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How To Set Up a WFOE in China: The Most Important Steps

(June 3rd, 2015)

By Richard Hoffmann, ECOVIS Beijing

When starting a business in China, many choices have to be made. One of the first tasks is to determine the entry strategy and decide on the legal structure. Do you want to enter China with a Joint Venture, a Representative Office, a Wholly Foreign Owned Enterprise (WFOE) or will you choose to trade?

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Regardless of your choice, the set-up procedure can be a lengthy and complex process and many procedures and documents need to be prepared. Due to its independent character, the WFOE has established itself as one of the most popular vehicles for doing business in China. Compared to the other strategies, the WFOE is the only one where the founder can be 100% in control.

Before we take a look at how to set up a WFOE in China, know that there are three different types of WFOEs, as mentioned in one of our previous blog posts: a consulting WFOE, a manufacturing WFOE and a trading WFOE. On average, a WFOE set-up takes up three to six months. However, the length of the registration process varies depending on the choice of WFOE. A consulting WFOE for instance, takes considerable less time than a manufacturing WFOE. In this article, we will give an overview of the most important steps. For a more elaborate overview, please download our new brochure which will be released soon.

Pre-license procedure

Step 1

First and foremost, it is important to file your official Chinese business name. In order to pick an acceptable business name, there are many fixed guidelines that need to be followed. Furthermore, a lease contract of the rented office space or building must be provided.

Step 2

Secondly, you should ensure that all necessary documents are drafted in Chinese for the company registration at the proper premises. The Articles of Association for example, which have to be made up in this step, are often overlooked as a formality. However, these documents are critical for the future success of the company. Other documents include the rental contract, the Feasibility Study Report (FSR) and the bank reference letter.

Step 3

Furthermore, you should apply for a business license at the local authorities. These include the Ministry of Commerce (MOFCOM) and the Administration for Industry and Commerce (AIC).

Post-license procedure

Step 4

After receiving the business license, it is crucial to register for taxes at the State and local Tax Bureau. Please keep in mind that multiple documents, the business license for instance, need to be provided. Furthermore, during this step, you must have your official company chops. In China, official documents are only valid when they are chopped. Therefore, the company’s chops – for example the company, financial, legal representative and invoice chop – function as a signature. For internal control purposes, we advise you to disperse the chops to avoid one person having all control.

Step 5

The next step in the process is to register the company at other relevant authorities. In total, a company has to register at 12 different authorities in order to get established. These authorities include the enterprise code registration at the Technology Supervision Bureau, the registration at the State Administration and Foreign Exchange, the financial registration at the Financial Bureau and the statistic registration at the Statistical Bureau.

Step 6

The last part of the registration process includes the opening of an RMB bank account. Moreover, a foreign currency bank account must be opened for the contribution and verification of the foreign invested capital.

All these steps require a lot of preparation and paperwork, therefore it is important to be aware of the 10 most likely mistakes while setting up a WFOE. After completing the steps above, your company is officially established and fully operational, congratulations!

If you have any inquiries about setting up a WFOE in China, don’t hesitate to contact us! Call our office at +86 10 6561 6609 – 811

Richard Hoffmann Richard Hoffmann is a partner at ECOVIS Beijing China. Richard obtained an honors degree in law and worked in Germany, America and China for various prestigious law firms prior to joining ECOVIS. He has published more than fifty articles in international magazines, frequently speaks at high profile events in China and abroad and is often invited as a legal expert by international TV stations. Contact: richard.hoffmann@ecovis.com
Ecovis Beijing is the trusted tax and legal advisor of several embassies and official institutions in China. It specializes in mid-sized international companies and is focused on tax & legal advisory, accounting and auditing. If you’re interested in finding out more about tax and legal, don’t hesitate to sign up to our Newsletter, give us a call +86 10-65616609 (ext 811/806) or contact us directly via Beijing@ecovis.com.
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Author:
Richard Hoffmann
richard.hoffmann@ecovis.com
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