What is WFOE China? If you want to start a business in China, you might as well set up a WFOE (wholly foreign-owned enterprise) in China.
Let’s see what a WFOE is and what the advantages are having it set up for your business.
If you want to know who the WFOEs are in China, find them on the list of WFOEs in China.
A wholly foreign-owned enterprise (WFOE, sometimes incorrectly WOFE) is a common investment tool for Chinese mainland businesses. Foreign parties can incorporate a foreign-owned limited liability company through it. Unlike other investment tools, it does not need the participation of Chinese mainland investors.
Also see how Wikipedia defines a WFOE in China.
WFOEs and representative offices (ROs) have been the most popular options for foreign companies to start a business in China. But as China’s economy changes, WFOEs are more and more dominant.
The appeal of China is shifting to a country with a growing middle class and domestic spending opportunities. With the ability to sell and invoice in China, a WFOE can take advantage of these shifts, and we see growing interest in setting up.
The types of WFOE being registered are shifting too. In the recent past, WFOE was the most popular for manufacturing companies. Nowadays, WFOE is popular in the consulting and management sectors, as well as industries such as high tech and software development.
There are several types of WFOEs in China.
In terms of organization, there are companies with limited liability, corporations, partnerships, or proprietorships.
When it comes to business scopes, WFOEs in China spans a wide range of industries, including consulting, manufacturing, trade, etc. FICE (foreign-invested commercial enterprise) is also known as trading WFOE.
Now, let’s take a closer look at the WFOEs in China by industry.
Consulting WFOE is the basic one of the three main types.
It is the easiest type to set up, for it needs less equipment and consumer goods. And the application does not require as much as the other types.
However, its source of profit is limited.
A consulting WFOE can only earn profits from the service it states. Other business activities are not allowed.
So, you had better figure out your business model first. If the profit of your business mainly comes from your service. A consulting WFOE can fit your needs.
Manufacturing WFOE produces goods in China and then exports the goods to other places.
Usually, multi-national groups will appoint a foreign manager to China. The manager sets up a WFOE in China, builds factories to produce goods, and then exports them to all around the world.
Groups can gain more profits because of the lower cost of labor and lands in China. Besides, the refundable VAT (Value-added tax) helps save the cost. In China, a manufacturing WFOE can get back the VAT for exports with specific categories.
A trading WFOE, the same thing as FICE, makes business by trading.
Many foreigners would like to set up a trading WFOE to do his own business. They buy goods from local Chinese suppliers, then resell the goods in their own countries.
Profits come from the price difference. For China has lower prices for goods and the cost of labor.
A trading WFOE can claim back the VAT too. According to the tax laws of China, exports made in China fall into the refundable category.
If you are good at trade, China will be the best stage for you.
Start your trading wholly foreign own enterprise in China and make more money with your business.
In addition to basic requirements, some industries or regions may have special requirements. You can choose to cooperate with local experts. GEI can be your global partner to help you.
To register a WFOE in China, you just need to prepare for the actual cost of registration.
We suggest foreign investors declare the registered capital of no less than 1 million yuan when registering a WFOE.
A WFOE must offer a valid registered address to the local government.
According to business activities, the registered address can be virtual or real. GEI can help you with it.
If the investor of a WFOE is a company, Chinese regulators require the business scope, credit certificate, etc.
Before establishing a WFOE in China, you need to prepare a lot, such as required documents, the name of the company, etc.
After you get your business license, you still have a lot to do. We can help you maintain compliance and complete those things.
China has 18 types of taxes currently. We’re going to talk about the most common taxes related to WFOEs in China.
The enterprise income tax comes from “business income”. It calculates the pretax profit (PBT) generated in one month/quarter.
According to China’s EIT law, the EIT rate for foreign enterprises can be as high as 25%.
Therefore, EIT = PBT × 15-30% (profit tax rate) × 25% (EIT rate).
The VAT rate in China varies according to the business scope.
A WFOE can deduct VAT if it meets certain conditions.
If you want to transfer profits made in China to foreign countries, you need to pay the withholding tax.
According to the remitting country, the amount of withholding tax can be preferential.
Find more about China tax policy for foreign companies.
Find more about the requirements for WFOEs in China.
The process of setting up a WFOE in China consists of 2 parts. Process for application, and before the operation.
The application is mainly a form-filling process. If you want to save time, GEI would be your great helper.
Before the operation, you need to do things like getting the business license, opening the bank account, etc.
Also read China WFOE formation & its process and registration
The latest Foreign Investment Law has been effective on 1 Jan 2020 in China. In most cases, the tax policy for foreign companies remains the same as the Chinese local companies.
But you still have to pay attention to your business scale and scopes when registering a WFOE. For the scale and scopes influence your tax payment later.
It’s common to see 2 companies doing the same business, but having different tax payments. The reason may be their different business scales and scopes listed on the license.
The tax policy in China has gone through a process in adding, simplifying, and merge.
As a result, there are 18 types of taxes in China now.
And among the various types, there several categories as below
Find more about China tax policy for foreign companies.
There are many reasons why a foreign-invested company might seek to close its China operations. But dissolving and liquidating a WFOE in China can be a very confusing and frustrating process.
We have received many queries recently from clients, asking for advice and assistance. We will now explain the process to be followed when closing a WFOE in China, and highlight some issues to help you achieve a clean exit.
Whatever the reasons for exiting, you should follow the procedures to ensure that there are no side effect for either the company or its management.
You might feel surprised to find that closing a WFOE can be more expensive and time-consuming than opening one. It may take up to two years. Therefore, when considering opening a WFOE in China, you had better prepare an exit strategy and pay attention to the formalities.
Here are the steps involved in liquidating a WFOE and some points to note:
Besides, some companies in particular sectors may have other specialized registrations that will need to be closed off.
Global Eastern Investment can provide specific details on, and assistance with, all aspects of your company set up or closure. Please contact us for further information.
A Sino foreign joint venture refers to a business with 2 parties from different countries as shareholders.
And at least one of them is Chinese, either an individual or a company.
In fact, a Sino foreign joint venture is the name for the joint ventures in China. And that includes equity joint ventures (EJVs) and cooperative joint ventures (CJVs).
Feeling interested to know more about Sino foreign joint ventures?
Also read Sino Foreign Joint Venture in China
A representative office (RO) is an office set up in China by a foreign enterprise to contact Chinese enterprises and customers.
It cannot sign contracts or receive payment, issue invoices. But it can open bank accounts and employ staff, to contact with customers and suppliers.
Before you start your business in China, like opening a WFOE, you can set up a representative office to test the Chinese market. It is easy and quick.
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