setup costs – which differs only according to the type of WFOE you setup and not according to the size or scope.
  2. Registered capital – WFOE’s are not required to allocate a set amount of registered capital, but they should allocate an appropriate amount as it is a requirement for businesses to operate in China.

HOW DO I SETUP A WFOE IN CHINA?

When thinking of setting up a WFOE in China, the intending parties must pay mind to the requirements and process that must be followed. While in theory, the process of setting up a WFOE is straightforward, there are various practical aspects that can make it challenging and cause unanticipated delays.

When setting up a WFOE, the applicant needs to ensure that they have all the correct documentation (Articles of Association, Business Scope etc.) and they follow the relevant process of the region in which the application is being made.

SETTING UP A WFOE IN CHINA 

The establishment of a WFOE in China is subject to a number of different laws, regulations, procedures and governmental authorities. The process of establishing a fully operational legal entity is approximately 2 – 5 months, depending on the specific attributes and needs of the business. Although there may be some differences in the set-up procedure for certain types of businesses, the process usually consists of the following 3 phases:

  1. The Preparation Phase
  2. The Pre-Licensing Phase
  3. The Post-licensing Phase

Preparation Phase

This phase consists of 2 main parts, document preparation and structural decision making. During the document preparation part, the company will be required to provide several documents which provide details of the investor, which need to be notarized and legalized. Before the application can proceed, particular structural details also need to be decided upon, such as:

  • The company name
  • The business scope
  • The registered address

The complete list of documents and structural details is contained in the Ultimate Guide to Establishing a WFOE in China which you can get for FREE by completing the form on the right-hand side of the page

Pre-licensing Phase

This consists of the online pre-approval application, once the naming and structural details have been decided on. During this stage legalized documents are not yet required, however the company will be required to upload identification documents of the registered personnel.

Once the documents have been accepted, you can then proceed to the application with the Administration of Market Regulation. Once the application has been approved by the AMR, the business license can be issued, and the Chinese entity will then come into existence (but it is not operational as yet).

Post-licensing Phase

After the business license has been issued, the company can proceed with the following:

  • Carving of company chops – which serves as a signature on behalf of a company and makes documents binding.
  • Opening of a bank account – for an entity to be fully operational, it is required to have an RMB Basic Account and a Foreign Capital Account
  • Tax registrations – All foreign invested companies operating in China are required to meet tax filing compliance requirements and must initiate tax registrations within 30 days of the entity coming into existence. A company is required to complete basic tax registrations, registration for VAT taxpayer status and more.
  • Applications for the relevant licenses needed – this may include an import/export license or any other industry related license e.g., pharmaceutical license, construction license etc.

ADVANTAGES OF A WFOE

  • One of the most important advantages of a WFOE is that a foreign investor could maintain complete ownership over the entity.
  • Foreign investors do not have to partner with local entities, so they have full control and decision-making power.
  • WFOE’s can employ both foreign and Chinese employees.

The establishment of a Wholly Foreign-Owned Enterprise is subject to various laws and regulations in China, even some businesses in certain industries are still prohibited to set up their WFOE in China. To provide a better understanding on what is possible and what is required, we have prepared an extensive WFOE white paper to address the most important topics and considerations to take in mind when setting up a WFOE in China.

LAWS AND REGULATIONS GOVERNING CHINA WFOEs

  1. Foreign Investment Law

The Foreign Investment Law (FIL) is the law that provides the framework and governs foreign direct investment in China. The law, which came into effect on 1 January 2020, aims to increase foreign investment into China, by providing for equal treatment of foreign and domestic enterprises.

Additionally, the FIL sets out new prescribed requirements, especially related to organizational structure, which all new enterprises must comply with, while all enterprises incorporated prior to the implementation of the FIL have been granted a 5-year transition period.

  1. The Negative List

The Foreign Investment Negative List (FINL) is a list that sets out and regulates the specific sectors and industries where foreign investment is either restricted or prohibited. Additionally, there is a specific negative list which governs Free Trade Zones (FTZ’s) in China, which further restricts certain types of foreign investment.

Principles of the negative list have been incorporated into the provisions of the new FIL. The negative list is constantly being updated and amended in an effort to improve market access for foreign investors, with the latest revision occurring in December of 2021.

  1. Encouraged Industries Catalogue

The Encouraged Industries Catalogue in China is a document which sets out incentives for foreign investment in specific industries and sectors. Foreign investors entering these industries may be eligible to enjoy reductions in tariffs, preferential corporate income tax (CIT) rates and increased accessibility to land.

Receive of our FREE  ‘Ultimate Guide for Setting Up a WFOE in China’  by completing the form on the right-hand side of the page!

The establishment of a Wholly Foreign-Owned Enterprise is subject to various laws and regulations in China, even some businesses in certain industries are still prohibited to set up their WFOE in China. To provide a better understanding on what is possible and what is required, receive of our FREE  ‘Ultimate Guide for Setting Up a WFOE in China’  by completing the form on the right-hand side of the page!

REQUEST YOUR WFOE IN CHINA WHITE PAPER

CONTACT OUR EXPERTS

Brian Blömer
Brian Blömer
Director Corporate Services

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