A WFOE is short for Wholly Foreign-Owned Enterprise. A WFOE is a 100% foreign-owned (individual or corporate) limited liability company able to generate profit, invoice clients, and hire local/foreign employees in China.

Any operating profit made in China can be converted to foreign currency for transfer to an overseas parent company.

Although there is no fixed minimum requirement (since changes in 2016), in practice, most WFOEs will still require capital injection. Local authorities review the planned amount during the application, making it business/tax sense to get the level right from the start. Foreign Company Registration in China has been made easier.

The amount will vary significantly for different types of business – naturally, a small consulting company requires much less than a complex manufacturer. As a guide, sufficient funding is needed to cover the WFOE’s financial obligations before the company is self-supporting (often set as one year). Note that there is much more flexibility than in the past regarding the period over which capital should be injected.

It is essential to set the capital level appropriately during formation. Any additional funding must be taxed as income (further capital injection is possible, but there is a very time-consuming approval process). Set it too high, and funds may be tied up that could be used elsewhere (and these will be hard to release).

Foreign Company Registration in China

A WFOE registration is the most complete and flexible option for opening a company in China. It has many advantages over a Representative Office or a Joint Venture operation. Here are some of the key advantages we see in WFOE formation.

Can be formed without a Chinese partner

A WFOE is independent, able to manage its own operations, funding, and business development. Without a parent, it does not need to share profits, strategies, or Intellectual Property.

Can make profits in China

A WFOE can fully carry out business in China, in line with its agreed business scope. It can issue local currency invoices to domestic customers and make profits from its activities.

Able to send funds overseas

Any operating profit made in China can be converted to foreign currency for transfer to an overseas parent company.

Able to hire staff directly

A WFOE can manage its own human resources (without using an agency), and hire staff both locally and from overseas.

The best option to protect IPR in China

The WFOE structure provides some level of protection under Chinese law.

Yes, even though representative offices are not permitted to generate profit, they are required to submit monthly tax and accounting reports with salaries and expenses.

1. Apply for name approval and registration

The first step in registering a WFOE in China is to choose a company name and get it approved.

The name choice must follow rules set up in Chinese company registration laws. The company name must include the company industry or brand, operating region of the business, and a suffix of “Company Limited.”

The following will be checked during name approval:

• Availability of the requested name. Corporation China has the ability to check out for you.
• Inclusion of restricted words, such as “China”, “State” or “National”
• Inclusion of foreign characters or symbols
• Whether the name is confusing or misleading

Don’t forget the importance of naming strategy and branding. Just as overseas, your company’s name is the first impression of your company. It should clearly reflect the company’s role and image. Consideration should also be made of the characteristics of the Chinese characters. Many words or characters have similar meanings or sounds which can strongly influence the impact of the chosen name (both positively and negatively!)

Note that the name registration can be done early whilst you prepare further, and to aid trademark registration. It is not necessary to immediately submit company filing to MOFCOM after the name is approved. Note also that it is common to submit more than one name for consideration.

2. Registered Address as necessary

Before submission for WFOE incorporation, it is necessary to have a lease for company space in the city of registration. The contract for this needs to be valid for a year from the registration date. It is advisable to include a condition in the leasing contract to cancel the lease in case of registration refusal or difficulties. As with any contract in China, steps should be taken to minimize future problems – such as checking the owner’s details and land rights certificate for the property being leased. Corporation China offers Virtual Addresses that could be used for Company Registration in China.

3. Carry out environmental impact assessment – Only for a manufacturing WFOE

If registering a manufacturing WFOE, an environmental impact assessment will need to be carried out by a registered agency. This is done in order to obtain an approval certificate from the local environmental protection authority.

The procedure and required approval varies with the scale of the manufacturing operation and its potential impact and will include consideration of material used, produced, and disposed of, machinery to be used, as well as any existing plans for environmental protection.

4. Online registration via MOFCOM

The registration process has been significantly simplified in recent years, and now makes use of an online filing submission. This is much faster than the previous methods, but still requires a lot of documentation! It should be noted that there is a somewhat greater burden with online submissions to have all details correct and finalized. The process of “blind submission” does not allow for discussion with authorities during submission.  If rejected, the application will need to be revised and resubmitted.

5. Apply for a “5 in 1” business license from local AIC

Following approval from MOFCOM, the application for a business license with the local Administration of Industry and Commerce (AIC) needs to be made. This is another process that has been greatly simplified and quickened in the past couple of years. An application is now made for a so-called “5 in 1” business license, which covers all the major licenses required for a new company. Previously each of these required separate applications and naturally, this was much more time-consuming.

Again, this is now an electronic submission, accompanied by significant documentation (see the section on documents required). Once submitted the AIC will share documentation with other relevant authorities to issue licenses – a major time improvement!

The 5 licenses issued by the AIC are:

• The business license
• Tax registration certificate
• Organization code certificate
• Social security registration certificate
• Statistical registration certificate

The company now exists and is licensed to do business in China, and the remaining set-up steps can be considered “post-licensing” tasks. We would expect to reach this point in 2-3 months.

6. Carving chops for the new company

To Chinese business newcomers, the importance of chops is often a surprise! Every company requires a set of chops, or seals, to be used as a representation for signing official documents.  These hold the final say, above individual signatures.

Chops can be applied for through the Public Security Bureau (PSB) following company set up. Several additional chops are needed for different business areas (e.g. financial, invoice sealing, and customs if appropriate). Each will have the company name in Chinese and English if required.

7. Opening bank accounts

Once chops are obtained, they can be used to open the WFOE’s Chinese bank accounts. A WFOE should have at least two accounts, preferably with the same institution (Chinese or foreign banking institutions are equally acceptable depending on company preference).

• A local currency RMB standard company account. This can be used for payments and receipts in RMB, as well as for company tax payments and day-to-day operating costs.
• A separate capital contribution account, designated in foreign currency. This is the official account through which capital can be injected from overseas.

8. VAT registration

WFOEs must be registered for VAT payments with the local tax bureau. There are two different categories for VAT registration for all companies – “general” and “small scale” (with low sales volume).  A new WFOE which qualifies for small scale may choose to register under either category.

In general, a lower VAT rate is paid for companies that qualify as small scale, but there are some potential advantages in registration for general status (such as the ability to deduct input VAT). Discussion of the individual situations with a tax expert is advisable here.

9. Customs and import-exit registration – for trading WFOEs only

For trading WFOEs involved in import-export, there are several additional registrations required, which are not automatic under the AIC business license application. These must be made separately following company incorporation and the exact requirements depend on the company operation area, but will likely include the following:

• Import-export license
• Customs registration certificate
• Registration with Entry-Exit Inspection and Quarantine Bureau (for quality inspection)

10. Issue contracts and complete necessary registration for employees

Whilst this is not formally necessary before the company starts trading, it is best at this stage to ensure everything is set up correctly. Formal contracts need to be issued from the new WFOE for all local employees. Also, registration will need to be made for employee tax and social benefits accounts.

Companies may well already have local employees working for them, often through a previous representative office structure or employed on their behalf by a Chinese agency. The new WFOE can now employ them directly.

A WFOE can manage its own human resources (without using an agency), and hire staff both locally and from overseas.

Corporation China can either administer the payroll and taxes on behalf of a Chinese registered company (but the company remains the employer and is legally responsible for employees) or we can combine with our employer of record services and fully manage the recruitment and employment of staff as well as their payroll and tax.