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The Definitive Tutorial for WOFE Company Registration in China

If you have any questions or doubts on how to open a Company in China, this article is exactly what you have been looking for.

Setting up a business involves a sequence of procedures and required documents that are pretty much worldwide standard. In china is no different.

However, as China keeps pace of its unstoppable economic growth supported by several government incentives, foreigners are able to enjoy their own special business category designed to attract foreign investment: which is called WOFE.

But what exactly is a WOFE? A WOFE is what many would get to know even before they first step in Chinese territory. It stands for Wholly Owned Foreign Enterprise and no matter where you decide to register a WOFE, either Shanghai, Guangzhou, Shenzhen, Beijing, or any other city China, it will give you full autonomy to operate and expand your business in China.

Moreover, this article will you help understand:

  • 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?
  • WOFE Registration Process
  • Requirements to Register a WOFE in China
  • WOFE Registered Address
  • WOFE Registered Capital
  • China Tax System for WOFE
  • China Free Trade Zones
  • Overview of Shanghai FTZ

• 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.

  • Types of WOFE categories
    A WOFE is a commonly used investment vehicle for mainland China-based businesses and it can be roughly classified into:

1. China Trading WOFE

Importing and Exporting

Purchasing Products for Export

Selling in China Local Market

Claiming VAT Tax Back

2. China Consulting WOFE / China Service WOFE:

All types of Consulting Services

Overseas Investment Consulting

Issue ” Fapiao” Tax Invoices

3. China Food & Beverage WOFE

Coffee Shop or Restaurant

Food Import & Export

Wine or Alcohol Import & Export

China Local Food sales

4. China Manufacturing WOFE

Set up a Factory

Manufacture products for export

Assemble products

Engineering Factory

  • What are the Advantages and Disadvantages 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.

1. 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.

2. 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;

3. 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.

4. 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.

5. For Manufacturing WFOE, no special requirements for Import / Export license for its own products; Always good to save time and efforts.

6. 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.

  • 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 Officeis 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.

  • WOFE Registration Process

1. Company name check

2. Company business license application

3. Special license application. For example: import/export, liquor, etc…

4. Bank account opening

  • 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.

  • 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 tradicional 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.

  • 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.

  • China Tax System for WOFE

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.

  • China’s Free Trade Zones

Free trade zones (FTZs) are a particular kind of special economic zone (SEZ) created to facilitate the way good are imported, handled, manufactured, and exported by not having direct intervention from Customs policies. They assume an essential part in modernizing China’s business scene and fill in as territories where companies can explore different strategies supported by pro-business regulations.

As of now, there are 11 FTZs in China; seven planned FTZs were announced in August 2016. Each FTZ has an industry focus and matching incentives to attract investment. The decision to invest by making use of FTZs are definitely an essencial part of the business plan for foreign firms, which should be carefully studied and planned according to the investor’s business focus and growth perspectives.

  • Overview of Shanghai FTZ

Introduced in 2013, the Shanghai FTZ was the first in mainland China. It acted as a testing ground for legal innovation, attracting foreign investment with fewer restrictions. The four major goals taken into account during the creation of Shanghai FTZ were the following:

Maintaining and increasing competitive edge;

Transitioning to a more market-friendly regulatory environment;

Internationalizing the RMB;

Testing new strategies for reform with intent to duplicate.

Major incentives provided by FTZs

There are plenty of incentives to invest in an FTZ. Being the most explored: tax; customs clearance; international trading center benefits; and, industry-specific liberalizations.

For more information go to: www.corporationchina.com

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