WFOE incorporation in China – Complete Guide

by FastLane Group Accountant, Auditor, Payroll

This article is originated from: https://fastlanepro.hk/company-registration-services/

As mentioned in our article ‘FastLane is delighted to announce the opening of our new office located in Shenzhen China!’, the FastLane Group has successfully expanded our business presence into Mainland China. As the Greater Bay Area holds great potential for businesses, we are keen to help our clients take advantage of the growing opportunities in this region, and discuss how to expand into China through the incorporation of a WFOE.

1. What is a WFOE?

Wholly Foreign Owned Enterprises (“WFOE”) is the most favoured investment vehicle for non-Chinese enterprises. Pursuant to Chinese corporate laws, WFOE’s are the China-based business entity designated for non-Chinese enterprises to establish their limited liability company in China. Although there are multiple company structures available to non-Chinese enterprises, WFOE incorporation is the most favoured investment vehicle.

2. What is the process of a WFOE incorporation?

Name Approval

Obtain Registered Office Address

Apply for Business License

2.1. Name Approval

The first step of your WFOE incorporation is to decide on an appropriate name. China maintains legislation that dictates certain requirements for a company name that must be adhered to.

Company names must incorporate the following:

Administrative region name of the company’s incorporation
Brand name
Industry or business the company is operating in
The company name must include “Company Limited”

Chinese legislation outlines certain restrictions in respect of what is not allowed in a Company name or what may require special approval from government authorities. Generally, names that may mislead consumers or hinder fair competition, damage or challenge Chinese national unity, policies, social ethics, culture or religion are not allowed.

In addition, special characters are not permitted and certain words that can imply business operations in certain industries (e.g., banks or insurance companies) require special approval. Lastly, words such as ‘China’, ‘National’, ‘State’ or ‘International” also require special approval.

2.2. Obtain Registered Office Address

During a WFOE incorporation, applicants must provide documentation stating that it has a registered office address in which the business will operate. Applicants should submit a document showing this registered address in the form of a copy of the lease contract or a property deed.

It should be noted that under current Chinese laws and regulations, it is prohibited to apply for incorporation when utilizing a virtual office as a registered office address.

2.3. Apply for Business License

Upon receiving approval for a WFOE name and obtainment of a registered office address, a business license must be obtained from the local State Administration for Industry and Commerce (“SAIC”).

To prepare for document submission, it is important that applicants compile the following documentation:

Documentation evidencing that their company name has been approved
Proof a registered office address
Business scope (the incorporated WFOE will only be able to conduct business activities the outlined business scope)
Identity documents of the shareholders
Proof of registered capital to be injected

2.4. Other Considerations

The location you incorporate your WFOE in will have considerable effects on your business operations. Different geographic regions in China may possess varying subsidies and initiatives to support start-ups and SME’s. In addition, these geographic regions within China may even offer different consumer markets for certain industries. To ensure applicants can take full advantage of these subsidies and incentives, it is recommended to take time to research which geographic region is most suitable to your firm and your business intentions.

When drafting your WFOE’s business scope, careful attention should be given to defining what business operations your WFOE will perform. The Chinese government maintains the right to prohibit or restrict your business activities if your business scope does not align with Chinese laws and regulations. To avoid any unnecessary complications upon the commencement of your business operations, make sure that your business scope aligns with the long-term goals of your company.

Although there are no rules dictating the minimum amount of registered capital for a WFOE, it is recommended that the initial investment be sufficient to support the WFOE’s proposed business activities. A sufficient initial investment should allow the WFOE to operate in China for at least one year, without the risk of its insolvency for its operations.

Conclusion

Do you have additional questions regarding how to incorporate a WFOE? Are you interested in learning about the various benefits to incorporating a WFOE? If so, please feel free to contact FastLane for assistance!