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Frequently Asked Questions
Wholly Foreign Owned Enterprises (WFOE)
A Wholly Foreign Owned Enterprise (WFOE) is a Limited Liability Company established in China by foreign investor(s). A WFOE is very much like a LLC in the USA that it requires one member only.
The registration procedures of a Wholly Foreign Owned Enterprise (WFOE) could be divided into 3 phases: aproval phase, registration phase and post-establishment phase.
A Wholly Foreign Owned Enterprise (WFOE) could be terminated by way of liquidation or deregistration by its investor(s) or when the conditions of termination in its Articles of Association occurs.
China Taxation
Under the current tax system in China, there are 25 types of taxes which could be divided into 8 categories. The major ones are Business Tax, Value Added Tax and Enterprise Income Tax. More
Representative Offices are also liable for Business Tax and Enterprise Income Tax. However, a RO could be exempted if its parent company is in the manufacturing business.
Any individual who has domicile in China or who has no domicile in China but has resided in China for one year or more shall pay Individual Income Tax on his world-wide income.

Features of Wholly Foreign Owned Enterprises

General Information

The official language is Chinese, with English being used normally in the major cities, including Beijing, Shanghai, Shenzhen, Guangzhou and some other second tier cities.

The official currency is Renminbi (RMB) which is officially pegged to a basket of major currencies. Renminbi to US Dollar is trading at USD1=RMB8.04.

Exchange Control

Type of Laws
Continental Law.

Features OF Wholly Foreign Owned Enterprises

Type of Company Commonly used by foreign investors
Limited Liability Company (LLC), a Company type generally referred to as a Wholly Foreign Owned Enterprise (WFOE);

The Wholly Foreign Owned Enterprise (WFOE, also know as Wholly Owned Foreign Enterprises, WOFEs) 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.

Governing Laws
Law on Foreign-capital Enterprises of the People’s Republic of China, Law of the People's Republic of China on Wholly Foreign-Owned Enterprises; Company Law of the People's Republic of China (revised 2005).

Restrictions on Trading
Wholly Foreign Owned Enterprises could only engage in those business activities (Business Scope section) stated in the Articles of Association.

Also see:
sample Articles of Association of a management consulting company registered in Shenzhen, China
sample Articles of Association of a technology company registered in Qingdao, Shangdong Province, China

One of the most important issues covered in the project documentation is the business scope of the WOFE. Business scope is narrowly defined for all businesses in China and the WOFE 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.

Power of Company
A China Company (Wholly Foreign Owned Enterprises, WFOEs) has all the powers of a natural person.

Language of Legislation and Corporate Documents
Legislation in Chinese; Corporate documents could only be prepared in Chinese.

Name Approval Required
Pre-approval is required for use of a name. It is possible to reserve a name of a proposed WFOE by as long as six months. It is essential to check that there is no similar or identical name on the register, which would prevent the company being incorporated.

Shelf Company Available

Procedures to Incorporate
Incorporation procedures could be divided into two phases, namely pre-registration procedures, registration procedures and post-establishment procedures (please click here for a description of incorporation procedures).

Time to Incorporate
Approximately four to six weeks from the submission of documentation for most types of business activities. Company to be engaged in some types of business activities may takes up to 6 months.

Name Restriction
A name that is similar to or identical to an existing company. A name that constitutes a criminal offence or is otherwise contrary to the public interest. A name that implies government patronage.

See Also: Provisions on Administration of Enterprise Name Registration

Suffixes to Denote Limited Liability

Disclosure of Beneficial Ownership to Authorities

Authorised and Paid up Share Capital
For the WFOE, the minimum amount of registered capital required starting from  RMB30,000 (about USD4,000), 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.

See Also: Foreign Invested Enterprsies Total Investment and Registered Capital

A minimum of one shareholder is required whose details are filed on the the local Adminsitration for Industry and Commerce. Corporate shareholders are permitted. The shareholders can be of any nationality except China and be resident anywhere except China in the world and meetings can take place anywhere.

Director/Board of Directors
A wholly Foreign Owned Enterprise requires a minimum of one directorand full details of these must be filed with the Administration for Industry and Commerce. The sole dirctor is the executive director or managing director. The director can be of any nationality and be resident anywhere. Corporate director is not allowed. There is no requirement for board meetings to be held within China and directors may be resident anywhere in the world except China.

If the investor decides to set up a board of director for their WFOE, then the minimum number of directors are 3 and the maximum are 13.

Supervisor/Board of Supervisors
A WFOE is required by the Company Law to appoint at least one Supervisor. The supervisor can be of any nationality and be resident anywhere.

Company Secretary
Not required.

Registered Office/Business Address
A company must maintain a business address in China where the correspondence from Chinese Government can be served and business is carried out.

Annual Reporting
China companies are required to prepare audited accounts under the company laws. Also, a copy of the audited financial statements is to be furnished with tax authority for tax report purpose. The audited financial statements are not available to the public or to the foreign authorities except those of a listed company. We can provide complete supporting services after incorporation, such as book-keeping and auditing and tax filing.

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.

See also: Termination of a Foreign Invested Enterprsie

For further information, please feel free to contact us.

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