China Wholly Foreign Owned Enterprise

China Wholly Foreign Owned Enterprise

WFOE, is one of the common vehicle allow foreign investor to set up her entity in China. And in some of the region in China may use the terms of WOFE (Wholly Owned Foreign Enterprise), they are exactly the same entity.

WFOE is a limited liability entity which is wholly owned by foreigner or enterprise with capitalized by foreign funds. Not likely the Joint Venture, the foreigner investor can have fully control of the WFOE and responsible for her own profit or loss, implement business strategies along with the overseas investor wishes. And allow WFOE to return her profit to foreign investor.
Pros & Cons of WFOE

Pros

  1. Control of Intellectual Property
  2. No required licensing for Import/Export of your business’ products.
  3. Capability to convert profits from RMB to USD for repatriation.
  4. Can purchase/build property in China
  5. Hire staff directly.
  6. Long term licensing (15 to 30 year periods.
  7. Incorporation capability regardless of how long business has been established outside China.
  8. if WFOE is established in manufacturing scope, the company obtains advantage of surpassing special licensing for the importing and exporting of its products

Cons

  1. Complexity of set up process.
  2. Requires large amount of register capital on certain Province.
  3. Can only conduct business within licensed category or specific business scope.
  4. Subject to all applicable Chinese business taxes (VAT, Corporate, Dividend, and Income).
  5. Physcal person require as company legal representative.

SET UP REQUIREMENT AND PROCEDURE

Procedures for setting up a Wholly Foreign Owned Enterprise in China:

  • WFOE Company name registration with State Administration of Industry and Commerce (SAIC).
  • Apply for your Business License with SAIC.
  • Company Chops made by Bureau of Public Security (PSB).
  • Organization Code License by Technical Supervision Bureau (TSB).
  • Tax Certificate issued by Taxation Bureau.
  • Open your Company RMB bank account.
  • Capital injection.
  • Financial Certificate of Registration.
  • Statistics Licence Registration.

Requirement for setting up a Wholly Foreign Owned Enterprise in China:

  • Statement from parent company to declare the name of WFOE, name of Legal representative, financial manager & operational manager, scope of business, address of WFOE and experience of the parent company on relevant industry.
  • Statutory document of Parent company and personal identification of legal representative, financial manager & operational manager.
  • Reference of letter from bank to certify applicant’s financial status which can support early stage of WFOE operation.
  • A Feasibility report.

As your business partners, we will help you to fixed these complicated application process and allow you to easily go through the large number of forms to be submitted to various China government department.

KEY FEATURES FOR COMPANY MAINTENANCE

1. Annual reporting

The China government required all WFOE to perform an annual examination to ensure the sustainability of the legal interest of the company. Entity has to finish the examination between March to June of every year and penalty will grant for any late submission.
Related government authorities for the annual examination:

  • Bureau of Foreign Trade & Economic Cooperation
  • Administration for Industry and Commerce
  • Financial Bureau
  • National Tax Bureau
  • Local Tax Bureau
  • Bureau of Statistics
  • Administration of Foreign Exchange

2. Accounting

The accounting of WOFE should be complied and adopted with PRC Generally Accepted Accounting Principles (GAAP).

  • Bureau of Foreign Trade & Economic Cooperation
  • Administration for Industry and Commerce
  • Financial Bureau
  • National Tax Bureau
  • Local Tax Bureau
  • Bureau of Statistics
  • Administration of Foreign Exchange

3. Taxation

WOFE is subjected to Value Added Tax (VAT), Business Tax (BT) and Corporate Income Tax (CIT). And quarterly report is required for Small ScaleTax Payer. And General tax payer will require do the monthly reporting to Tax Bureau

  • Value Added Tax
    VAT is paid by the entities who sell the goods or service within the territory of China. The tax rate of VAT is variance with the items which almost between 3%-17%. VAT is calculated based on revenue record in the Government Tax invoice.
    • Small ScaleTax Payer
      VAT for Small Scale Tax Payer is fixed to 3% but cannot obtain the benefit of contra of input VAT (purchase) and output VAT (Revenue).
    • General Tax Payer
      • VAT rate is based on item which is between 3-17%.
      • Allow to offset the input VAT with the output VAT
      • Application of General Tax Payer is require an turnover of RMB500,000 and RMB800,000 is required for Wholesales or retails business.
    • Business Tax
      Business Tax is taxable based on non-VAT revenue, mainly service revenue. But with the VAT reform of China since 2013, more business activity which is fall into BT is moved to VAT. The tax rate of BT is between 3%-20%. BT is required to settle to Tax Bureau within 10 days after month ended.
    • Corporate Income Tax
      • Tax Rate is fixed to 25% on tax payable amount and special tax rate of 15% for New and High Technology sector or operated in the western region of China.
      • Tax payable amount = Total operating revenue + Total other income – Total operating expense – Total other expens – Total financial expense.
      • Tax payment is based on quarterly result.
      • Tax report should submit within 15 days after quarter ended.
      • Accumulated loss of prior business operation can be offset future profit within 5 years.

4. Staff

  • WFOE can hire local staff directly accordance the regulation of China Labor Regulation.
  • Social insurance is compulsory to give every staff hire by WFOE which is 33%-45% (difference between cities of China) of the staff monthly compensation.
  • Social insurance is compulsory to give every staff hire by WFOE which is 33%-45% (difference between cities of China) of the staff monthly compensation.