China WFOE Registration: A Brief Overviewhongdaservice.com /blog/china-wfoe-registration-a-brief-overview

In this blog from Hongda we're going to be taking a look at China WFOE registration.

You'll discover:

What a Wholly Owned Foreign Enterprise is

Who might wish to open one

The benefits and drawbacks of them

The registration path (brief overview)

If you're a foreign business who is interested in doing business in China, then this type of companymay be the perfect solution to allow you to gain a foothold in this vast and exciting market. Let's look atthese companies in more detail here:

What Is A WFOE?

It is a type of company which allows foreign investors a gateway into China.

Commonly pronounced "Woof-y," the 'Wholly Foreign Owned Enterprise' which can also beabbreviated as WOFE, is a totally foreign owned limited company based in China.

The foreign investors are limited to the investment that they put into the company when setting it up.

In more recent years following China entry into the World Trade Organisation in 2001, the ability forforeigners to set up their own company within Chinese borders has been made easier, and the WOFEis just one of these vehicles. Other methods are joint venture companies, and representative offices.

Where the wholly owned foreign enterprise differs is that it is invested into and controlled by foreigners,with no Chinese influence aside from regular government requirements such as tax, and corporate

registration.

Unlike other options open to foreigners, such as a representative office (which is more like a Chinabranch office), the WOFE can operate like a normal company, making profit and invoicing customers.Importantly, the company is able to operate using Chinese Yuan (RMB), meaning that any invoices andcosts could be tax-deductible.

One other notable feature is that this type of company can, in theory, hire as many foreign staff as theylike as long as they fulfill China's rules on foreign workers. Commonly the larger the initial investmentinto the company, the more foreign staff will be allowed to be hired.

Who Would Open A WFOE?

This type of company is perfect for:

Foreign companies who want a presence in China, but want complete autonomy

Those who don't have, or want to enter into, a joint venture with a local company

Companies who want to do business in China and be on the same level as Chinese companies

Organisations who need to place a number of foreign nationals in positions in China

Foreign manufacturers who want to produce products in China and export them

Trading companies

Consultancy companies

Management companies

Service companies

IT companies

Basically, the original purpose of a WOFE for China was to encourage more specialist industries andtechnology to come to China and enrich their workforce and economy. Today this is still the case, butrather than focussing on manufacturing, which used to be the case, China now welcomes all kinds offoreign business types as you can see.

Wholly Owned Foreign Enterprise Advantages

No reliance on Chinese partners

Ability for foreign owners to make all company driving decisions

Can invoice in Chinese Yuan (RMB)

Can make profits in local currency

Easier to protect IP (Intellectual Property)

Can hire and fire local and foreign staff

Can send profits in USD outside of China

Manufacturers need not apply for special import/export license

Wholly Owned Foreign Enterprise Disadvantages

Difficult to set up without assistance

Monthly accounting needs to be submitted to local taxation authorities

Different areas in China have different rules

A real office address is needed to set one up

Potentially a lot of capital investment needed for setup

China WFOE Registration

A common difficulty for foreign organisations is knowing how to register their WOFE.

While it is a complex process, and assistance will help this run smoothly and without difficulty, we'llinclude a brief breakdown here for you.

Today there are very few limits on the types of companies who may set up their own local presence inChina, but the regualtions, investment, requirements, and set up fees for the different industries mayvary.

Typically WOFEs will fall under one of three categories:

1. Manufacturing

2. Trading

3. Service

The scope of your proposed business will determine which kind of WOFE you must open. Althougheach type of WOFE may be allowed to engage in business not strictly suggested by its category, it isnot possible to make a change and start doing a completely different kind of unrelated business withre-application.

For instance, a manufacturing WOFE may also offer some kinds of related consultancy, but they couldnot cease manufacturing and become a total consultancy firm and remain the same company. This isbecause the business must make the majority of its revenue from its core business type in order tofunction in China.

The Registration Path

Here is a brief overview of the steps one must take to register a WOFE.

1. Register a company name - this must be in Chinese and will be of the form: COMPANY NAME,ACTIVITY, (CITY), Co., Ltd. An example would be ABC Manufacturing (Shenzhen) Co., Ltd.

2. Issue approval certificate and temporary business license - there are many documents andpieces of information needed in order to gain approval, this is the area where foreign companiesare likely to need professional assistance

3. Formal government registration with relevant offices

4. Create 'chop' (company seal) for use with official company documentation

5. Open local RMB business bank account

Taking The Next Step With undertaking China WFOE registration

Due to the need to deal with oftentimes complex and changing local regulations, getting expert help isadvised.

Hongda services have been assisting foreign companies set up their own Wholly Owned ForeignEnterprises since 2007. We offer turnkey solutions to this, and many other essential China businessservices.

Learn more about opening a WOFE here.