Using the Wholly Foreign Owned Enterprise (WFOE), the establishment and registration of the company in China in the free economic zones
Registration of a company in China – quite a long and complicated process. The exception is the free economic zones of China (such as Shenzhen, Hainan Province, Pudong New Area in Shanghai and some others). The registration procedure is considerably simplified there.
If your company in China plans to establish its own production base, the best option is to register a company with 100% foreign capital (WFOE), but if your company is engaged in trading operations, you can use an offshore company registered in Hong Kong as an investor.
It will take at least 3 months to register a company with 100% foreign capital. The duration of the registration of the company in China depends on the chosen field of activity.
The benefits of the creation of such companies in China are as follows:
- a) strict control of investments;
- b) exclusion of the participation of the Chinese shareholders;
- c) the ability to output overseas profits (after taxes and deductions to the fund).
Wholly Foreign Owned Enterprise (WFOE), is usually registered as a limited liability company. The participants may be only foreigners, the minimum of the founders – natural (individual) person or legal person.
In accordance with the “Law of the People’s Republic of China on foreign-capital enterprises” and “Companies Law of the People’s Republic of China”, activities of companies with foreign capital must comply with one of the following points:
1) The company must use advanced technology and equipment, develop the production of new products, saving energy and raw materials to produce high-end products that can replace imports;
2) the value of the exported products for the year has to exceed 50% of the entire annual product and must balance the revenue and expenditure in foreign currency or foreign exchange earnings, which must exceed the costs.
In order to encourage the establishment of WFOE in the manufacturing sector, in this case, the company may qualify for tax exemptions on income tax: tax holidays for the first 2 years, and the payment of tax at half the rate for the next 3 years might be applied.
After China’s entry into WTO, many areas became available for investment by foreign participants, but some restrictions still persist. The areas which are limited to the creation of companies in China with 100% foreign capital are: public affairs, transport, real estate, lease, loans and investments.
It is forbidden to create a company in China with foreign capital in the following areas:
1) periodical press, publishing, radio, television, cinema;
2) entertainment (karaoke bars, clubs), and others.
3) postal and telegraph service.
WOFE must comply with the laws of the PRC and the relevant administrative regulations. The activities of such companies in China are under the strict supervision of the MINISTRY OF COMMERCE PEOPLE’S REPUBLIC OF CHINA. Foreign founders of the company must meet the following conditions: have a good reputation, operate in accordance with Chinese law, have experience in business management, use of advanced technology and equipment.
WOFE can be established if meets the conditions:
1) The minimum capital should correspond to the amount indicated in “Companies Law of the People’s Republic of China” / the Company Law (not less than 30 thousand RMB for limited companies, at least 100 thousand RMB for enterprises with a single party and no less than 5 million RMB for the joint-stock company ).
2) must comply with provisions of the law, “according to the investment and registered capital.” http://www.mondaq.com/x/325636/Corporate+Commercial+Law/New+Rules+Issued+by+China+MOFCOM+Ease+Registered+Capital+Requirements+for+FIEs
3) The term of the company in China is less than 30 years.
Documents for the registration of companies in China:
1) Application for the establishment of the company in China;
2) Feasibility Study (FS), signed by investors;
3) Articles of Association of the company;
4) A letter from the bank confirming the availability of the required amount of capital from investors;
5) A document certifying the identity of the legal representative of the company in China with 100% foreign capital and each of the investors;
6) The audit report for the last year of activity of the investor;
7) The list of goods for import and export of the company establishes in China with 100% foreign capital;
8) The list of members of the Board of Directors;
9) The lease contract for the office in China and a copy of the “Certificate of ownership”, with the seal of the lessor;
10) The order of appointment of the legal representative and power of attorney for signature registration documents of the company in China;
11) Certificate of Incorporation of the investor or the investor’s passport
(If the investor is a natural person).
All documents relating to the investing company must be notarized and legalized by the consulate of China in Russia. If the investor in the company is a Chinese citizen- natural person, he/she would need to apply directly to the consulate of China in Russia to fill the necessary forms and apply for the passport certification.
Having completed the registration of the company in China in the State Administration of Industry and Commerce (SAIC), you receive a “business license” and then within 30 days after your company in China was established, it is necessary to go through all the post-registration procedures, which include:
1) obtain a statistical code of enterprise legal person;
2) registration in the state and local tax department;
3) join the Customs office;
4) open a bank account.
The authorized capital of companies in China
Once your company in China has accomplished the whole registration and post-registration procedure, you need to pay the share capital (to the b company bank account opened in China), indicated in the “Business license.” The authorized capital can be paid in whole amount or in parts, the first installment must be at least 15% of the total amount.
If a WOFE is created by a single party, the whole amount of the charter capital must be paid within 6 months from the date of incorporation of the company in China.
As a contribution to the authorized capital of the company in China it can also act as the equipment that will be used later in the production, but its share shall not exceed 70% of the total investment.
After payment of authorized capital it is necessary to address to audit company in China to test the investment.
After these procedures have been accomplished, WOFE may operate in accordance with Chinese law and pay taxes.