Setting up Wholly Foreign Owned Enterprise in Shanghai
Characteristics of a WFOE
Wholly Foreign Owned Enterprise (WFOE), also known as Wholly Owned Foreign
Enterprise (WOFE), is a limited liability company, the establishment
of which is governed both by the Company Law of PRC and Law
of the PRC on Enterprises Operating Exclusively with Foreign
A WFOE can engage itself in approved business activities and
issue tax invoices on its own. It is a corporation and a tax
resident. All shareholders of WFOE should not be Chinese nationals.
Name of a WFOE
The name of the WFOE is governed by “Regulations on
the Management of name of Enterprises”. Since WFOE is
a limited liability company, its name should be in the form
of “Name of City + Name of the Enterprise +Industry+
Company Limited “. Accordingly, a company registered in Shanghai will normally bear a name like: USCorp Software Development (Shanghai) Limited.
There are certain restrictions on the use of company names
(1) It should be in Chinese;
(2) Arabic numerals, foreign characters or alphabets are not
(3) It should not have content that contradicts national policies,
damages social ethics, religions and culture;
(4) It should not have content which damages fair competition
and misleads the public;
(5) Unless special approval is obtained, it should not contain
the following restricted words: China, Chinese, National,
State. “International” is a restricted word unless
it is used to designate the industry in which the company
is operating, e.g. ABC International Trading Company Limited.
Name of a WFOE has to be approved by the government before
Shanghai Foreign Investment Commission (SFIC), which has delegated
its approval authority to the following bodies: Administration
Commission of Pudong New Area, Administrative Committee of
Waigaoqiao Free Trade Zone, people's government at district
or county level, and the relevant industrial bureaus (hereinafter
referred to as a whole as the examinationn and approval authorities)
is the authorised body to approve investment projects in Shanghai
except those subject to examination by the competent departments
of the State Council according to law and regulations:-
1. A manufacturing project with a total investment of over
USD30 million and any other projects which need to be approved
by the competent department of the State Council shall be
preliminarily examined by FICS and all related departments
of the Shanghai Municipality and then submitted by FICS to
the relevant departments of the State Council for approval.
2. If a project with a total investment under USD 30 million
a. is to be located in Pudong New Area, it shall be examined
and approved by Pudong New Area Administration Commission;
b. is to be located in Waigaoqiao Free Trade Zone, it shall
be examined and approved by the Administrative Committee of
Shanghai Waigaoqiao Free Trade Zone;
c. is classified as a Type B project in the restricted foreign
investment industries, it shall be pre-examined by FICS and
the relevant municipal departments before it is submitted
to the responsible departments of the State Council for the
examination and approval of its project proposal.
d. is to be located in a municipal-designated industrial zone,
it shall be examined and approved by the district and county
government where it is to be located.
3. An encouraged or permitted project with a total investment
under USD10 million shall be examined and approved by the
district or county or bureau authorities where the said project
is to be located.
4. If a project does not fall under Category 1, 2 or 3 as
mentioned above, or if a project is encouraged by the State
or if it is of a non-manufacturing type it shall be examined
and approved by FICS.
The Chinese government has produced a list of “approved
investment projects”, in which investment projects are
divided into four categories, Encouraged, Permitted, Restricted
and Prohibited. The current list can be obtained from the
government’s web site.
WFOE Application Procedures
Application is a four-step procedure.
Step one: Application for approval of intended investment
activities (project proposal)
The examination and approval authority shall reply within
20 days on receipt of the proposal.
Step two: Application for intended name to be used
by the WFOE with the Shanghai
Administrative Bureau for industry and Commerce
Step three: Application for the approval of feasibility
study, constitution (memorandum and articles of association)
A feasibility study will be prepared covering financing, site
selection, technological process, equipments, raw material
supply, market survey, economic results, foreign exchange,
infrastructure facilities, etc.
Articles of Association should be prepared and submitted to
the examination and approval authority. The examination and
approval authority shall reply within 30 days on receipt of
the feasibility study report and articles of association.
After the feasibility study report and articles of association
have been approved, the applicant shall apply to the examination
and approval authority, which shall issue the Approval Certificate
within 3 days after receiving the application.
Step four: Registration with the Administration for
Industry and Commerce.
The company may then register with Shanghai Administrative
Bureau for Industry and Commerce within 30 days after receiving
the Approval Certificate and apply for the business licence.
Shanghai Administrative Bureau for Industry and Commerce shall
issue the business licence within 10 working days to those
projects approved by the examination and approval authority
of Shanghai. The enterprise is deemed as established on the
date when the business licence is issued.
The foreign enterprise may engage an agent authorized by Shanghai
Municipal Foreign Economic Relations and Trade Committee to
handle its application on its behalf.
A separate business address, located in commercial buildings
or locations is required as the official address. One address
could be used by one company only.
Legal representative is the only representative of the company
in Shanghai, appointed by the board of directors. Local representative
is not required. Normally, if the legal representative does
not intend to stay and work in Shanghai for over 90 days (within
a year), no employment visa is needed. In case that the legal
representative is a foreigner and intends to stay in China
for over 90 days in a year, employment visa is needed.
Capital and Shareholders
A minimum of one shareholder, either a corporation or a natural
person, who must not be Chinese national, is required. Capital
must be of private nature, public offering of capital is not
China adopts a registered capital system. All registered capital
has to be paid up in cash, physical assets or intangible assets.
If injection of capital is not in the form of cash, valuation
by a local “valuation professional” is needed,
according to the regulations relating to the particular industry.
Strict capital injection requirement should be fulfilled.
“Capital” includes not only registered capital
but also promissory loans from the investor, parent company
or financial institutions.
Different regulations for different industries govern the
minimum capital requirements and schedule of injection. Local
auditors should be engaged to issue audit report on capital
If capital is not injected according to the schedule as stipulated
by the relevant regulations, business licence and certificate
may be withdrawn.
A minimum of one director. The director could only be an individual
and can be of any nationality. A board of directors is not
always required. For a small company, the general manager
or legal representative is the CEO of the company and shall
be treated as having the power of the directors of the company.
There is no residential requirement for the directors.
Status of the Parent Company
The Shanghai Government works on an “approval system”
instead of a “registration system’, that means,
the application may be rejected without giving any reason.
It is therefore important that the necessary requirements
should be fulfilled and documents required by the government
must be fully and accurately submitted. Some of the requirements
(1) If the company documents are not in Chinese, certified
translation by approved translator is required.
(2) Notarization of statutory documents of the parent company
may be required.
Documents required for application
The applicant should complete "Form for Establishing
Wholly Owned Foreign Enterprise" and submit together
with the following documents:
(1) An application duly signed by the chairman of the board
or general manager of the foreign enterprise with the following
details: name of the WFOE, name of the legal Representative,
scope of business, duration and address, etc;
(2) Statutory documents of the parent company issued by the
authorities of the country or region of origin; e.g. Constitution,
Certificate of Incorporation, Business Certificate, Tax Certificate
(3) A letter, known as Bankers' Reference Letter, issued by a bank which has business relations
with the applicant certifying its financial and credit standing;
(4) The list of Legal Representative and her/his curriculum
(5) A feasibility report
Upon issuance of the Business Registration Licence, the applicant
is required to complete post-establishment registration procedures,
(1) Opening of bank accounts
(2) Registration with the National Tax Bureau and Local Tax
(3) Application of “Enterprise Code”
(4) Preparation of statutory stationery, including company
(5) Registration with the State Statistics Bureau
(6) Registration with the Customs Office
(7) Application for Employment Visa (For foreign representative)
It normally takes less than 30 days from receiving instructions
and full particulars and necessary documents form the applicant
to issue the Approval Certificate. Thereafter, the Post-establishment
Registration procedures take less than 30 days.
Annual examination is a system that is peculiar to corporations
in China. The Shanghai Administrative Bureau for Industry
and Commerce, together with other departments concerned (e.g.
tax authority, customs, foreign trade) are authorised by law
to conduct an annual examination of the enterprise. In brief,
the objective of the examination is to investigate whether
the enterprise abides to the laws, regulations and the conditions
for granting its licences. In particular, the examination
will concentrate on the following areas:-
1. Registered capital – whether the capital has been
paid up according to the constitution and conditions for application
2. Operations – whether the company is still operating
within the approved activities, at the approved location and
within the approved scale and employees.
3. Registration details – whether there are any changes
in registration details.
4. Financial details – whether the company is still
a profitable enterprise, whether necessary tax and customs
duties are paid and whether foreign exchange is used according
to government policies and regulations.
The examination is in the form of a report to be completed
by the enterprise concerned annually (together with the payment
of an annual fee). The Shanghai Administrative Bureau for
Industry and Commerce will examine the report and make necessary
The annual examination will be conducted from January to May
every year. Those enterprises unable to fulfill the requirements
of the annual examination may have their business licences
Audit and Accounting
Accounting records are required to be kept in Chinese or Chinese
with English. Annual audit by a local auditor is required.
For further information on the requirements, procedures, time frames and costs for the registration of various types of wholly foreign owned enterprises, such as service company, manufacturing company and software developments company in Shanghai, please contact our offices or send email to email@example.com.
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