As mentioned in our article ‘FastLane is delighted to announce the opening of our new office located in Shenzhen China!’, the FastLane Group has successfully expanded our business presence into Mainland China. As the Greater Bay Area holds great potential for businesses, we are keen to help our clients take advantage of the growing opportunities in this region. In this article, we will discuss how to expand into China through setting up a WFOE and what you have to consider before incorporations.
1. What is a WFOE?
Wholly Foreign Owned Enterprises (“WFOE”) is a private, limited liability company in China comprised solely of foreign shareholders. It is the most favoured investment vehicle for non-Chinese enterprises as it provides complete autonomy and control to the foreign parent company.
Pursuant to Chinese corporate laws, WFOE’s are the China-based business entity designated for non-Chinese enterprises to establish their limited liability company in China. Although there are multiple company structures available to non-Chinese enterprises, including
- Consulting WFOE —— Simplist to esatblish
- Manufacturing WFOE —— Grant companies the opportunity to manufacture their products in China
- Trading WFOE or a Foreign-Invested Commercial Enterprise (FICE) —— Gives businesses the ability to import and export goods, as well as trade within China
2. What is the incorporation process of a WFOE in China?
Before setting up a China WFOE, there are several steps that must be taken to ensure the process is done correctly.
Incorporation Process before Obtaining License
Obtain Registered Office Address
Apply for Business License
Step 1: Company Name Approval
The first step of your WFOE registration is to decide on an appropriate name. When choosing an acceptable name, there are certain regulations that must be strictly followed. China maintains legislation that dictates certain requirements for a company name that must be adhered to.
Company names must incorporate the following:
- Administrative region name of the company’s incorporation
- Brand name
- Industry or business the company is operating in
- The company name must include “Company Limited”
Chinese legislation outlines certain restrictions in respect of what is not allowed in a Company name or what may require special approval from government authorities. Generally, names that may mislead consumers or hinder fair competition, damage or challenge Chinese national unity, policies, social ethics, culture or religion are not allowed.
In addition, special characters are not permitted and certain words that can imply business operations in certain industries (e.g., banks or insurance companies) require special approval. Lastly, words such as ‘China’, ‘National’, ‘State’ or ‘International” also require special approval.
Step 2: Obtain Registered Office Address in China
After you choose your business’s name, the next step is to gather all necessary documents for registering it officially. This includes a rental contract for an office space or building, Feasibility Study Report (FSR), and bank reference letter. Applicants must provide documentation stating that it has a registered office address in which the business will operate. Applicants should submit a document showing this registered address in the form of a copy of the lease contract or a property deed.
It should be noted that under current Chinese laws and regulations, it is prohibited to apply for incorporation when utilizing a virtual office as a registered office address.
Step 3: Apply for Business License for your WFOE
Upon receiving approval for a WFOE name and obtainment of a registered office address, your have to present the necessary documents and apply for a business license from your local government agencies such as the Ministry of Commerce (MOFCOM) and Administration for Industry and Commerce (AIC). With these two entities, you can easily secure all permits needed in order to begin operations with no hassle.
To prepare for document submission, it is important that applicants compile the following documentation:
- Documentation evidencing that their company name has been approved
- Proof a registered office address
- Business scope (the incorporated WFOE will only be able to conduct business activities the outlined business scope)
- Identity documents of the shareholders
- Proof of registered capital to be injected
Incorporation Process after Obtaining License
Step 4: Register For Taxation
After acquiring your business license, you must then move on to registering with the State and Local Tax Bureau in order to begin paying taxes. If you’re registering in China, you must submit several documents and a company stamp. This is necessary because official Chinese paperwork is only valid after it’s stamped. It serves the same purpose as our signatures do elsewhere around the world.
It is noteworthy that since the start of the COVID-19 pandemic, many governments have implemented tax relief policies to ease the operational burden on businesses, particularly WFOEs.
Step 5: Fulfill your Regulatory Requirements
Lastly, before you can fully launch your company, it is essential to register with the appropriate governing bodies. In order to officially launch a company, it is essential to register with 12 distinct agencies. Four governing bodies, including the Technology Supervision Bureau, State Administration and Foreign Exchange Office, Financial Bureau and Statistical Agency, oversee this process.
Step 6: Open your Bank Account
After all of the paperwork is finalized, the last action necessary to complete your WFOE is to open a Chinese bank account. Additionally, for verification and contribution purposes, it’s essential that you create a foreign currency bank account as well.
3. Other Considerations
1. Location of WFOE incorporation in China
The location you incorporate your WFOE in will have considerable effects on your business operations. Different geographic regions in China may possess varying subsidies and initiatives to support start-ups and SME’s. In addition, these geographic regions within China may even offer different consumer markets for certain industries. To ensure applicants can take full advantage of these subsidies and incentives, it is recommended to take time to research which geographic region is most suitable to your firm and your business intentions.
2. Define the type of business operations of your WFOE
When drafting your WFOE’s business scope, careful attention should be given to defining what business operations your WFOE will perform. The Chinese government maintains the right to prohibit or restrict your business activities if your business scope does not align with Chinese laws and regulations. To avoid any unnecessary complications upon the commencement of your business operations, make sure that your business scope aligns with the long-term goals of your company.
3. Amount of registered capital for your WFOE
Although there are no rules dictating the minimum amount of registered capital for a WFOE, it is recommended that the initial investment be sufficient to support the WFOE’s proposed business activities. A sufficient initial investment should allow the WFOE to operate in China for at least one year, without the risk of its insolvency for its operations.
Do you have additional questions regarding how to incorporate a WFOE in China? Are you interested in learning about the various benefits to incorporating a WFOE?
At FastLane, we are proud to have a team of specialists with extensive knowledge about WFOE formation. Our experts will help you understand and handle all the bureaucratic procedures involved, from preparing application documents to VAT register, so your setup process is free from any worrying moments! If you have any queries about the process, or how we can help, book an appointment with one of our specialists for free and get all your questions answered!