China Wholly Foreign Owned Enterprises.
Below a summary of the procedures for establishing a Wholly Foreign Owned Enterprise (WFOE, Limited Liability Company), for the purpose of trading business involved in imports and exports in China, the documentation required, the estimated time frame and costs associated with such establishment for your consideration.
Features of Wholly Foreign Owned Enterprises
- Type of Company
Commonly used by foreign investors Limited Liability Company (LLC), a Company type generally referred to as a Wholly Foreign Owned Enterprise (WFOE).
The Wholly Foreign Owned Enterprise (WFOE) is a limited liability company wholly owned by the foreign investor(s). In China, WFOEs were originally conceived for encouraged manufacturing activities that were either export orientated or introduced advanced technology. However, with China’s entry into the WTO, these conditions were gradually abolished and the WFOE is increasingly being used for service providers such as a variety of consulting and management services, software development and trading as well.
- Restrictions on Trading
Wholly Foreign Owned Enterprises could only engage in those business activities (Scope of Business) stated in the Articles of Association and Business License.
One of the most important issues covered in the project documentation is the business scope of the WFOE. Business scope is narrowly defined for all businesses in China and the WFOE can only conduct business within its approved business scope, which ultimately appears on the business license. Any amendments to the business scope require further application and approval. Inevitably, there is a negotiation with the approval authorities to approve as broad a business scope as is permitted.
- Name Approval Required
Pre-approval is required for use of a name. It is possible to reserve a name of a proposed WFOE by as long as six months. It is essential to check that there is no similar or identical name on the register, which would prevent the company being incorporated.
- Authorised and Paid-up Share Capital (Registered Capital)
Based on the new Company Law, there is no minimum capital requirement for company incorporation and the paid-up capital registration system has been replaced by a subscribed capital registration system. In spite of this, you are still advised to set the registered capital as no less than RMB500, 000 or its equivalents for easy approval and for covering the daily operation costs of the WFOE before it earns profit.
A minimum of one shareholder/member is required whose details are filed on the local Administration for Industry and Commerce. Corporate shareholders are permitted. The shareholders can be of any nationality except Chinese and meetings can take place anywhere.
- Director/Board of Directors
A wholly Foreign Owned Enterprise requires a minimum of one director and full details of these must be filed with the Administration for Industry and Commerce. The sole director is the executive director or managing director. The director can be of any nationality and be resident anywhere. Corporate director is not allowed. There is no requirement for board meetings to be held within China and directors may be resident anywhere.
If the investor decides to set up a board of directors for their WFOE, then the minimum number of directors is 3 and the maximum is 13.
- Legal Representative
A WFOE is required to appoint a Legal Representative and full details of that person must be filed with the local Administration for Industry and Commerce. The Legal Representative could be of any nationality and does not have to be a resident in China.
- Supervisor/Board of Supervisors
A WFOE is required by the Company Law to appoint at least one Supervisor. The supervisor can be of any nationality and be resident anywhere.
- Registered Office/Business Address
A company must maintain a business address in China where the correspondence from Chinese Government can be served and business is carried out. The Chinese government has very stringent rules as to the business address. In accordance with relevant regulations, the office of the WFOE must be located in a commercial building and that the lease term of the office must be at least for a term of 12 months.
- Tax Filings
A WFOE is required to update its books on a regular basis, file value-added tax report on a monthly basis, file individual income tax report for its employees on a monthly basis, file Corporate Income Tax Report on a quarterly basis and file annual corporate income tax report after the accounting year end.
- Annual Reporting
A WFOE is required to prepare audited accounts under the company laws. Also, a copy of the audited financial statements is to be furnished with tax authority for tax report purpose. The audited financial statements are not available to the public or to the foreign authorities except those of a listed company. We can provide complete supporting services after incorporation, such as book-keeping, auditing and tax filings for both the WFOE and its employees.
China Wholly Foreign Owned Enterprises. Procedures for Establishing a WFOE in China.
- Lease of Office Space
Firstly, the investor will have to enter into a tenancy agreement in relation to the office space to be used by the WFOE for a term of not less than 12 months. The office must be located in a commercial building. If the office is located in residential building, special approval from the residents’ committee is required.
- Legalisation of Identity Documents of Shareholder/Member
The investor is also required to arrange to have the identity documents of the shareholder legalised by the Chinese Embassy in the country where the shareholder/member is registered/resided. If the shareholder/member is a corporation, the identity documents required to be legalised are its incorporation documents. In the case the shareholder/member is an individual, the identity document required to be legalised is his passport (foreigner or identity card and home return permit for Hong Kong resident).
- Bank Reference Letter
Also, the investor needs to arrange with its banker to issue a bank reference letter. The bank reference letter is one of the documents to be submitted for the purpose of registration.
- Other Documentation
The investor at the same time needs to prepare other documents, such as photocopy of passports/Hong Kong Identity card/Home Returning Card of the directors, supervisor, legal Representative and General Manager.
Application for Registration of WFOE
Name Search and Reservation
- Name Availability Search
The registration process of a WFOE starts with name availability search. We suggest that you create 3 to 4 names (in Chinese) in case that the preferred one is gone. We will then perform a name availability search with the local industry and commerce administration bureau and confirm with you their availability.
- Reservation of the WFOE Company Name
If the search indicates that the preferred company names are available for registration, we then apply for and on your behalf for the reservation of the preferred name with the local Administrative Bureau for Industry and Commerce (“AIC”). This is called “Name Pre-registration” in China.
- The name of the WFOE should follow the format:
- Administration Region + Business Name+ Industry+ Limited or
- Business Name + Industry + (Administration Region) + Limited or
- Business Name + (Administration Region) + Industry + Limited
- For example:
- Beijing ABC Trading Limited
- ABC Trading (Beijing) Limited
- ABC (Beijing) Trading Limited
China Wholly Foreign Owned Enterprises – Examination and Approval
The following documents should also be submitted to the local Approval Authority:
- Written application for the establishment of the WFOE;
- Feasibility Study Report. Based on our experience, this is generally a 6-10 page document;
- Articles of Association of the proposed WFOE;
- A list of the proposed chairperson and the members of the WFOE board of directors and appointment letters;
- The incorporation document of the WFOE investor;
- Bank reference letter of the WFOE investor issued within 3 months;
- Lease agreement for the premises and property certificate signed by the owner of the real estate;
- The name approval notice issued by the relevant AIC;
- The latest Audit report of the corporate investor if it has been incorporated for more than one year;
- A list of goods/products to be imported in or exported out of China;
- Such other documents as may be required by the Approval Authority.
As for the timing of approval, the Approval Authorities are required to make its decision within 20 working days from receipt of all the documentation. Based on our experience, this procedure will take about 10-15 working days in practice.
Registration for Business License
Within 30 days after obtaining the Approval Certificate, the foreign investor will need to register and apply for Business Licence for the WFOE from the local AIC. The AIC will usually issue the Business Licence within 5 days after receiving all the required documentation.
Once the business license is issued, the WFOE is deemed to be a legal person duly organised and existing under PRC law and will have full operational rights to operate a business in China within the scope of its Business Licence.
China Wholly Foreign Owned Enterprises – Registrations with Other Government Authorities.
Once after the WFOE is officially registered, it also needs to apply for various certificates from or apply for registration with the following government departments:
- Carving WFOE Stamps (WFOE Seals);
- Application of “Enterprise Code Certificate”;
- Registration with the State Tax Bureau;
- Registration with Local Tax Bureau;
- Registration with Administration of Foreign Exchange;
- Opening bank accounts;
- Registration with the Statistic Bureau.
China Wholly Foreign Owned Enterprises – Post Registration
Based on the new Company Law, there is no minimum capital requirement for company incorporation and the paid-up capital registration system has been replaced by a subscribed capital registration system. In spite of this, the shareholder shall still arrange the capital contribution as per the company’s Articles of Association.
Accordingly, capital verification is inevitable. We could assist for capital verification and our detailed services are as follows:
- Foreign Income Report with Bank of WFOE;
- Application for issuing the Bank Confirmation Letter
- Arrange capital verification and issue Capital Verification Report
- Report with Municipal Commerce Bureau
- Arrange corporate information publication with Administration for Industry and Commerce
China Wholly Foreign Owned Enterprises – Foreign Trade Operator Registration
In accordance with Chinese laws and regulations, a WFOE is required to complete Foreign Trade Operator Registration before it is qualified to conduct imports and exports business activities. We could assist for Foreign Trade Operator Registration application and our detailed services are as follows:
- Application of “Registration of foreign trade operator”
- Application of “Import and Export Goods Customs Registration Certificate”
- Application of “Self-Inspection Unit Registration Certificate”
- Application of E-Port IC Card
- Record of Foreign Exchange Payment Unit
Application for General Taxpayer Qualification
A WFOE will be classified as a VAT small scale taxpayer when it is incorporated. If you want to be treated as a VAT general taxpayer, then you shall apply for general taxpayer qualification. The WFOE is not allowed to issue 17% VAT invoice, apply for VAT refund on export goods and deduct Input VAT until it obtains VAT general taxpayer qualification.
China Wholly Foreign Owned Enterprises – Estimated Time Frame
It is estimated that the registration process (excluding post registration procedures as listed in Section 3.3) would take around three months. For the post registration procedures, it will take around another two months. The table below shows the estimated time frame for each of the steps.
China Wholly Foreign Owned Enterprises – Required Documents and Materials
The following documents and materials needed to be prepared by the applicant before submitting an application for registration:
- (a) Two sets of original legalised identity or incorporation evidence for the investor (i.e. passport for individual foreign investor and Certificate of Incorporation and/or Registration Certificate for corporate foreign investor, and board resolution on the appointment of the legal representative who will sign relating documents on behalf of the investor); the investor’s identity or incorporation document shall be legalised by the Chinese Embassy or Consulate in the country where the investor is resided or registered;
- One set of original Tenancy Agreement and Leasing Certificate of the office premise to be used by the proposed WFOE. Two photocopies of the property ownership certificate of the office with the signature and/or seal of the owner;
- One credit standing certificate (a banker’s reference letter) of the WFOE investor issued within 6 months, which shall indicate the name, account number and credit standing of the investor and the balance of the account (the deposit shall equal to or higher than the registered capital of the WFOE);
- The latest audited finance statements of the corporate investor provided that it has been set up for more than 1 year;
- A list of goods/products to be imported into or exported out of China;
- Photocopies of passport of director(s), supervisor(s) and legal representative of the proposed WFOE;
- Original passport of the proposed legal representative;
- Other materials required by the registration authorities.
- The name, address and/or place of registration/residence of the investor;
- The name, nationality and position of the legal representative (or the name and nationality of the managing director) of the investor;
- The proposed name of the China Wholly Foreign Owned Enterprises. Please provide the proposed name and 2-3 alternatives (the company name must be in Chinese);
- A summary of the proposed scope of the business, the scale of business;
- The total amount of investment in the WFOE, including: the registered capital, method and time limit of contribution of capital;
- The form of organisation, management structure (including the directors, general manager and supervisors) and legal representative of the WFOE; the photocopies of the identity certification (i.e. passport for foreigners) of the directors, general manager, supervisors and legal representative; the resident address and Tel. No. of the proposed legal representative;
- The establishment and staffing of the structure;
- The proposed term of operation for the WFOE. The standard term is generally 15-30 years;
- The name and address of your favorite bank to be used by the WFOE. Please be noted that the original passport / ID Card and/or Home Returning Card of the legal representative of the WFOE shall be presented to the bank for verification purpose;
- Other information required for drafting feasibility study report.
China Wholly Foreign Owned Enterprises – Certificates and Materials obtained after Registration
After the China Wholly Foreign Owned Enterprises is officially registered, it will obtain the following certificates, corporate documents and seals to prove its legal existence and to carry out its daily operation.
- Certificate of Approval (Original, Duplicate)
- Business Licence (Original, Duplicate)
- Enterprise Code Registration Certificate (Original, Duplicate, IC Card)
- Taxation Registration Certificate (Original & Duplicate)
- Statistic Registration Certificate (Original & Duplicate)
- Foreign Exchange Business Registration Voucher
- Articles of Association
- Company Seal, Financial Seal, Legal Representative Seal (optional)
- Registration Form/Book
- Registration of foreign trade operator
- Import and Export Goods Customs Registration Certificate
- Self-Inspection Unit Registration Certificate
- E-Port IC Card
- Other Stuffs
Note: For Item (10) to (13), certificates shall be obtained only if client engages us to apply for the foreign trade operator registration.
China Wholly Foreign Owned Enterprises – Getting Started
Once you come to the conclusion to proceed to registration and decided to engage us, then:
- We will sign an engagement letter with you;
- You start preparing the documents;
- We prepare the registration application forms
- We deliver the registration documents to you for your signatures
- You return the duly signed registration application documents together us the documents;
- We submit the documents to the government departments concerned for application for various certificates and registration.
- Registration completed and official registration certificates delivered to you.