WFOE have in recent years become the most popular investment vehicle in China. This option allows you to the maximum level of control over your business in China. It gives you a higher level of control over proprietary technology or methodology used in your manufacturing and allows you to control quality and production. You will be able to bring in management personnel from your parent company to oversee the operation.
The process requires careful planning and often involves a significant capital investment.
1) Approval Authorities
2) Pros & Cons
3) Setup Key points
4) Documents required for application
5) Post-establishment registration procedure
6) Time required
7) Annual Examination
8) Audit & Accounting
1) Approval Authorities
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 is the authorized body to approve investment projects in Shanghai.
2) Pros & Cons
Pros
• With separate legal entity in China;
• Can carry out all business activities (subject to the business scope stated in business license)
• Can negotiate for tax incentive with local government if the investment meets the local government requirement;
• Can hire local staff.
Cons
• Application process is more complex and each step may have profound impact in future development of the company: business scope, financing, tax rates, director board management etc.;
• Capital injection is required to meet the minimum level for specific industry and in specific territory of China (such as free trade zones and export processing zones). The mimimum capital is around US$ 160’000
• Even though WFOE is limited liability in nature, a legal representative needs to be appointed and take up unlimited liability of the WFOE
3) Setup Key Points
• Check around in China to decide where to form the WFOE because it seriously affects
the minimum capital
the tax rate
the operation efficiency
the amount of profit allowed to be "exported", etc.
• Select professional service company to handle application because all steps and documentation may have profound effect.
• A legal representative needs to be appointed who is the ultimate person taking up all responsibility of the WFOE.
• All the documents submitted to the government authorities must be conducted in CHINESE language.
4) Documents required for application
• Bank creditability statement of the foreign investor;
• Project proposal;
(purpose, business scope, period, investment amount, among others)
•
Certificate of registration;
• Statement on the products and technologies;
• Duplicate of confirmation letter of the 3 proposed company names;
• Report on feasibility study;
• Memorandum & Articles of Association;
• Name list of the board and senior executives;
• List of equipment to be provided (if any);
• Passport or residential card of the legal representative;
• Lease agreement or purchasing contract of company premises;
(The contract must not be less than 1 year and need the sealed copy of property right certificate of the owner)
•
Certificate of property of the lessor;
• Authorization documents for the board and senior executives;
• Photos of legal representative;
• Other documents that the authorities may require as per specific cases.
5) Post-establishment registration procedure
• Opening of bank accounts
• Application of Enterprise code
• Preparation of statutory stationery, including company chops
• Registration with the State & Local Tax Bureau
• Registration with the State Statistics Bureau
• Registration with the Customs office
6) Time required
It normally takes 60 days from receiving instructions and full particulars and necessary documents form the applicant to issue the Approval Certificate. Thereafter, the post-establishment registration procedures takes about 60 days
7) Annual Examination
Annual examination is a system that is peculiar to corporations in China. The Shanghai Administrative Bureau for Industry & Commerce, together with other departments concerned are authorized 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 licenses.
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 licenses revoked
8) Audit and Accounting
Accounting records are required to be kept in Chinese or Chinese with English. Annual audit by a local auditor is required.
AC Consulting offer full Accounting Service for your company, for more detail, please refer to our Accounting Page.
Any more questions? Contact us for more info
