China Taxation Service
Hotline: 86-755-82143348, Email:anitayao@citilinkia.com
The Wholly Foreign Owned Enterprise (WFOE) is a Limited liability company wholly owned by the foreign investor(s). In China, WFOEs were originally conceived for encouraged manufacturing activities that were either export orientated or introduced advanced technology. However, after China's entry into the WTO, these conditions were gradually abolished and the WFOE is increasingly being used for service providers such as a variety of consulting and management services, software development and trading as well. With that, any enterprise in China which is 100% owned by a foreign company or companies can be called as WFOE.
China Wholly Foreign Owned Enterprise (WFOE) Types
Following are different types of WFOE. Commonly,
1. If the WFOE only be allowed to manufacture here. We can say it's manufacturing WFOE.
2. If the WFOE is allowed to do Consulting & Service, we call them Consulting WFOE.
3. If the WFOE is allowed to do Trading, Wholesale, Retail or Franchise in China, we call them Trading WFOE or FICE (Foreign-Invested Commercial Enterprise)
China Wholly Foreign Owned Enterprise (WFOE) Advantages
The advantages of incorporation a WFOE, compared with other types of enterprises, include, but not limited to:
1. Independence and freedom to implement the worldwide strategies of its parent company without having to consider the involvement of the Chinese partner;
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;
4. Protection of intellectual know-how and technology;
5. For Manufacturing WFOE, no special requirements for Import / Export license for its own products;
6. Full control of human resources
7. Greater efficiency in operations, management and future development.
Registered and Paid up Capital of China Wholly Foreign Owned Enterprise (WFOE)
Registered capital is the amount that it's required to run the business until it can break even - the 'registered capital' is a guideline only. If you do looking for a minimum registered capital, for instance RMB 30,000 (which is impossible to establish a WFOE in China) this means you will run out of money pretty soon, which leads to increased costs in reapplying for permission to increase capital, additional licensing fees and renewals of business licenses and so on. The WFOE needs funding via its registered capital until it's about to support itself from its own cash flow.
However the amount of registered capital is dependent upon factors like Scope of Business and Location. In reality local authorities will review the feasibility study report (and check the lease contract) and approve the investment on a case-by-case basis; reduced registered capital could be negotiated in some cases.
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China Wholly Foreign Owned Enterprise (WFOE) Business Scope
In China, Business scope of a business is a "one sentence description" covering all of the present and future activities of the WFOE; it is essential this encompasses every envisaged scope of future activity. The WFOE can only conduct business within its approved business scope, which ultimately appears on the business license.
One of the most important issues in WFOE application is business scope. Any amendments to the business scope require further application and approval. Business scope of a company in China is not as broad and general as in other countries. Generally business scope includes investment consulting, international economic consulting, trade information consulting, marketing and promotion consulting, corporate management consulting, technology consulting, manufacturing, etc.
China Wholly Foreign Owned Enterprise (WFOE) Office Address
Before submit the application forms of forming a WFOE in China, the foreign investor must rent a plant (manufacturing WFOE) or an office in advance, the office of WFOE can't be in a residence building nor residence and commerce (R&C) combined building. Virtual address is not allowed to be registered a WFOE there although it's widely existing for local companies. Anyway, a normal office building in China will be OK for register a WFOE.
Make sure that investor put a note in the lease contract that the office will be OK for register a WFOE and landlord should refund all deposit and rental in case it failed to register the WFOE which caused by documents of address.
Business License of China Wholly Foreign Owned Enterprise (WFOE)
Business license is the key offical document of the WFOE (like Certificate of Incorporation in Other countries).
Once your business license is approved by State Administration of Industry and Commerce (SAIC) (SAIC) having obtained certificate from the tax authority, you are now legally entitled to open foreign exchange and RMB accounts and can start to hire staff, sign contracts, apply for work permit and residence permit and the WFOE is now in business in China.
Annual Audit Report of China Wholly Foreign Owned Enterprise (WFOE)
Any limited companies in China should summit annual audit reports to the relevant authorities. The audit reports are including: balance sheets and income statements for their annual Chinese audit. Any company will be subject be to a fine if the Annual Audit Report is not submitted in a timely manner. (June 30th is the deadline of an annual audit report submission and licenses renewal in China)
Terms and Termination of China Wholly Foreign Owned Enterprise (WFOE)
In China, terms of 15 to 30 years are typical for a manufacturing WFOE (although some may have a longer term). It is also possible to obtain extensions of the WFOE's duration. For projects in which the amount of investment is large, or the construction period is long and the return on investment low, projects producing sophisticated products using advanced or key technology provided by the foreign partner, or for projects producing internationally competitive products, the term of WFOE may be extended to 50 years. With special approval from the State Council, the term may be even longer than 50 years.
The WFOE may be terminated under certain conditions, for example, the inability of the WFOE to operate due to heavy losses, or in the occurrence of an event of force majeure, etc.
Contact Us
If you have further queries, don’t hesitate to contact ATAHK anytime, anywhere by simply visiting ATAHK’s website www.3737580.net , or calling Hong Kong hotline at 852-27826888 or China hotline at 86-755-82143422, or emailing to anitayao@citilinkia.com