For foreign investors who want to start a business in China, establish a WFOE is one of the most common option.
China WFOE is one of the most common type of entity when establish a company in China among foreign investors. China WFOE stands for Wholly Foreign-Owned Enterprise in China. A Wholly Foreign Owned Enterprise (WFOE or WOFE) is a Limited Liability Company (LLC) that is entirely owned by foreign investors (Typically, under a parent company).
There are three key types of WFOE in China, consulting WFOE, trading WFOE and manufacturing WFOE.
Consulting WFOE is one of the most basic type of foreign company in China. The entire China WFOE formation process and required documents are much easier than the other type of WFOE in China. Foreign investors should be aware that the consultancy WFOE’s business scope is limited, and part of the activity can only be undertaken after getting a specific license or certification.
Trading WFOE is established when a company wishes to engage in the trading of products in China. In China, a trading China WFOE allows foreign companies to work in not only trading, but also wholesale, retail, or franchises.
Manufacturing China WFOE enables you to start as a manufacturer in China. You may need to get a special license based on the product category that you would like to manufacture in China. The process and required documents of setting up a manufacturing WFOE is quite complex comparing the consulting and trading WFOE. A required size plant is required. The manufacturing WFOE can only start on manufacturing when obtaining the environment safety certificate, fire protection approval and energy impact assessment approval.
Once you have decided to register a China WFOE to start a business in China, this is what you need to take into consideration:
China WFOE must be led by three main personnel: legal representative, supervisor, and the financial manager/supervisor. The three personnel shall be three different people. Any of the three person can be registered as the Liaison Person.
Before establishing a company in China, it is very important for foreign investors to understand the Pros and Cons for set up a China WFOE.
Registered capital is the amount that required to mention during the company registration procedure in China. There is no minimum registered capital amount for most of the business in China. However, for some specific industries and business, a minimum registered capital is required when applying the special license. Below is the guideline of the registered capital in China for different type of China WFOE for your reference.
A China WFOE must have an official company name in Chinese. The Chinese name must be submitted to the local administration system during the registration’s initial stage, which is the name approval stage. There are some requirements and constraints to creating a Chinese name for your company. When it comes to choosing a Chinese name for your firm, there are a few criteria and limits to consider. We suggest foreign investors consider at least 10 Chinese names for their China WFOE before name approval phrase, as duplicate or similar Chinese names will not be allowed by the government.
[City of formation] Company Name [business type] [Co,.Ltd.]
Example: Shanghai AAAA Consulting Co., Ltd.
In order to register a company in China, a registered address is required at the very beginning of the process. The term “registered address” refers to a legitimate business address that can be used to register the company in China. In China, a residence address is not permitted. For the manufacturing WFOE registered address, a plant space of a certain size is required.
During the China WFOE registration process, a leasing agreement must be submitted. In the early stages of doing business in China, if foreign investors do not intend to rent a physical office, a virtual registered address can be used as a registered address. However, virtual registered addresses are not permitted in some industries or areas.
A WFOE’s business scope in China lists the services or activities that a WFOE is permitted to provide and carry out in China. Each company’s business scope will be listed in the company’s business license. Such a business scope can only be chosen from a list of categories based on various industries and businesses listed on the government website. Here is one of the government website that can check China business scope.
Foreign investors should be aware that the business scope mentioned in the business license does not imply that the company can conduct such activities. Some businesses, such as labor dispatch and finance, require a special certificate and license to operate legally.
A company chop is required in China and serves as the official seal or stamp for the China WFOE. Only documents with the company chop are permitted to deal with government or bank issues when doing business in China.
In addition to the company chop, there are some other chops that are commonly used when doing business in China that are listed below.
The company’s official chop must be in Chinese, and the naming must be exactingly the same as the full name in the business license. Please keep in mind that only licensed agencies can carve company chops.
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