WHOLLY FOREIGN OWNED ENTERPRISE (WFOE) IN SHANGHAI
WFOE stands for wholly foreign owned enterprise, which is a Limited liability company wholly owned by the foreign investor(s). WFOE means the foreign investors (including Hong Kong, Macau, Taiwan) established the enterprise within Chinese territory, in accordance with 《PRC Wholly Foreign Owned Enterprise Law》, with capital provided solely by the foreign investor. The foreign investors refer to the foreign enterprise, individual or partner. (Including Hong Kong, Macau and Taiwan).
In Shanghai, WFOE 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, compared with other types of enterprises, include, but not limited to:
- Having the freedom and independence to implement the worldwide strategies of its parent company without having to consider the involvement of the Chinese partner;
- Capable to perform business transactions rather than just providing the support functions as a representative office;
- Able to issue invoices to their customers in RMB and receive revenues in RMB;
- Capability of converting RMB profits to US dollars for remittance to its parent company outside of China;
- Protection of intellectual know-how and technology;
- Greater efficiency in operations, management and future development.
Company Name
In China, only Chinese company names are officially used, while English company names for reference only.
Note: We help you to translate or come up with a proper Chinese company name.
The Company Registry will accept not every name. Your company name must be distinguished from the others registered name before.
For some sectors such as education, logistics, medicine and food industries, pre-approval special license is needed.
Company Business Scope
One of the most important issues in WFOE application is business scope. Business scope needs to be defined and the WFOE can only conduct business within its approved business scope, which ultimately appears on the business license.
－ Foreign investment enterprises engaged in wholesaling or trading business
－ Commodity Importation /Exportation
－ Production of products within the scope of business
－ Information consulting /Technical development/Investment consulting business
Registered Capital
No specified requirement (except specific industry)
Documents Required
The documents needed for incorporating a WFOE for different types of business are different. We do the paperwork for our clients and the following documents are required from the investor(s):
1. One proposed name (in Chinese), and provide two alternative names in case the first name is not available;
2. Detailed information about the business scope and registered capital;
3. Two original Notary and Legalization paper of Incorporation Certificates
Copy of Business License of parent foreign company, which was certificated by local Notary office and Chinese Embassy (if it's personal investor, then passport copy certificated by local Notary office and Chinese Embassy is enough)
4. Two original Credibility letters are issued by the foreign company banker to declare a good credit within at least current 6 month
5. The latest annual audit report from the parent foreign company. The audit report should be in the format as prepared by a Certified Public Accountant (CPA)
6. The passport or ID copy of the Legal Representative, Monitor, GM and director;
7. The parent company's legal representative's passport copy;
8. Two original of original office/factory rental contract and photocopy of real estate certificate with the seal or signature of the landlord.
The above document is enough to register a Trading & Consulting WFOE. But if you want to register a Manufacture WFOE, you have to prepare following extra documents:
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Purpose and estimated investment
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WFOE's operational structure and number of employees
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Permission for land use, environment evaluation report
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Products, size of production, detailed list of equipment, and business plan
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Environmental protection measures
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Requirement for utilities such as power and water supply
Note: the documents listed above are only acceptable in Chinese. Oden Consulting is able to provide translation service upon client's request.
The roles of WFOE
Shareholder: be foreign company or individual.
Director: be foreign person or Chinese person.
Monitor: be appointed to supervise the company’s operation and management. Foreign person or Chinese person could act a monitor.
Legal Representative: the person in charge of corporate operation and management and development, responsible for all the legal affairs arising from the business running.
General Manager: to operate the company business
Procedure
Registration Procedures
Foreign companies are not allowed to directly submit the application documents to the relevant authority. They must retain a PRC entity that is authorized or permitted by relevant authorities to act as a sponsor. The sponsor will submit all the documents to the examination and approval authority on behalf of the foreign enterprise.
- Check and Register Company Name
- Apply for Approval Certificate
- Apply for Business License
- Apply for Organization Code License
- Tax Registration with Tax Bureau
- Open a RMB bank account
- Register Foreign Currency Certificate
- Obtain Import/Export license and VAT invoice (Optional as it applies only for Trading WFOE)
- Register in local custom (Optional as it applies only for Trading WFOE)
Duration
WFOE manufacture enterprise: 50 working days
WFOE trading enterprise: 35 working days
WFOE Consulting enterprise: 30 working days
*Taxes Involved in Operation of WFOE manufacture enterprise
- Value Added Tax
General Value Added Tax Payers pay VAT at 13% or 17%
Small-scale Value Added Tax Payers pay VAT at 3%
General Value Added Tax Payers of Producer Enterprises refer to producer enterprises with annual sales value exceeding RMB 500,000 and with established financial system, while producer enterprises failing to meet these requirements are small-scale Value Added Tax Payers。
- Corporate Income Tax
Tax rate is generally 25%
High-tech enterprises are subject to tax rate of 15%
Small-scale and small profit companies are subject to tax rate of 20%
Criteria for a small-scale and small profit company: a company that cannot engage in business restricted and prohibited by the PRC government and its annual taxable profit does not exceed RMB300,000, with staff less than 100 and total assets not exceeding RMB30 million.
High-tech enterprises are defined as the resident enterprises that specialise in research & development (R&D) and transition of technological achievements within the scope prescribed by Fields of High and New Technology Eligible for Primary Support of the State, possess independent intellectual property right, and practice operating activities accordingly. Such high-tech enterprises shall have been registered for more than one year.
*Taxes Involved in Operation of WFOE Trading enterprise
- Value Added Tax
General Value Added Tax Payers pay VAT at 17%
Small-scale Value Added Tax Payers pay VAT at 3%
General Value Added Tax Payers refer to commercial enterprises with annual sales value exceeding RMB 800,000 and with established financial system, while commercial enterprises failing to meet the requirements are small-scale Value Added Tax Payers. Those qualified as general Value Added Tax Payers can credit the Input Tax paid on purchase of goods against the output tax paid on sales. Those empowered to import/export are entitled to free export and refund. However, small-scale Value Added Tax Payers cannot credit the tax paid on purchase, while they are entitled to free export but no refund.
- Corporate Income Tax
Income tax rate is 25%
Small scale and small profit companies are subject to corporate tax rate of 20%
Criteria for a small-scale and small profit company: a company that cannot engage in business restricted and prohibited by the PRC government and its annual taxable profit does not exceed $300,000, with staff less than 80 and total assets not exceeding $10 million
- Tariff
Tariff rates are generally subject to the prices of import /export goods, which shall be equal to the quantity of import /export goods multiplied by quoted price per unit.
*Taxes Involved in Operation of WFOE Consulting enterprise
- Value-Added Tax
Small-scale Value-Added Tax Payers pay VAT at 3%
General Value-Added Tax Payers pay VAT at 6%
Corporate Income Tax
- Corporate income tax rate is 25%
Small-scale and small profit companies are subject to corporate tax rate of 20%
Criteria for a small-scale and small profit company: a company with annual taxable profit does not exceed $300,000, with staff less than 80 and total assets not exceeding RMB 10 million shall not engage in business restricted and prohibited by the PRC government
Contact us:
Shanghai Oden Consulting Firm
Address: R1603, No.1085 South Pudong Road, Pudong District, Shanghai.
Email: master@odenchina.com
T:021-61997083
Person: Wendy 13661971521
Working time: Monday –Friday (9:00-12:00AM&1:00-6:00PM)
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