WFOE Registration in China

China, being the world’s second-largest economy and one of the world’s most attractive emerging markets, has become an international economic hub. Foreign investments have increased in China over the past decades. Among the various forms of foreign investment enterprises (“FIE”) that are commonly utilized when expanding into China, Wholly Foreign Owned Enterprises (“WFOE”) is the most preferred business structure for foreign investors and individuals. A WFOE is a China-based business entity designated for non-Chinese enterprises setting up a company in China. It allows non-Chinese enterprises or nationals to establish a limited liability company in China. 

Our WFOE registration services include: 

What are the benefits of setting up a company as a WFOE in China?

Free Flow of Equity

Foreign investors have 100% control over the equity of their WFOE, and it is allowed that all profits made in China to be repatriated to the parent company as dividends. 

Multi-currency Bank Accounts

In China, many local businesses require invoices to be settled in RMB for “fapiao” purposes. WFOE’s, being recognized by Chinese companies, can open multi-currency bank accounts, settle and issue invoices in RMB.

Great Immigration Supports

There are immigration facilitation pilot schemes in Great Bay Area to attract foreigners with higher education and scientific background. 

Tax Exemption

To support the talent development of corporations in the GBA, the Ministry of Finance and State Administration of Taxation have granted individual tax exemption for overseas workers in the GBA. 

What is the process for WFOE registration?

Very briefly, the WFOE formation process is as follows:

1. Company Name search and Approval
2. Obtain Registered Office Address
3. Apply for Business License
4. Obtain a full set of Company Chops (A WFOE will be able to operate the business normally upon obtainment of Company Seals)
5. Open Company bank account

The above steps are the absolute minimum steps required to set up a WFOE. Upon obtaining your company chops and opening a company bank account, your WFOE will be able to operate normally. However, to the extent that a WFOE engages in industries that require a license, you may need to obtain further licenses and register with the relevant authorities.

Please refer to our blog for the complete guide on the WFOE registration process!

What are the challenges one might face when registering a business in China?

Miscalculation of the time required 

The application time for Chinese business formation can vary. Factors such as the ability of an applicant to gather the necessary documentation and the approval speed of Chinese authorities impact the incorporation process. It is recommended that applicants apportion adequate time to complete the necessary procedures and adjust their timeline. 

Failure to correctly define the business scope 

There are 3 forms of WFOE. Consulting WFOE is the easiest to establish. Manufacturing WFOE allows companies to manufacture in China, and trading WFOE can allow import and export between China and other countries. 

WFOEs who have successfully obtained a business license is only allowed to conduct business operations as defined in their submitted business scope. As such, applicants should consider during the incorporation phase what short and long-term business operations their WFOE will conduct.

WFOE Registration Requirements

The WFOE China company formation is simple with clearly defined requirements. 

• Three main roles must be filed within the company, legal representative, supervisor, and director. 
• A legitimate company name must be chosen. 
• A registered address must be utilized for registration purposes. Documentation demonstrating that a registered office address is required. Utilize a virtual office as a registered address during WFOE registration is prohibited. 
• It is recommended to inject sufficient capital for a WFOE to conduct its business operations. 

Annual Maintenance of a WFOE

• WFOE’s must undergo annual audits to ensure they meet official Chinese financial and accounting standards
• An annual inspection must be performed for all enterprises registered in China, failure to complete an annual inspection would affect a company’s qualification for a business license
• Monthly and annual tax filings

FAQs

1. How long does it take to set up a WFOE?

As the registration process can be lengthy and subject to approval from various Chinese Government authorities. To set up a WFOE in China, the process can take approximately 6-8 weeks to complete if all the required documents are in order. 

2. What are the advantages of setting up a Hong Kong company in conjunction with my WFOE?

China Company Laws have a reputation of being complicated and rigid. As such, foreign investors will commonly utilize a Hong Kong holding company between their ultimate holding company in their home country and their WFOE in China.

One such benefit of utilizing a Hong Kong holding company is that the profit repatriation process becomes more economical. Companies who are operating in multiple jurisdictions can utilize the various double taxation treaties concluded by Hong Kong and its various co-signatories to minimize potential tax liabilities commonly incurred during the repatriation of profits.

In addition, Hong Kong offers a good option to exit from your investment in a Chinese WFOE. As all equity transfers of companies in China require approval from the Chinese authorities, the process can be considered comparatively inefficient. Aspects of the equity transfer such as the price, condition, and timeline of the payment can be challenged. In comparison, Hong Kong companies are not required to obtain approval for the transfer of shares.

3. What is a China company chop?

In China, company chops are used to legally authorize documents and are used in lieu of signatures. Company chops are necessary for doing business in China, especially when signing legal documents such as when opening a bank account. Company chop has legal authority over the signature of a WFOE’s legal representative and has the power to validate documents and contracts regardless of who uses them.

WFOE’s can expect to utilize a variety of chops as follows:

• Company chops: official chop of the company and functions as the business’ official signature
• Finance chop: utilized for finance-related transactions such as issuing checks or authenticating financial documents
• Customs chop: used exclusively for customs declarations on the importation and exportation of goods
• Legal Representative chop: a WFOE’s legal representative will carry their own chop when performing their duties
• Contract chop: a chop utilized when signing and executing agreements
• Electronic chop: a digital form of another chop that is utilized with online transactions
• Fapiao chop: mandatory chop utilized when issuing official invoices and tax receipts

4. What else do I need to consider?

During the WFOE registration process, careful consideration should be made to your business scope. The Chinese government maintains the right to prohibit or restrict a WFOE’s business activities if its business scope is deemed to not align with Chinese laws and regulations. To avoid any unnecessary complications upon commencement of your business operations, take time to ensure that your business scope aligns with the long-term goals of your WFOE.