A Wholly Foreign –Owned Entity (WFOE) is a Limited Liability Company (LLC) that is mainly established by foreign investors. WFOE is regarded as the best and most efficient investment strategy for foreign investors. The company is regulated or monitored by China’s company structure. As a limited liability company, a WFOE is a distinct legal entity, hence the shareholders cannot be sued if the company becomes insolvent. Shareholders in a WFOE must contribute a stipulated percentage of capital to the company constantly for a 30 year period. A WFOE is allowed to comfortably hire both local Chinese employees and foreigners. This article discusses the significant steps required to successfully set up a WFOE.
Approval of Company Name
First, the potential directors in WFOE must determine an appropriate legal name. A valid firm name must contain the following; the named company limited, business or industry the company operates, brand name, and the region of the firm’s incorporation. Notably, the Chinese legislation prohibits firms from using names that may adversely impact the Chinese religion, culture, social ethics, policies, and Chinese national unity. Also, WFOE should not propose names that mislead customers or create unfair competition in the market. New WFOE also should not be named using the names of already existing businesses. Besides, names such as; international, state, national, and China must be especially verified by the Chinese government.
The WFOE in China is a business structure that allows foreign investors to operate in China under the supervision of Chinese management. The purpose of the WFOE is to increase manufacturing and exports in the country. While there are other types of business structures in the country, the WFOE is the preferred one for most foreign investors. This type of business structure allows for independence and control, and it also offers tax benefits. Several advantages of WFOEs include their ability to transact business in foreign currencies.
The first advantage of a WFOE in China is that it is easier to register than a conventional business. However, there are some challenges with this type of structure. Although there is no fixed rule, a Hong Kong Limited is the easiest to set up and operate. Other parent structures can be more complicated and are generally more expensive. For example, you cannot conduct business in a residential building if your company is not incorporated in Hong Kong.
The WFOE in China must have a business license. This license is similar to a certificate of incorporation in most other countries. It enables your WFOE to sign contracts, open RMB accounts, and hire staff. The SAIC must approve your business license to conduct business in China. Once you have a business license, you can begin to hire employees and begin to accept payments in RMB. This will help you keep track of your expenses and manage your business effectively.
Acquire a Chinese Registered Office
Before being fully incorporated, Chinese WFOE companies must avail the relevant documents clearly stating the registered offices appropriate for the business operations. The firm’s potential directors should present a form or document clearly showing the WFOE’s registered address. The documents submitted must resemble a property deed or a lease contract. Applicants are prohibited from requesting Chinese company formation using virtual offices as their primary registered addresses. This means that all WFOEs must have physical addresses before incorporation Lastly, a registered office allows the company to efficiently link with a financial advisory firm in china.
Applying for a Business License for the WFOE
After securing the WFOE’s name approval and acquiring a registered office address, directors must apply for business licenses from the SAIC (Local State Administration for Industry and Commerce). To quickly acquire a license, applicants must present the following information to SAIC; registered capital injection evidence, documents shareholders identity, business scope or the activities that the business will be carrying out, registered office address proof and forming proving that the company has been successfully approved.
Registering the Company with other Business authorities
Chinese company law states that all WFOEs must register at twelve diverging government offices. These offices include; statistical bureau, financial bureau, foreign exchange, state administration, and the Technology Supervision Bureau. Also, a WFOE must register with the financial advisory in China.
Opening an RMB Bank Account
Lastly, a WFOE’s directors must open an RMB bank account for the company. Also, they must open and validate a foreign currency bank account which verifies the entire contributions of foreign-invested capital.