Hainan company incorporation can be achieved in several forms. If you choose to establish a wholly foreign owned enterprise (WFOE), there are some considerations should take into account before business setup. In order to expedite the process and decrease the risk of costly errors, investors should carefully analyze each of these factors. Below are the common ones for your reference.
I. Registered Capital
Choosing an appropriate amount to dedicate towards registered capital is an important, but difficult, consideration. If the amount is too little, then the WFOE application may be rejected by officials, and may put the company at risk of insolvency. However, if the amount is too much, then the company risks having idle funds and missing opportunities.
In practice, proposed registered capital contributions will be closely examined by the Ministry of Commerce (MOFCOM) to assess whether the amount is sufficient to support the WFOE’s activities for at least one year after establishment.
II. Business Scope
The business scope is a one-sentence description of a company’s activities within China. While seemingly innocuous, it directly affects the legal operations of a company, and the company’s ability to issue official invoices (fapiao) to clients. Once written and approved, the business scope is printed on the company business license. Crucially, the business scope affects the company’s ability to issue fapiao, which clients need to receive reimbursements and offset value-added tax liabilities. If unable to issue the correct fapiao, companies may find that clients are unable or unwilling to work with them.
III. Tax planning
In consideration of China’s tax structure, WFOEs should pay extra attention to income tax and VAT for tax planning. During the process of setting up a WFOE in China, investors will inevitably incur costs. Determining whether these costs can be deducted from the company’s tax bill is critical, especially for large projects involving factory set-up or machinery purchases.
IV. Intellectual Property Protection
China observes a “first-to-file” policy, meaning that whoever is first to file for intellectual property rights (IPR) obtains those rights. This can pose a problem for foreign companies looking to expand their brand in China, as sometimes the IPR has already been filed by an opportunistic investor. Checking one’s trademark and ensuring that the necessary paperwork is correctly filed with the appropriate Chinese authorities should be one of the first steps towards entering the market.
Tannet provides a full range of services from company setup, to accounting and tax filing, and trademark, patent, copyright registration. By working with us, you will be offered with one-stop business solutions.
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If you have further queries, don’t hesitate to contact Tannet 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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