China WFOE formation & its process and registration

Introduction

 

WFOE is the Wholly Foreign-owned Enterprises. They are companies wholly owned by foreign investors. In China, the first purpose of setting up WFOE was to encourage production activities. Another is to export or introduce new technologies.  So, we relaxed the restrictions. In addition, China WFOE formation also appear in various industries.

1.consulting management services

2.software development

3.trade

China has improve our commitments since we joined the WTO. And reduced the average tariff to 7.5%. It’s much lower than other emerging economies and developing countries.  China’s business environment has risen from 78th to 31st place in the past two years.

So, China has greatly reduced market access conditions, and opened up manufacturing. It accelerates the opening up of the service industry.

Meanwhile, China will carry out the new foreign investment laws. It is because China is a more regulated and favourable investment environment.

So, under the new situation, how do we set up a WFOE, and what are the requirements?

China WFOE formation

What is the process of a china WFOE formation

 

What is a china WFOE formation

Wholly foreign-owned enterprises are limited liability companies. And wholly invested by foreigner overseas legal or natural persons. That means more than one shareholder.

WFOE in China is based on encouraging production-oriented companies. It is because the products of them are export-oriented. They can introduce advanced technologies. However, as China has been in the WTO, this situation has changed. Therefore, there has set up more service-oriented foreign-funded companies in China.

What is the process

First, apply for a name for your company to account  in advance.  And if the investor is a foreign natural person, it must be the investor himself to apply online. But if the investor is a foreign legal person, the applicant can be anyone.

Second，apply for a temporary account with SAFE. As for the materials required for opening a foreign exchange account for foreign investors. Please see the Documents for Special Foreign Exchange Account below.

Third, apply to the Commercial Committee for approval and certification.

Fourth, apply for a business license to the Industry and Commerce Bureau

Fifth, apply to Beijing Municipal Exit-Entry Administration for stamping and company filing

Sixth，apply for the certification code of your company from the organization management centre

Seventh, apply to the Foreign Exchange Administration for a foreign exchange registration card

Eighth, apply for a tax registration certificate from the Local Taxation Bureau(National Taxation Bureau)

Ninth, open a capital account and a basic RMB account in the bank

Tenth, invest and settle foreign exchange for capital verification

Eleventh, update your business license

And then, transact the statistics registration

At last, deal with your financial registration

Requirements for china wfoe formation

Before you start up a new WFOE in mainland China, you have to learn the following steps of the core elements of WFOE registration. And you have to decide the key information and prepare the required documents.

Documents for Special Foreign Exchange Account

  1. In the first place, submit the written application and application form.
  2. Moreover, register the identity certificate of an overseas natural person, at Local Industry and Commerce Bureau
  3. And then, The company name pre-approval notice or the relevant certificate.
  4. Besides, a foreign investor entrusts a domestic natural person to apply for the account. It shall provide not only the power of attorney, but also the identity certificate or business license.
  5.  At last, for the aforementioned documents, shall provide the supplementary documentsexplanation.

Requirements for the accounts of WFOE

For China WFOE formation, here are some requirements for it.

  1. First of all, you can transfer the funds in the account to its capital account after the establishment.

If there has no establishment of a foreign-invested enterprise, the foreign investor should apply to the close of the account to the bank. And we will return the remaining funds in the account to your country.

  1. Secondly, when the account verification period expires, foreign investors should apply to the bank to close the account and return the funds. If the company does not apply to the bank to close the account, we will regard the account as abnormal account closure. The bank will go through the account cancellation or freezing procedures after approval by the foreign exchange bureau.
  2. In addition, you shall migrate and cancel the account according to the capital account.

Precautions:

For China WFOE formation, you should pay attention to:

  1. Foreign investors entrust others to submit written applications. They need to provide foreign-related notarization.
  2. And if the investment does not reach to 100,000 US dollars, the limit can only be the actual capital contribution of the investor in cash.
  3. In this situation, the above materials need to provide originals and photocopies.  And you shall affix the photocopies with an official seal.
  4. Meanwhile, the settlement and transfer of account funds must be approved one by one by the Foreign Exchange Bureau.
  5. In the end, the funds in the account shall not be used for mortgage loans.

Naming requirements

For the names of China WFOE formation, the following  information you need to know:

  1. The name of the alternative company name
  2. Basic information of your shareholders
  3. Registered funds and registered currencies
  4. Name of the registered area
  5. The main business of your company.

Requirements for Registrants :

A foreign-invested enterprise is to attract foreign private investment. Usually, the private investment is personal investment. And it is for companies, enterprises and other economic organization.

So, it is different from the government’s aid. And it is the non-governmental technical cooperation. Generally, foreign-funded enterprises have two levels of management systems. One is the board of directors. Another is the highest decision-making body of foreign-funded enterprises.

In this situation, the general manager runs the daily company management. And the chairman of the board of directors chair the board meeting at least once a year.

If the director is unable to attend the meeting, he may appoint any person to vote on his behalf.

Registration of China WFOE formation

About the capital of registration

For China WFOE formation, foreign investors must fund and subscribe to the registered capital alone.

The Chinese law does not clearly define the adjustment of branches of WFOE. But the branches should include organization participating in business activities and representative offices.

Foreign investors can invest with foreign currencies. As well as can invest with machinery and equipment, industrial property rights, and proprietary technology.

With the approval of the approval authority, foreign investors can also invest in RMB with their profits. And they obtain the profits from other foreign-invested enterprises established in China.

Use industrial property rights and proprietary technology to invest. Foreign investors own the industrial property rights and proprietary technology. Meanwhile, the amount of valuation shall not exceed 20% of the capital.

Reference capital

Documents for registration

For the registration of China WFOE formation, you need to prepare the documents as below:

  1. Original copy of the application for registration of establishment of a foreign-invested enterpris
  2. The business license and opening certification of investors
  3. And you need to prapare two original bank credit certificates issued within 6 months, in both Chinese and English. They indicate the investor’s credit status.
  4. Board resolutions of foreign investors
  5. 2 photos and one copy of the passport of the legal representative, or Hong Kong identity card, admission pass.
  6. One original site lease contract
  7. The materials of the investor company and its directors.
  8. Letters of appointment for the chairman and board members
  9. The feasibility study report and articles in China of the company.
  10. Original copy of power of attorney for enterprise registration authorization.

Business scope

As we all known, one of the most important issues is the business scope.  The business scope needs to be clear. Therefore, foreign investors can only conduct business within the approved business scope. And the business scope will eventually appear on the business license.

You can invest according to the regulations

Encouraging foreign investment projects:

  • Eelonging:
  1. New agricultural technologies
  2. Comprehensive agricultural development
  3. Energy
  4. Transportation
  5. Important raw material industries.

 

  • Projects belong to high-tech, advanced and applicable technology.
  • Capable of:
  1. Improving product performance
  2. Enhancing the technical
  3. Economic benefits of the enterprise
  4. Providing new equipment and materials to insufficient domestic production capacity.
  • Adapt to market demands
  • Can improve the classification of products
  • Develop emerging markets
  • Increase the international competitiveness of products.
  • Projects belong to new technologies and new equipment.
  • And they can save energy and raw materials
  • comprehensively utilize resources, renewable resources
  • Prevent environmental pollution.
  • Can take advantage of the human and resource in the midwest regions
  • Other circumstances stipulated by laws and administrative regulations.
Encouraging foreign investment projects

Restricted foreign investment projects 　

  • Projects are not technically advanced.
  • Not conducive to saving resources and improving the ecological environment.
  • Engaged in the exploration and exploitation of specific minerals prescribed by the state.
  • Belonging to the gradually-opening-up industry.
  • Other situations stipulated by laws and administrative regulations.

Prohibited foreign investment projects 　

  • Endangering national security or harming public interests.
  • Have pollution damage to the environment, natural resources or human health.
  • Would occupy a large amount of cultivated land. And they are not conducive to the protection and development of land resources.
  • Projects are endangering the safety and efficiency of military installations.
  • Use our country’s unique processes or technologies to produce products.
  • Other circumstances stipulated by laws and administrative regulations.

Tax Requirements

  1. According to the Chinese tax law and relevant regulations, pay various taxes. And apply for reductions.
  2. Company employees shall pay personal income tax.
  3. The company sets up a financial and accounting system. And shall report the record to the competent financial and taxation department.
  4. The company sets up accounting books in China.
  5. Conducts independent accounting
  6. Submits accounting statements according to regulations
  7. Accepts the supervision of the financial and tax authorities.
  8. All the company’s accounting vouchers, documents, account books and statements are written in Chinese.
  9. If they are in a foreign language, you shall annotate them in Chinese.

Other options for your company set up in China except for WFOE

There are 9 kinds for current foreign-invested enterprises except for WFOE.

They are:

LLP

Joint venture

Subsidiary

Representative Office

Open a Branch

Group Company

Stock Company

Offshore Company

Domestic Company.

For more details of other options for your company set up in China except for WFOE, please visit Article 2 of GEI

other options for foreign investers

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