If you follow this blog you will have read articles on the differences between WFOEs (pronounced “wuh-fee”), ROs, and JVs, on the different types, the Pros and Cons, and a whole lot more. Today’s blog post expands on this knowledge base and sets out the application process for setting up a WFOE in China.
Before we get started let’s just fresh on the basics. A Wholly Foreign Owned Enterprise is a privately held limited liability company in China in which all the shareholders are foreign. It is the most favored investment vehicle as it gives full autonomy and control to the foreign parent company. They also come in various forms: A Consulting WFOE, which is the easiest to establish, a Manufacturing WFOE, which allows companies to manufacture in China, and a Trading WFOE or a Foreign-Invested Commercial Enterprise (FICE), which grants companies both import and export licences and allows them to trade locally.
The process of setting one up can be broken down into 2 parts, namely: the Pre-License Procedure, and the Post-License Procedure. The process does vary depending on the type of enterprise being established but below we outline the main aspects that are common to all three types.
Step 1: Define Your Chinese Business Name
The first step in the application process is to file for your official Chinese businessname. There are fixed guideline that need to be followed in order for you to select an acceptable name.
Step 2: Prepare Your Legal Documentation
The second step is to prepare all the necessary legal documents for the company registration. Other documents include the lease contract for a rented office space or building, the Feasibility Study Report (FSR) and the bank reference letter.
Step 3: Apply For Your Business License
The next step is to actually submit the documentation and apply for a business license at the local authorities. These include the Ministry of Commerce (MOFCOM) and the Administration for Industry and Commerce (AIC).
Step 4: Register For Taxes
Step 4 only happens once you have been granted your business license. In this step you have to register for taxes at the State and local Tax Bureau. Multiple documents need to be provided for the registration. You will also need a company stamp. In China, official documents are only valid once they have been stamped. It performs the same function as a signature in the rest of the world.
Step 5: Register With Other Authorities
The second to last step is to register the company with the other relevant authorities. There are 12 different authorities that a company needs to get registered with in order to get established. These authorities include the Technology Supervision Bureau which issues the enterprise code, 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: Open Bank Accounts
The sixth and final step is to open a bank account that operates in RMB. In addition, a foreign currency bank account must be opened for the contribution and verification of the foreign invested capital.
The process of setting up a Wholly Foreign Owned Enterprise in China can be overwhelming for people and organisations who are unfamiliar with the process. It is really important to understand how it all works before you start to avoid mistakes that could increase costs and cause delays. It is always a good idea to consult experts in the matter to ensure your application is handled quickly and efficiently.