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Foreign Investment in China
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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.


Business Tax

(1) Taxpayers

Taxpayers of Business Tax include all enterprises, units, household businesses and other individuals engaged in provision of taxable services, transfer of intangible assets or in sales of immovable properties within the territory of the People's Republic of China.

(2) Taxable items and tax rates

Table of Business Tax Taxable Items and Rates

Taxable items Tax rates
1. communications and transportation 3%
2. construction 3%
3. financial and insurance businesses 8%
4. post and tele-communication 3%
5. culture and sports 3%
6. entertainment 5%-20%
services 5%
8. transfer of intangible assets 5%
9. sales of immovable properties 5%

(3) Computation of tax payable

The amount of Business Tax payable is equal to the turnover times the applicable tax rate. The computing formula is:
Tax payable = Turnover × Applicable tax rate

(4) Major exemptions

Business Tax may be exempt for: nursing services provided by nurseries, kindergartens, old people's homes, welfare institutions for the handicapped, matchmaking and funeral services; services provided individually by the disabled to the public; medical services provided by hospitals, clinics and other medical institutions; educational services provided by schools and other educational institutions, and services provided by students in part-time work; agricultural mechanical ploughing, irrigation and drainage, prevention and treatment of plant diseases and insect pests, plant protection, insurance for farming and animal husbandry, and related technical training services, breeding and the prevention and treatment of diseases of poultry, livestock and aquatic animals; admission fees for cultural activities conducted by memorial hall, museum, cultural centre, art gallery, exhibition hall, academy of painting and calligraphy, library and cultural protective units, admission fees for cultural and religious activities taking place at religious premises.

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