| Overview | | | | registered capital can be increased but official |
| The Wholly Foreign-Owned Enterprise (WFOE) is | | | | procedures will be required. Registered Capital |
| one possible business structure that can be used | | | | must be no less than 70% of the Total |
| by foreign investors to register and license a | | | | Investment Quota; however, the ratio may be |
| business in China. The WFOE is a limited liability | | | | decreased when the amount of Registered Capital |
| company (liability is limited to the amount of the | | | | exceeds US$ 3 million. |
| registered capital) that is 100% owned by foreign | | | | The actual amount of Registered Capital required |
| investors. WFOEs were originally conceived to | | | | is subject to the final approval of the approval |
| encourage manufacturing activities that were | | | | authority. The Chinese officials have the right to |
| either oriented towards exporting products or | | | | require a business to increase the amount of |
| that introduced advanced technology into China. | | | | Registered Capital if they deem the minimum |
| However, with China's entry into the WTO, these | | | | Registered Capital amount as insufficient for the |
| conditions were gradually abolished and the WFOE | | | | requirements of the startup business according to |
| is increasingly being used for service providers | | | | the project description as written in the application |
| such as a variety of consulting and management | | | | documents. The final amount of Registered Capital |
| services, software development, trading | | | | required is sometimes a result of negotiations with |
| enterprises, etc. | | | | the appropriate officials during the registration |
| | | | | period. |
| Shenzhen is one of the best choices for doing | | | | Total Investment Quota is the total amount of |
| business in China. Situated in the Pearl River Delta, | | | | funds that will be invested in the WFOE during its |
| Shenzhen is the first Special Economic Zone since | | | | entire planned period of operation. The Total |
| China carried out reform and open-door policy 30 | | | | Investment Quota must be greater than or equal |
| years ago. Shenzhen has an area of 1953 square | | | | to the Registered Capital. Unlike Registered Capital, |
| km’s and a population of more than 10 million. | | | | which has to be fully paid into the WFOE’s |
| Shenzhen is the best city both for living and | | | | Chinese bank account before starting business |
| working in China, as well as the fastest growing | | | | operations, the Total Investment Quota is the |
| city in the world. In Shenzhen you can enjoy the | | | | total amount of funds planned to be contributed |
| sound infrastructure and the intensive industrial | | | | to the project over its lifespan and it does not |
| chain for trading, manufacturing and value | | | | necessarily have to be fully deposited in the bank. |
| investment. Since Shenzhen is bordering Hong | | | | The excess amount of the Total Investment |
| Kong, you can also take great advantage and | | | | Quota over the Registered Capital can come |
| opportunity from the “one country, two | | | | from sources other than the foreign investors |
| systems” policy. | | | | listed in the Articles of Association of the WFOE; |
| | | | | for example, it can be borrowed from banks or |
| Pros & Cons of China Wholly Foreign-Owned | | | | other sources either inside China or from |
| Enterprise (WFOE) | | | | overseas. This amount can be increased but any |
| Pros | | | | additional amounts of Total Investment Capital |
| - With separate legal entity in China. | | | | must be approved by the relevant Chinese |
| - Can carry out all business activities ( subject to | | | | authorities. |
| the business scope stated in business licence ). | | | | |
| - Can negotiate for tax incentive with local | | | | Setup Steps & Documents Required |
| government. | | | | Preparing and Presenting a Project Proposal |
| - Can hire local staff. | | | | The foreign investor has to complete a project |
| Cons | | | | proposal and present it to the government |
| - Application process is more complex and each | | | | authority that will decide whether or not to |
| step may have profound impact in future | | | | approve the proposal within approximately one |
| development of the company: business scope, | | | | month after receiving the proposal. |
| financing, tax rates, director board management | | | | Submitting the proposed company names |
| etc. | | | | 3 optional names are required. |
| - Capital injection is required to meet the minimum | | | | Preparing and Submitting a Feasibility Study |
| level for specific industry and in specific territory | | | | Report |
| of China (such as free trade zones and export | | | | After the project is approved, the foreign |
| processing zones). The mimimum capital is around | | | | investor has to prepare a feasibility study. The |
| US$140,000. | | | | authority will help to coordinate on the project if |
| - Even though WFOE is limited liability in nature, a | | | | any problems should arise. |
| legal representative needs to be appointed and | | | | Submitting the Articles of Association |
| take up unlimited liability of the WFOE. | | | | While the foreign investor is preparing the report |
| | | | | on the feasibility study, he may also draw up the |
| Key Points of WFOEs | | | | articles of association and submit them to the |
| - Business Scope | | | | authority that will reply around one month after |
| The Business Scope is narrowly defined and | | | | receiving the feasibility study report and articles of |
| interpreted for all businesses in China; a WFOE | | | | association. |
| may only legally conduct business within the | | | | Application for the Approval Certificate |
| business scope that appears on its business | | | | After the report on the feasibility study and |
| license. | | | | articles of association are approved, the foreign |
| In the application documents, the business scope | | | | investor has to apply for the Approval Certificate, |
| is written as a list of business activities that the | | | | which will normally be issued within one week. |
| WFOE will conduct in China, and the first business | | | | Application for the Business License |
| activity will define the overall nature of the WFOE | | | | The foreign investor has to make an official |
| for classification purposes. The classification will | | | | registration with the government authority within |
| further define the minimum required capital, type | | | | 30 days upon receiving the Approval Certificate |
| of invoices, type of applicable taxes, etc. As one | | | | and then apply for a Business License. The |
| example, for a previous WFOE registration, the | | | | authority will normally issue the Business License |
| company’s business scope was written as | | | | within 30 working days. |
| “retail of cosmetic products, training on | | | | The procedures and related documents may vary |
| cosmetic products, after-sales services.” The | | | | depending on specific projects, Chinese regulations |
| nature of this WFOE was therefore defined by | | | | and special approval as well. However, the Wholly |
| the Chinese authorities as a “retail-trading | | | | Foreign-Owned Enterprise is officially established |
| WFOE”, thus the required registered capital | | | | on the date when the Business License has been |
| was RMB300,000, and it was able to receive the | | | | issued. |
| Value-Added-Tax invoices that are essential to a | | | | Document Requirements |
| trading company in China. | | | | - Bank creditbility statement of the foreign |
| Because the scope of business is crucially | | | | investor |
| important in the WFOE business registration | | | | - Project proposal (purpose, business scope, |
| application, We always confers with the | | | | period, investment amount, among others) |
| appropriate officials to ensure that every business | | | | - Certificate of registration |
| activity that is listed on the registration application | | | | - Statement on the products and technologies |
| is an approved business activity and that every | | | | - Duplicate of confirmation letter of the 3 |
| business activity is designed as broadly as | | | | proposed company names |
| allowable so that clients can be more flexible in | | | | - Report on feasibility study |
| what activities they are allowed to conduct. We | | | | - Memorandum & Articles of Association |
| will not submit an application until we are assured | | | | - Name list of the board and senior executives |
| that the application information follows the | | | | - List of equipment to be provided (if any) |
| pertinent rules and regulations and that it will allow | | | | - Passport or residential card of the legal |
| our clients to achieve the maximum benefits of | | | | representative |
| running their businesses in China. | | | | - Lease agreement or purchasing contract of |
| - Registered Capital and Total Investment Quota | | | | company premises |
| Registered Capital and Total Investment Quota | | | | - Certificate of property of the lessor |
| are two important types of capital that the | | | | - Authorisation documents for the board and |
| Chinese government officials will check to ensure | | | | senior executives |
| that both are listed correctly. The amounts for | | | | - Photos of legal representative |
| both types of capital will appear on the Approval | | | | - Other documents that the authorities may |
| Certificate and Business License. | | | | require as per specific cases. |
| Registered Capital is the amount of funds that the | | | | Summary |
| Chinese government requires of foreign investors | | | | Compared to registering a business in most |
| to contribute to their projects in China (e.g. | | | | Western countries, registering a business in China |
| WFOEs). The Chinese government sets | | | | is challenging work filled with paperwork and |
| requirements for the minimum amount of | | | | bureaucratic red tape. It is practically impossible to |
| registered capital to start a business. Registered | | | | properly complete the registration process |
| Capital must be of an amount greater than the | | | | without a qualified agency. Be sure that the |
| minimum requirement of the China Company Law | | | | agency is qualified and the agency has good |
| (currently RMB100,000). The Registered Capital | | | | connections and relationships with the various local |
| can only come from the foreign investors, and | | | | authorities, and that they possess comprehensive |
| must be actually paid into the company bank | | | | knowledge about the numerous important aspects |
| account then verified by an independent certified | | | | involved with legally and properly registering a |
| accounting agency in China. The amount of | | | | WFOE. |