8 STEps to Start a Business in China
What is a China WOFE?
Types of WOFE Categories
What are the Advantages and Disadvantages of Registering a WOFE?
How Does a WOFE Compare to Other Types of Companies?
best option for new companies TO START BUSINESS OPERATIONS IN CHINA
And what to do after deciding to move ahead.
Most of companies nowadays are somehow directly or indirectly connected to China.
One of the many incentives created to boost the Chinese economy is that foreigners are able to enjoy their own special business category designed to attract foreign investment into China: which is called WOFE. Basically, a WOFE or also called WFOE, is a registration category full with benefits made to perfectly fit all types of activities you decide to do in China.
Corporation China’s goal is to make sure your registration process is done securely, correctly and under the right structure for your business.
8 THINGS YOU NEED TO KNOW BEFORE START A BUSINESS IN CHINA AS A WFOE
1. What is a China WOFE?
The most obvious way for foreigners looking to do business in China is to set up a Wholly Foreign Owned Enterprise, abbreviated as WOFE or WOFE.
A Wholly Foreign Owned Enterprise is a limited liability company, also know as LLC, that is fully owned and capitalized by foreign investors and operated without a local Chinese partner. This provides you with greater control over your businesses operations, revenue and profit targets. A WOFE is the favorable option for an both individuals or overseas company that wants to enter the Chinese market.
2. Types of WOFE categories
- Importing and Exporting
- Purchasing Products for Export
- Selling in China Local Market
- Claiming VAT Tax Back
- Coffee Shop or Restaurant
- Food Import & Export
- Wine or Alcohol Import & Export
- China Local Food sales
Advantages of Registering a WOFE
In one hand, the majority of companies coming to China brainstorm on the sales strategy part of the plan of how to explore and conquer such a huge market. But on the other hand, some might overlook the fact that in order to successfully operate the new company, choosing the right structure is crucial to truly achieve a solid expansion. To better help on your decision process, here is a list with some of the key factors that makes a WOFE one the best options in China.
- Independence and freedom to implement the worldwide strategies of its parent company without having to consider the involvement of the Chinese partner; Take control, be the boss
- Ability to formally carry out business rather than just function as a representative office and being able to issue invoices to their customers in RMB and receive revenues in RMB
- Capability of converting RMB profits to US dollars for remittance to its parent company outside of China; Working in China and not being able to enjoy the outcomes of your work out of China? Not what most would want for themselves
- Protection of intellectual know-how and technology in China
- Imagine you start operations in China and suddenly realizes that someone else holds the trademark of “your” brand. Don’t let that happen to you
- For Manufacturing WFOE, no special requirements for Import / Export license for its own products; Always good to save time and efforts
- Full control of human resources, greater efficiency in operations, management and future development.
In addition: no need of minimum registered capital, no need of office rented, and no need to physically come to China to start it.
Here are some of the potential disadvantages:
Setting up a WFOE does not mean that you can engage in any type of business activity, as is the case in some Western countries. In China, WFOEs can only operate within the business scope initially approved by the authorities. Business operations other than those initially authorized are subject to further approval by the relevant authorities. Hence, it is vital to determine what you want to do from the onset.
Setting up a WOFE can take from 2 to 3 months.
4. How Does a WOFE Compare to Other Types of Companies?
Setting up a WFOE in China means independent control of management and the ability to carry out worldwide strategies. In addition, it provides a legal status to protect know-how and technology, full control of human resources, great efficiency in operations, and self-financing…
If your business strategy in China just covers market survey, technology communication, and other indirect business activities, then a Representative Office is a more suitable option in your case. Unlike a WOFE, a RO is not considered to be a separate legal entity from the parent company and thus cannot carry out direct revenue earning business activities. Since it cannot enter into purchase/sales contracts and cannot receive payment for products or services, it cannot generate any income by itself, issue invoices or repatriate money overseas.
Another way to enter the Chinese market is via a Joint Venture (JV). In China, a JV is a form of enterprise created through the partnership between foreign and Chinese investors. The joint venture partners share the profits, losses and management of the JV. If you want to acquire the intangible assets of a JV (such as brand, etc.) and marketing channels, then a Joint Venture in china is also the right choice for your business.
5. WOFE Registration Process
China WOFE Registration Steps
- Company name check
- Company business license application
- Special license application. For example: import/export, liquor, etc…
- Bank account opening
6. Requirements to Register a WOFE in China
First things first. Decide who is going to be the foreign investor and prepare identity documents accordingly.
Second, this is the time when you get choose a name for the Chinese WFOE. It must have a Chinese name and English name.
Third, decide the registered capital amount. As mentioned further on this document, there is no minimum amount for register capital, but its definitely recommended that it matches reasonable proportions according to future operations.
Finally, decide the candidates for supervisor or the board of supervisors, managing director or the board of directors, general manager or manager, and deputy manager
7. WOFE Registered Address
Why use a registered address?
A Registered Address is a good way to register your Chinese Company as you do not need to rent an expensive office .
Can you use my registered address to apply for a work permit visa? Yes , It can be used for Visa
Can I work from my home or another office if I use a registered address? Yes you can. The law states you can work from anywhere or even from a coffee shop.
Its is legally required to have an address to perform a WOFE company registration in China. Luckily there are several companies that can provide this kind fo service. However, no one knows better how this process works as Corporation China does, this is because Corporation China’s board of directors were the responsible team for creating the registered address concept in China. This means you can leave all the work with us and be confident everything will be properly done for your future company.
But if your business plan really requires to have a “real” office, then you can certainly do it by traditional ways. First, you will need to find an office space in China via a different channel, either by real estate agency or the landlord directly.
8. WOFE Registered Capital
The time when China used to require minimum registered capital for WOFEs is gone. Everything in China is now being shaped to promote foreign investment, this means regulations are constantly being changed and improved to enhance the business environment. Since March 1, 2014, the statutory minimum was waived for almost all types of WOFEs. Certain high-profile business scopes still have statutory minimum registered capital amounts. For instance, financial companies must have at least US$10M in registered capital. However, if you fall under a normal consulting company or if your business is import/export related, then you have nothing to worry about.
Nevertheless, is important to mention that after regulations changes in 2014 the new rules eliminated the minimum register capital requirement, but is still highly recommend, also common sense, that you to keep the amount of registered capital close to a realist assessment of the company’s operational proportions.
You will not be required to immediately make a deposit for the full amount of registered capital. The new default is that the registered capital can be paid within 30 years of the business license being issued.
Additional Advise on China Tax System
When we talk about income taxes in China its important to clarify the difference between Corporate Income Tax and Individual Income Tax. The assessment of these two categories is based on profits generate by entities during a given period, and salaries earned by individuals. All individual income taxes in China vary from 5% to 45%, exceeding more than RMB3500 for local staff and RMB 4800 for expatriate staff. The corporate income tax rate is fixed at 25%, based on the net profit.
Turnover taxes include Value-Added Tax and Consumption Tax. VAT percentages are usually 17%, 13%,11% ,6%, 3% and 0, being defined according to the company category and tax payer status.
Not much can be done when it comes to Custom Duties, regulations are pretty clear on this matter. Therefore all goods and articles imported into and exported out of the territory of the People’s Republic of China are entitled for duties.
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Arnnodo is expertise lies in Media, Marketing and Strategy
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