Taking the leap to open a Wholly Foreign Owned Enterprise in China is a big step and can seem overwhelming at first. Once you start doing the research you’ll undoubtedly find contrasting information on what you should be doing, how, and what the cost of setting up a WFOE in China will be; and, more importantly, what the current minimum capital investment requirements are.
In this blog post, we’re going to explain what the China WFOE minimum capital investment requirements are, and what will be expected of you as a foreign investor in China. Before we get into the details, let’s take a look at what exactly a WFOE is and what benefits you will gain from such a setup.
What is a WFOE, and why should I be opening one?
A WFOE is a privately held limited liability company in China in which all the shareholders are foreign. It is the most favoured 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.
Some of the benefits of opening a WFOE in China include:
- Complete control of your own business,
- Ability to hire low cost local staff,
- Protect your intellectual property,
- All the profits belong to the WFOE,
- Your business license is valid for 15-30 years
There’s an abundance of reasons why this is the ideal setup for your company, if you would like to find out more about the process you can take a look at the article “Setting Up A WFOE In China: The Process Explained.”
What Will The Minimum Capital Requirements For A China WFOE be?
Even though China has moved to eliminate the minimum capital injection requirement “Registered Capital” as a condition for opening a WFOE, the reality of it is that each application will be reviewed on a case-by-case basis. Depending in which city and the type of business you will be undertaking (consulting, manufacturing, services, commerce, etc.) the China WFOE minimum capital registered amount will vary.
Chinese authorities at the Ministry of Commerce (MOFCOM) in the PRC will typically require a minimum commitment of between RMB 200k to RMB 500k, which is roughly between $30k -$73k USD, for a basic consulting WFOE (a manufacturing WFOE would normally be required to inject more registered capital but you can confirm this with a consultant at Hongda).
How is China WFOE minimum capital calculated?
MOFCOM will review your feasibility study report submitted as part of the registration process, which is essentially a projection of expected expenses and profits for the first three years of the WFOEs life, and use that as a rough guide to set the minimum registered capital. Once the capital investment has been injected, the registered capital will remain available to fund the WFOEs activities until it achieves self-sustainability – or the registered capital would need to be increased.
For instance, a factory will require a greater initial investment than, say, a trading company, as its monthly overheads would be very high when factoring in building and equipment costs, utilities, supplies, and staff costs.
It is worth noting that there is no such thing as a shelf company in China and that ALL WFOEs are expected to achieve sustainability at some point.
Can registered capital be retrieved if it's unused?
It is important to plan funding and sustainability of the WFOE from incorporation until profitability and to set the registered capital accordingly. Investors would need to strike a balance between making enough capital available to fund initial growth, but not with so much that you end up with "dead" capital that doesn’t earn a return, effectively trapped in the capital investment account of the WFOE.
One would assume that the funds could merely be returned to foreign shareholders if not needed, but reversing and returning registered capital from China can be a headache, and for all practical purposes regarded as effectively impossible. Therefore, investors will have to carefully consider how much registered capital would be needed to achieve sustainability. Given that this can be hard to figure out and an altogether tedious process, we would recommend utilizing the professional services of a company such as Hongda to guide you through the process step by step.
Considering opening a WFOE in China, but still undecided?
Do you need more up to date information about the current requirements and procedures?
Please feel free to leave your questions in the comments section below, and have them all answered with up-to-date information.