China company formation requirements on WFOE (wholly foreign owned enterprise) is different from that of representative office (RO) or joint venture (JV). WFOE is a common investment vehicle for mainland China-based business wherein foreign parties can incorporate a foreign-owned limited liability company. Now, Chinese government provides foreign businesses more control over their operations and revenue. Before starting the registration procedure and gathering required documents, you should consider all the aspects that may affect the success of your newly formed WFOE.
I. Company Name
Conduct market research, before naming your company. Your company’s name should be a reflection of your product/services or values., and avoid these common naming mistakes to protect your business from a legal action.
1. The company name shouldn’t mislead consumer or hamper fair competition practices.
2. The company name must no go against the social ethics, religion, national unity or culture.
3. Special character, signs or symbols must not be included in your company name.
4. Words like “Chinese”, “China”, “National”, “International” or “State” must not be used. The government allows the use of these words under special circumstances.
II. Registered Capital
Chinese government requires foreign investors to show a certain amount of registered capital in order to incorporate as a WFOE in China. The registered capital is the safety net that safeguards the interest of suppliers, employees, and consumers, in situation where a WFOE is unable to survive in the market. However, there are no strict rules regarding the minimum requirement of registered capital, its recommended that sufficient amount to sustain the first year of your WFOE, after establishment, should be kept in the company account.
Keep in mind, if your register with less capital and later transfer funds from your overseas parent company, these funds will be treated as income and taxed accordingly. Increasing the amount of registered capital requires re-registration, which can be a time consuming process.
III. Scope of Business
You need to be very particular about the business scope you set for your WFOE. The business scope defines the commercial activity your business will partake, the number of human capital and resources it will utilize and the potential target audience. Changing the business scope, after it has been signed, approved, and officially printed on your business license is a long ordeal, which requires further paperwork and list of approvals.
IV. Office Location
As the name of your company indicates the location of incorporation, you need to lease an office facility or warehouse beforehand. Your office location must be rented for a period of 12 months prior to submitting the registration application. It’s very difficult to change the location or name of your company, therefore be very particular about the leasing contract.
V. Taxes of WFOE in China
Here is a list of taxes that are applied to all WFOE, therefore run your business operations accordingly.
- Consumption tax:1% to 56% of sales revenue of goods. Export is exempted;
- Corporate tax: 15% to 25% (tax might differ according to your location);
- Income tax: rates up to 35% of business profits;
- Land appreciation tax: 30% to 60% of gains on transfer;
- Personal taxes :( wages/salaries) 3% to 45%;
- Resources tax: 1% to 20% depending on material;
- Stamp duty tax: 1%.
The registration process for WFOE can be overwhelming and confusing for foreign investors. Therefore, it is recommended to find a professional agency for assistance. Tannet has branch offices in Beijing, Shanghai, Guangzhou, Shenzhen, Dongguan, Yiwu, Nanchang, Xiamen, Quanzhou, Chengdu, Hainan, Xinjiang Horgos and Hong Kong. In addition to WFOE, we can also help establish a joint venture or representative. Besides, we offer premium accounting and company management services as well.
Contact Us
If you have further inquires, please do not hesitate to contact Tannet at anytime, anywhere by simply visiting Tannet’s website english.tannet-group.com, or calling Hong Kong hotline at 852-27826888 or China hotline at 86-755-82143422, or emailing to tannet-solution@hotmail.com. You are also welcome to visit our office situated in 16/F, Taiyangdao Bldg 2020, Dongmen Rd South, Luohu, Shenzhen, China.
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