The most popular entity in China is the wholly foreign owned enterprise (WFOE), a limited liability company wholly owned by the foreign investor. A WFOE, sometimes referred to as WOFE, can generate income from trading, consulting and manufacturing and pays tax in China. The following information will help you determine whether registering a WFOE in China is the optimum corporate structure to fulfill your international business objectives:
A foreign investor legally owns and controls a China wofe company without the involvement of a Chinese partner.
2.
A wofe is allowed convert RMB profits to US dollars for remittance to its parent company outside of China. The funds repatriation process is neither hampered by exchange controls nor penalized by withholding tax.
3.
The wofe company can issue invoices to customers in RMB and receive revenues in RMB. The company can import and export products and raw materials.
Depending on the city of registration the paid up share capital ranges between us$15,000 and us$140,000. To optimize the probability of business approval, Healy Consultants recommends our Clients have registered capital of us$140,000. The immediate paid-up capital would be 20% (us$28,000) of the registered capital, the balance is legally required to be deposited to the bank account within 2 years. Healy Consultants will advise our Clients re the optimum paid up share capital strategy.
2.
Before wofe company registration, the foreign investor must rent an office or a manufacturing plant. Healy Consultants will assist our Clients with a virtual office until the preferred office location is chosen.
3.
Setting up a china wofe is complex and tedious and can take up to 6 months, depending on the industry sector. Multiple government offices are involved in the process including the Ministry of Commerce, the Local Industry and Commerce Administration Bureau, the State Taxation Bureau, the Foreign Administration Office of Police, the Bank, the Foreign Exchange Administration Bureau, the Public Security Bureau, and the Customs Office. Healy Consultants will efficiently and effectively project manage our Clients engagement.
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Only businesses in certain industry categories are allowed to set up a china wofe. There are business restrictions in many industries including farming, mining, media, pharmaceutical, financial services, education, real estate construction.
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A China wofe is required to report to the Tax Administration Department monthly, quarterly and annually. Healy Consultants assists our Clients minimize China taxation, including timely discharge of monthly accounting and tax obligations.
Outlined below are the most important steps in China company incorporation:
1.
Prior to the China wofe company set up, our client a) settles Healy Consultants' fees and b) signs and returns our Client Engagement Letter and c) provide us the required Client due diligence documents. Shareholder documents must be certified by Chinese embassy or Chinese consulate overseas.
2.
Thereafter, Healy Consultants emails our client a detailed and comprehensive engagement plan, outlining a roadmap for the upcoming engagement, thus minimising unwanted surprises and meeting client expectations. This 21 page engagement project plan i) outlines weekly tasks, milestones and procedures ii) legal and staff considerations iii) accounting and tax considerations iv) engagement fees and timelines.
3.
From State Administration of Industry and Commerce (SAIC), Healy Consultants obtains a notice of pre-approval of i) the company name and ii) the company business activities and iii) the registered share capital amount. A feasibility study is submitted to SAIC including a basic first year business plan and budget. . The project will not be approved unless the local authorities are convinced it is feasible business. Government approval of the project/business activities is an integral part of the incorporation process. If the project is not approved, incorporation is disallowed. To optimize the probability of business approval, Healy Consultants recommends our Clients have registered capital of us$140,000. The immediate paid-up capital would be 20% (us$28,000) of the registered capital, the balance is legally required to be deposited to the bank account within 2 years.
4.
Our Client signs a lease agreement for local premises. Healy Consultants will assist our Clients with a virtual office until the preferred office location is chosen.
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Healy Consultants opens a temporary Client bank account to receive the RMB deposit of paid up capital. Thereafter a capital verification report is provided by a local CPA.
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Healy Consultants registers for i) a business license with SAIC and ii) a Financial certificate and iii) a statistics license and iv) Customs Bureau Registration and iv) an import and export license.
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Our Client registers for both state and local tax.
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Our Client receives approval to make a company seal from the police department. Thereafter the company chops are made by the Public Security Bureau (PSB).
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Healy Consultants obtains formal bank account approval post company formation.
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Our Client applies for Government authorization to print or purchase financial invoices/receipts.
A China wofe suffer a 33% national tax on worldwide income. This tax rate is reduced to 15 per cent for entities established in the Special Economic Zones (SEZs) of Guangdong, Fujian and Hainan Provinces.
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China companies are required to collect 17% VAT on goods and services sold to customers. PRC Customs is required to collect VAT at the time of importation of goods.
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A China wofe enjoys double taxation treaties with 95 countries including Australia, France, Germany, India, Singapore, the UK and the US.
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There is no China withholding tax on wofe dividends to parent companies.
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Wofes are required to report to the Tax Administration Department monthly, quarterly and annually. All limited liabilities companies in China should summit an annual audit report to the Government. Healy Consultants assists our Clients minimize China taxation, including helping our Clients with Government reporting obligations:
No.
Services
Period
1.
Update the books in accordance with the Chinese Accounting Standards;
Monthly
2.
Prepare monthly financial statements for tax filing purpose;
Monthly
3.
File monthly Business Tax Return;
Monthly
4.
File Corporate Income Tax Return;
Quarterly
5.
Submit annual employee tax returns;
Annual
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A China wofe is eligible for legal tax exemption if located in Free Trade Zones or Export Processing Zones. Healy Consultants assists foreign investors identify tax incentives and recommend investment strategies.
A China WFOE requires a minimum of one director and one shareholder of any nationality, resident anywhere. Corporate shareholders are allowed. Corporate directors are not permitted. A company secretary is not required for China WFOE registration.
2.
Our Client China must appoint i) a China Legal Representative and ii) a China Supervisor. To minimize complexity, Healy Consultants recommends our Client appoint two Chinese staff members already resident in China. Alternatively, Healy Consultants will supply nominee services.
3.
Every company in China must have a stated registered capital. This amount is provided in the Articles of Association of the company and is also noted on the company register. It is a crime to state a registered capital amount and then fail to contribute. The paid up share capital can be used to pay salaries and rent, to purchase raw materials, or for any other normal start up operating expense. Once the capital is contributed to the Chinese wofe, it can never be withdrawn for anything other than paying company expenses.
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The China wfoe can only conduct business within its approved business scope, as stipulated on the business license.
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One of the most important issues in the wofe registration application is defining the business scope. The wofe can only conduct business within its approved business scope. Any amendments to the business scope require another business application and further Government approval.
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The normal term for a wofe business license is 15 to 30 years, although extensions are available up to 50 years with special approval from the State Council. Extensions are usually granted for i) projects with large investments ii) projects employing advanced technologies by the foreign investor and iii) competitive export-orientated products.
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China patents and trademarks is regulated by local Administrative Bureau for Industry and Commerce (AIC).
Healy Consultants' fees to set up a China WOFE entity amounts to US$11,500, including company formation, bank account opening, tax registration and virtual office address for the first three months. Engagement timeline is:
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