Settlements - Creation of a WFOE in China

Presentation of a company with 100% foreign capital - WFOE
The Wholly Foreign Owned Enterprise (WFOE) is a foreign-owned company. In China, WFOE was originally designed to encourage export-oriented industrial activities or advanced technology. However, since China entered the world trade organization, these conditions have been abandoned and WFOE has become more democratic. Now WFOE is now used by service and consulting companies, import export and software company too.

The different types of WFOE
There are many areas of activity for WFOE.
The list below is often chosen by investors:

• Manufacturing WFOE
• Consultancy (or Service) WFOE
• WFOE Trading or Foreign Invested Commercial Enterprise (FICE)

The advantages of WFOE
The benefits of a WFOE include these benefits:

• Independence and freedom to implement an international strategy without being dependent on a Chinese partner
• Ability to formally manage all of the company's business operations and bill in rmb
• Intellectual protection of know-how and technology
• No need for Import / Export license for own products
• Full control in its recruitment strategy
• More efficient operations, management and future development.
• Investors no longer need to establish a representative office for two years before creating a WFOE

Fields of activity of a WFOE
One of the most important problem of a WFOE is the definition of its field of activity. The scope of activity needs to be defined and WFOE can only perform the activity defined in its activity license. Each change of activity requires a change of status. Inevitably, there is a negotiation with the authorities to accept a wider field of activity. Generally the scope of business included, investment consulting, international economic consulting, trade information consulting, marketing and promotion consulting, corporate management consulting, technology consulting, manufacturing, etc. With China's entry into the World Trade Organization (WTO), more and more business is open to the WFOE, import / export, wholesaler, retailer.

Registration and capital
Registration Capital: US $ 140,000 is usually the sum invested in a WFOE.
Initially the creation of a WFOE can be 20% of the capital and put the rest within two years.
100,000 RMB - 500,000 rmb is the minimum capital for the creation of company (WFOE consulting, WFOE Service, HiTech WFOE) to be approved. (With 140 000 US $ it is easy to be approved)

Share capital is the amount required to carry on the business until profitability.
If you are looking for a minimum capital to register a WFOE, just 30,000 RMB for example (which is impossible to create a WFOE) it means you will run out of money fast enough, which leads to increased costs to re-apply for capital increase, other licensing fees and business license renewal
The WFOE needs financing through social capital is until it is able to support itself with its own cash flow.
However, the amount of social capital also depends on factors such as the scope of the business and its location. In fact, local authorities will review the feasibility study report (and verify the lease contract) and approve the investments on a case-by-case basis; Reduced social capital can be negotiated in some cases.

The minimum registered capital for various industries according to our practice in China, for example in Beijing, Shanghai, Guangzhou, Shenzhen are given below:
(Update: June 23, 2009:, Pudong District in Shanghai announced the authority to a meeting with PTC that they are stopping to approve the registered capital below RMB 300,000 in Pudong District; Day: November 18, 2009 Jing'an District Authority in Shanghai will not approve a WFOE with a share capital of less than USD 140,000 Updated: August 1, 2011: Changning Authority in Shanghai will not approve a WFOE with a lower share capital to USD 100,000.)

Since 2009 other districts of Shanghai has already refused to approve the registration of a WFOE below below 300,000 RMB since early 2009.
In Beijing, Hangzhou, Shenzhen, the local authorities still agree for a minimum amount to 100,000 RMB (About: 15,000 US $)
to record a WFOE.

• WFOE Consulting * RMB 100,000 ~ RMB 500,000 (Approx USD USD 15,000- 75,000)
• WFOE RMB Service 100,000 ~ RMB 500,000 (Approx USD $ 15,000- 75,000)
• Hi-Tech WFOE RMB 100,000 ~ RMB 500,000 (Approx USD USD 15,000- 75,000)
• WFOE / FICE Trading RMB 500,000 ~ RMB 1 Million (Approx USD USD 75,000- 140,000)
• Food & Beverage WFOE RMB 500,000 ~ RMB 1 million (Approx USD USD 75,000- 140,000)
• Manufacturing Manufacturing WFOE RMB 1 million or USD 140,000

Social security in China
A new rule on the security of foreign social employees in force as of October 15, 2011. It is said that if a company hires a foreign employee, the company must register that employee with the local social security authority within 30 days of the employee to receive their work permit.

General tax information
Since January 2008, China has a new range of corporate tax rates from 15% to 25%. (the rate depends on where the company is registered and the corporate industry). Please check the latest of China's corporate tax law. All companies are required to report to the Monthly, Quarterly and Annual Tax Administration Department.

Annual Audit Report
All anonymous companies in China must make an annual audit report to the relevant authorities. The annual cost is around RMB 6000. Any business will be subject to a fine if the annual audit report is not submitted in a timely manner.

Repatriation of profits
The Chinese government allows foreign-owned enterprises to recover their profits out of the country. These transfers do not require the prior approval of the State Administration of Foreign Exchange (AEDE). Dividends may not be distributed abroad and repaIn China, conditions are 15 to 30 years are typical for a WFOE Manufacturer (although some companies may have a longer duration). It is also possible to obtain duration extensions of the WFOE.

For projects in which the amount of investment is large, or the construction period is long and the return on investment low, sophisticated production projects using advanced technology provided by the foreign partner, or for projects producing internationally competitive products, the duration of WFOE can be extended to 50 years. With the special approval of the Council of State, the term can be even longer than 50 years.

WFOE may be terminated under certain conditions. For example, WFOE's inability to function due to heavy losses, or the occurrence of force majeure, etc.

Closing
For closing or revoking registration a WFOE in China is much more complicated than establishing a new WFOE. If the liquidation report can not be approved by the local tax authority, then the investor will have to spend a lot of time closing the WFOE.

Condition (s)
WFOE Consulting, WFOE Service, IT WFOE requires minimum social capital: 100,000 RMB ~ ~ 500,000, approx. USD 15,000 - 75,000 (note: Most districts in Shanghai refuse to approve a WFOE below 300,000 RMB since the beginning of 2009.)
To register Trading and Manufacturing companies in China, we still suggest a minimum share capital of USD 140,000 or EUR 100,000 (20% must be injected within 3 months and the remaining 80% must be injected within 2 years)
To register a WFOE in food or catering, the minimum registered capital would be RMB 500,000 (20% in the first 3 months and the remaining 80% should be injected within 2 years)