Wholly Foreign Owned Enterprise (WFOE)

Return to Corporate Formation Wholly Foreign Owned Enterprise (WFOE) limits liability to the foreign legal company or foreign individual. Citizens of Hong Kong, Macau, and Taiwan are considered foreigners when registering a company in Mainland China. Local Chinese partners, however, are not allowed to join as shareholders in a WFOE.

A WFOE may conduct business only within the scope of business approved by the government which is written on the business license. Because registering a WFOE normally takes between 5 to 6 months, it is extremely important to determine the precise business scope to avoid re-applications.

There are four main categories for WFOEs:
  • Manufacturing (manufacturing, assembly, processing, etc.)
  • Technology (development of high-tech products)
  • Service (consulting services, restaurant…, etc.)
  • Foreign Invested Corporate Enterprise (FICE) (trading, wholesale, retail, franchising, etc.)
Note: A FICE is unique in that a FICE has import and export rights within its business scope.

Advantages
  • Flexibility to make decision about management and strategy without legally bound to consider local partners.
  • Allowed to conduct business in Mainland China (≠RO), invoice in both RMB and foreign currencies, and transfer RMB to the overseas parent company and convert to any currency.
  • Increased protection of Intellectual property, in accordance with international law.
  • Authority over human resources (≠JV).
  • No restriction on the minimum number of years of establishment for the overseas parent company (≠RO)
  • Legal responsibility limited to original investment
Disadvantages
  • Limited access to industry activities.
  • Minimum government support
Note: Foreign investors that are prevented from directly submitting an incorporation application must retain a PRC entity authorized to do so by the relevant authorities.

WFOE/ FICE CHARACTERISTICS




Legal StatusForeign Company
Company NameIn Chinese
Language of Administrative DocumentsChinese
Business ActivitiesImport/Export, Services, Business, Retail, Manufacturing, Franchising, Distribution, etc...
Required Translation of All Documents to MandarinYes
Minimum CapitalRMB 150,000 (Varies depending on industry and location)
Appointed Monitor for the CompanyYes
Appointed Monitor must be a ForeignerNo
MaintenanceMonthly, Quarterly, Annually
Legal representative Must be a ShareholderNo (can be a non-shareholder or non-director)
Owners Must Reside On-siteNo
Need Office RegistrationYes
Permission to Invoice Directly in ChinaYes
Fees and Taxes25%
Option to Open Bank AccountYes
Allowed Bank Account CurrenciesRMB, USD, EUR
Option to Repatriate FundsYes
Possibility of EvolutionNo
Business License Procurement Period2 months
Full Registration Period5 to 6 months

FOUR MAIN STEPS TO REGISTER A WFOE/FICE LICENSE

  • Choose a Chinese name for the WFOE (Pre-register a name)
  • Decide on locations (Office, Store, Factory, Etc..)
  • Preparation and submission of corporate documents
  • Post-license registration

WFOE/FICE FLOW CHART

Documents Preparation
Pre-registration of company name at Beijing Administration of Industry and Commerce (“Beijing AIC”)
Approval Certificate (MOFCOM or local MOFCOM)
Company registration at Beijing AIC
6 month temporary business
license
                      
              
Beijing Public Security Bureau
              
Beijing Technical Supervision
Bureau
                                                                  
                            
State Tax Bureau
              
Local Tax Bureau
              
Statistic Registration
State Administration of Foreign Exchange
Local Bank
Company Registered Capital
Verification of registered capital contribution
by local CPA firm
Official business license from
Beijing AIC
Beijing customs registration
Financial Registration


Note: Registering a FICE, Manufacturing, and Service company differs according to the laws and regulations in China, so exact processing may vary case-by-case.

REQUIRED DOCUMENTS

  • Copy of Investor’s Certificate of Incorporation
  • Bank credit statement
  • Rental agreement and certificate of property of the leaser
  • CVs and copies of passports or residential cards of legal representatives, board members, and General Manager
  • Client references and signatures
  • Feasibility study report
  • Article of association
  • Application letters establishing the WFOE
  • Appointment letter of Board Members
  • List of names of the Board
  • Commitment letter
  • Other application forms
Note: The above documents required are prepared on the basis of legal requirements and past experience, and the actual documents required may vary case-by-case.

TOTAL INVESTMENT VS. REGISTERED CAPITAL




Total Investment Registered Capital Debt Financing
Less than 3M USD 70% 30%
3 to 10M USD 50% 50%
10 to 30M USD 40% 60%
Greater than 30M USD 33.33% 66.67%
Note: You can easily see that the more investment you make, the more debt financing you are eligible for. However, it is very important to consider your initial expenditure (office rental, renovation payments, employee apartment rentals, etc.). These are expenses you incur before you can inject registered capital into your WFOE.

MAIN TAX REGIMEN




  FEIT VAT BT IIT
Manufacturing WFOE YES YES   YES
Service WFOE YES   YES YES
FICE YES YES   YES
Note: Depending on where you set up your WFOE/FICE (Beijing, Shanghai, or elsewhere in China), taxation will vary.

TAX RATE AND INCENTIVES




TAX RATE AND INCENTIVES FILING
FEIT (Foreign Enterprise Income Tax)
  • National Rate: 25%
  • Municipality Rate (Beijing, Shanghai, and coastal cities): 24%
  • State Level Economic and Development Zones Rate: 15%
Merged to 25% in 2008

Quarterly
VAT (Value Added Tax)
17%

 Monthly
BT (Business Tax)
3% - 20%

 Monthly
IIT (Individual Income Tax)
0% - 20%

 Monthly
Note: Since Jan 2008, China’s new corporate tax rate ranges from 15% to 25%, depending on the location of your company and the industry your company is engaged in. Please refer to the latest corporate income tax law of China (PDF: Corporate Income Tax Law of China). In addition to monthly and quarterly taxes, all companies must submit an annual audit report on time to the correct authorities. Any failure to do so will be subject to fines.

TAX EXEMPTION AND INCENTIVES


High-Tech WFOE
                                         
2 years FEIT exemption +
3 years at a 50% discount

Manufactoring WFOE
                                         
3 years FEIT exemption +
3 years at a 50% discount

Note: Only relevant for technology and manufacturing WFOEs. Depending on the size of the project, the tax bureau and other authorities will be willing to negotiate any additional preferential treatment if estimate is required.

PROFITS REPATRIATION PROFITS MAXIMIZATION

The Official Process

WFOE profits
File tax return

Audit

Safe

Bank

PROFIT TAX RATE
  • 25% national tax rate
  • 15% FTZ and Special Economic Zones (SEZ)
Unofficial Process



WFOE
Charge Services

Profit Repatriation
Overseas company

TAX RATE
  • Withholding Tax
  • Royalties

Official issuing period for handling formalities

Depending on which type of WFOE and any special request you might have, the business license should be delivered within 2 months and the total registration process should not take more than 5 to 6 months.

Return to Corporate Formation   

FAQ

Q: Why create a Hong Kong parent company for a WFOE/FICE or JV?

Beijing Retail FAQ


A: Companies are searching for the most efficient solution to optimize a global operation. The majority of companies with a WFOE, FICE, or JV in China will choose to set up an offshore company...

Learn more

Q: What is the minimum amount of registered capital allowed to set up a parent company?

Beijing Retail FAQ


A: The minimum amount of registered capital depends on the business. For example, for wholesale businesses, the minimum registered capital is CNY 500,000...

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Q: Who can act as the legal representative of a WFOE or JV in China?

Beijing Retail FAQ


A: Normally the main investor will act as the corporate representative for the foreign company in China. However, it is possible to appoint another person...

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Q: What are the conditions for the office location of a representative office?

Beijing Retail FAQ


A: Normally, a RO must be registered in a Grade A (high end) office building or in a Public Security Bureau authorized or designated building...

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