China WFOE formation

If you are planning to conduct business directly in China, the best option for you is formation of WFOE (Wholly Foreign Owned Enterprise) in China. This business vehicle let you make import and export formalities in China, sell goods directly on domestic market of China, using local payment systems, provide directly your services to China customers, receive money in local currency (RMB), issue local tax invoices to Chinese customers, hire local staff, make visa for foreign staff etc. If you incorporate your China company in the form of WFOE (not Joint Venture Enterprise) you will not depend on your Chinese partner and you can independently manage your company business affairs and its bank account.

Note: we are more specialized in the formation of China WFOE in Guangzhou (at South of China, in Guangdong Province). We also can provide formation services in other cities, but the cost of services will be about two times higher.

Below you can find terms of formation of China WFOE.

Formation of WFOE in China is the best option for you business which let you be closer to your customers and suppliers in China, control sales on local market or control producing and delivery processes, use local payment systems, make Chinese visas, officially hire local staff etc.

Formation of China WFOE is much safer in comparison with Joint Venture Enterprises, and gives you much more possibilities in comparison with registration of representative  office in China.

Requirements for formation WFOE in China are quite simple: you need to provide legalized documents of foreign founder and rent office premises. The period of formation in recent years greatly reduced, now it takes about  1,5 -2 months (in comparison with 4-6 months that was before).

China WFOE formation cost:

• our company services price for WFOE formation in Guangzhou (China) is RMB12,000.00;
• formation state fee (paid after finishing formation process) is around RMB1,000.00;
• legalization of founder documents (in Chinese consulate of country of founder residence) - amount differs in different countries (for Hong Kong company legalization fee is USD800.00);
• office premises rent in China (amount depends on district and area).

China WFOE formation period:

Period of China WFOE formation is now (compared to previous years) greatly reduced and is now approximately 1,5-2 months.

China WFOE formation conditions:

Prior to the process of formation of China company (WFOE) you need to fulfill following requirements:

1. To rent an office premises in China. If necessary in Guangzhou we can help to rent a tiny office on the outskirts of the city, rather unsuitable for job, but quite suitable for WFOE formation purpose. The rent price for such office is RMB8500 to RMB12500 per year (depends on area). Or you can rent a normal office. The rent price for office in Guangzhou with area 50 sq.m. is around RMB3,000.00 to RMB5,000.00 per month (depends on district and level of office building). Note: usually at the signing of rent contract in Guangzhou you should pay rent prepayment for the first month, deposit at amount of 2 months rent, and commission of real estate agent at amount of half of month rent.

The list of documents regarding office premises required for process of WFOE formation:

• office rent agreement in China (Guangzhou) - original, with rent period of not less than 1 year, having the mark of registration at the District Office for the Registration of real estate transactions;
• copy of the landlord documents: identity card, proof of ownership of office space.

2. To legalize the documents of founder in Chinese consulate in the country of residence of founder (for Hong Kong companies: legalized by authorized notaries in Hong Kong). We can recommend to use preliminarily registered (half a day) Hong Kong company (please see information about this service here) as a founder, because it will simplify process of legalization (simplified process for Hong Kong companies) and payment of registered capital of China WFOE (no foreign currency control in Hong Kong). Process of legalization of documents specifically for Hong Kong companies is very simple and quick. We fully assist in the process of legalization of Hong Kong company documents, no need of your personal presence. Our assistance is free of charge, but the cost of the legalization is approximately US$800.00, period of such legalization is 3 to 4 days.

List of founder documents to be notarized and legalized in the Consulate of China if founder is a corporate entity (note: 2 sets of legalized documents are needed - it can be original and official duplicate) :

• business license or similar corporate registration certificate  (for Hong Kong companies: Certificate of Incorporation)
• certificate of registration with the tax authorities (for Hong Kong company: Certificate of Business Registration)
• for companies established more than a year: an accounting or audit report of the company for the last year (for Hong Kong company: Annual Return)
• charter or other document, which has a list of founders (for Hong Kong companies: Form NC1, Form D)
• bank reference letter with recommendation from the bank where the account of the founder company is opened (for Hong Kong companies: the legalization of the document is not required, it is sufficient to provide an original). Note: The bank must be in the same country as the place of registration of the company (for example, if a founder company is Hong Kong company, so the bank that issued the bank reference letter must be in Hong Kong)

List of founder documents to be notarized and legalized in the Consulate of China (note: 2 sets of legalized documents are needed - it can be original and official duplicate) if founder is a natural person:

• passport;
• taxpayer certificate (if applicable);
• bank reference letter (from the bank where personal bank account is opened in the country of founder residence).

3. Other documents to be provided:

• future director (legal representative) of China WFOE: photos (two inches, on a blue background, 2 pcs.), a copy/scancopy of main page of the passport,  residence address;
• future inspector of China WFOE:  a copy/scancopy of main page of the passport,  residence address.

China WFOE bank account opening:

In the process of formation of Chinese WFOE the service of opening bank account in China bank is provided free of charge. It takes usually 3 weeks for opening 3 types of account: registered capital account, current account in RMB, USD payment account. Personal presence of director of China WFOE on this stage is required.

China WFOE registered capital:

Unlike Hong Kong companies, for China companies (including WFOE) there is a requirement of actual payment of registered capital. But now Chinese companies can pay it for as long period as company exists (usually 30 years). The amount of registered capital of China WFOE is about RMB500,000.00 for a trading company, and about RMB300,000.oo for service company. The amount should be calculated by yourself on the principle that it should be enough to maintain the company before it starts to earn enough to maintain itself (for example, you can calculate for 1 year: 12 months of office rent, utility expenses, salaries, transport fees, communication fees, for trading companies - initial turnover etc.). Registered capital can be paid by parts. No requirement to freeze part of registered capital, all funds can be used in economic activity.

Maintenance of China WFOE:

The main administrative expenses (besides of rent, salaries, utility bills, transport and communication expenses) of China WFOE are:

1. monthly accounting fees. Our company offer accounting services for your Chinese company:
For Chinese companies with a small turnover accounting fee in our company is 1600 yuan China per month. During the service visa service for foreign staff (and their family) is provided by our company for free.

2. annual audit fee (including three audit reports). Audit fee amount  depends on turnover, starting from RMB4,500.00 once a year.

3. annual examination of the documents of China WFOE: RMB1,500.00 once a year.

Advantages of China WFOE formation:

• LEGALIZATION OF ACTIVITY IN CHINA: possibility to legally pursue an independent economic activity in China;
• DIRECTLY IMPORT OR EXPORT IN CHINA: to legally conduct import and export activities, to carry out independently customs procedures in China, to process directly import and export documents in China on behalf of its Chinese company;
• DIRECT BUSINESS ON LOCAL MARKET: possibility to conduct transactions (purchase, promotion, sale and resale of goods) , produce goods, provide services and other activities directly on the domestic market of China;
• WORK IN LOCAL AND FOREIGN CURRENCY IN CHINA: possibility to receive/transfer payments in local currency (RMB) in China, or to receive/transfer funds in international currency from/to China company account;
• TAX REFUND IN CHINA: possibility to to refund "incoming" VAT upon goods export from China (after completing certain procedures);
• OBTAINING CREDITS IN CHINA BANKS: possibility of obtaining credit in Chinese banks (under the bank requirements);
• HIRING LOCAL AND FOREIGN STAFF: possibility to officially hire local staff, or possibility to make "working visa" (work permit, residence permit) documents for foreign employees (and their families) for their work and permanent residence in China;
• STABILITY AND NORMAL WORKING CONDITIONS: financial, economic, political stability in China, relative safety and absence of strict supervision of the activity of enterprises by different administrative authorities;
• DEVELOPED BUSINESS INFRASTRUCTURE: developed transport, logistics, finance, industrial infrastructure in China.

Disadvantages of China WFOE:

• TAXES: for example, main taxes are income tax (25%), VAT (3-17%);
• ACCOUNTING: you need to maintain accounting records and pass annual audit;
• CUSTOMS AND FOREIGN CURRENCY CONTROL: availability of foreign exchange control, customs control;
• REGISTERED CAPITAL: requirement for actual transfer of the amount of authorized capital (from the account of the founder). However, you can pay in installments over many years. These funds you can transfer to the current account of your China company and use them in the course of economic activity (purchase of goods and so forth).