The Wholly Foreign Owned Enterprise, abbreviated WFOE, is a common investment vehicle for mainland China-based business. The unique feature of a WFOE is that involvement of a mainland local Chinese investor is not required, unlike most other investment vehicles.
WFOE are limited-liability corporations organized by foreign investors and capitalized with foreign funds. This can give greater control over the business venture in mainland China and avoid a multitude of problematic issues which can potentially result from dealing with a domestic joint venture partner. Such problems often include profit not being maximized, leakage of the foreign firm's intellectual property and the potential for joint venture(JV) partners to set up in competition against the foreign firm.
WFOE is one of the best known and most widely used business entity forms due to their versatility and unique advantages.
WFOE Advantages
1. The ability to uphold a company's global strategy free from interference by Chinese partners (as may occur in the case of joint ventures), and keep 100% shares owned by the foreign individuals or foreign corporations;
2. Total management control to the company within the limitations of the laws of the PRC
3. The ability to both receive and remit RMB to the parent company or holding company overseas;
4. Increased protection of trademarks and intellectual property, in accordance with international law
5. Shareholder liability limited to original investment;
6. Allow to enter into employment contracts directly with the staffs and issue the invoice or “fapiao”to suppliers or customers easily; If it is compared with the Representative office or branch office;
WFOE Types
1. Consultancy Service WFOE;
2. Manufacture WFOE;
3. Trading WFOE - Wholesale, Retail or Franchise in China;
4. FICE (Foreign-Invested Commercial Enterprise).
WFOE Business Scope
The Business Scope of WFOE is narrowly defined and interpreted for all businesses in China; a WFOE may only legally conduct business within the business scope that appears on its business license.
In the application documents, the business scope is written as a list of business activities that the WFOE will conduct in China, and the first business activity will define the overall nature of the WFOE for classification purposes. Amending the business scope need further application and approval. For some sectors such as education, logistics, medicine and food industries, additional approval license is needed before we enter into normal processes.
Because the scope of business is crucially important in the WFOE business registration application, We always confers with the appropriate officials to ensure that every business activity that is listed on the registration application is an approved business activity and that every business activity is designed as broadly as allowable so that clients can be more flexible in what activities they are allowed to conduct. We will not submit an application until we are assured that the application information follows the pertinent rules and regulations and that it will allow our clients to achieve the maximum benefits of running their businesses in China.
Registered Capital and Total Investment Quota for WFOE
Registered Capital and Total Investment Quota are two important types of capital that the Chinese government officials will check to ensure that both are listed correctly. The amounts for both types of capital will appear on the Approval Certificates;
Registered Capital is the amount of funds that the Chinese government requires of foreign investors to contribute to their projects in China (e.g. WFOE`s). From 2016, The Chinese government can-celled the requirements for the minimum amount of registered capital to start a business. Registered Capital can be paid up within 5-10 years, for some sectors, even 20 years. The Registered Capital can only come from the foreign investors, and must be actually aid into the company bank account then verified by an independent certified accounting agency in China. The amount of registered capital can be increased but official procedures will be required.
Total Investment Quota is the total amount of funds that will be invested in the WFOE during its entire planned period of operation. The Total Investment Quota must be greater than or equal to the Registered Capital.
Unlike Registered Capital, which has to be fully paid into the WFOE`s Chinese bank account before starting business operations, the Total Investment Quota is the total amount of funds planned to be contributed to the project over its lifespan and it does not necessarily have to be fully deposited in the bank.
The excess amount of the Total Investment Quota over the Registered Capital can come from sources other than the foreign investors listed in the Articles of Association of the WFOE; for example, it can be borrowed from banks or other sources either inside China or from overseas. This amount can be increased but any additional amounts of Total Investment Capital must be approved by the relevant Chinese authorities.
Documents required to register a WFOE in China
Since from October 1st of 2016, China Ministry of Commerce carried out a new policy that the “registration system for approval license application” changed into “record system for approval license application”, the required documents for the WFOE registration in China are less than before, the main documents for the registration of WFOE include:
1. Copy of the business license or certificate of incorporation of parent company;
2. The original and copy of identification documents (ID card, passport) of legal representative,
3. Lawyer’s legalization or notarization which should be endorsed by local China Embassy or Consulate;
4. One proposed name (in Chinese), and provide two or more alternative names in case the first name is not available.
5. Detailed information about the business scope and intended registered capital;
6. Detailed information of legal representative, shareholder, director, monitor, manager;
7. The office lease of commercial office between lesser and lessee needed to be endorsed by the Housing Management Authority. The lessee should be acted by shareholders, directors, legal representative, monitors or manager. The area required is for commercial use only with more than one year’s rent.
Tannet’Services for WFOE in China
1. WFOE registration or setup;
2. Tax filing or tax return;
3. Import and export license application;
4. Trademark or brand name registration;
5. WFOE Payroll Service or HR management;
6. Virtual office or apartment rental;
7. WFOE foreign staffs’ working permit and residence visa.
Contact Us
If you have further inquiries, please do not hesitate to contact Tannet at anytime, anywhere by simply visiting Tannet’s website english.tannet-group.com, or calling Shenzhen hotline at 86-755-82143422 or Hong Kong hotline at 852-27826888, or emailing to tannet-solution@hotmail.com. You are also welcome to visit our office situated in16/F, Taiyangdao Bldg 2020,Dongmen Rd South, Luohu , Shenzhen, China.
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