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infobank>china company formation

Wholly Foreign Owned Enterprise

Introduction to WFOE

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, with 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.

Advantages of WFOE

The advantages of establishing a WFOE include:

Step Description
(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 on business rather than just a representative office function and capable of issuing invoices to their customers in RMB (Chinese Currency) and receive revenues in RMB;
(3) Capable of converting RMB profits to US dollars for remittance to their parent company outside China,;
(4) Protection of intellectual know-how and technology;
(5) Greater efficiency in its operations, management and future development.

Business Scope

One of the most important issues covered in the project documentation is the business scope of the WFOE. Business scope is narrowly defined for all businesses in China and the WFOE can only conduct business within its approved business scope, which ultimately appears on the business license. Any amendments to the business scope require further application and approval. Inevitably, there is a negotiation with the approval authorities to approve as broad a business scope as is permitted.

General business scope usually includes, investment consulting, international economic consulting, trade information consulting, marketing and promotion consulting, corporate management consulting, technology consulting, manufacturing, etc.

Registered and Paid Up Capital

For the WFO enterprises, the minimum amount of registered capital required is RMB1,000,000 (about USD120,500), Under the Company Laws, the paid-up capital is equal to registered capital, Investors or shareholders must pay for the shares subscribed and deposit the money into a specified bank account. The amount of share capital so deposited should be audited by a firm of certified public accountants.

General Tax Information

The corporate tax rates range from15% to 31%, depending on the places where the company is registered. Shenzhen is among the lowest in the region. All enterprises are required to report to the Tax Administration Department monthly. You are welcome to contact us for more information.

Annual Return

Any limited companies in Shenzhen should summit annual return to the relevant authorities. The annual cost is about USD300. Any company will be subject be to a fine if the Annual Return is not submitted in a timely manner.

Terms and Termination

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.

Please call us at +852 3102 1989 or email us for further information.

Formation Procedures and documents required ; Formation Costs



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