China Structure – Wholly Foreign-Owned Enterprises

In addition to the WFOE?s expansive business scope, its unrivaled popularity arises from multiple other factors:

  • 100 percent foreign ownership and control
  • Security of technology and intellectual property rights
  • Self-developed internal structure
  • Insertion of existing company culture
  • Profit repatriation
  • Domestic sales

Your organization has decided to invest in China. Deciding which entity to establish based on your short and long-term plans is the next step.

Structuring your WFOE
Business scope

You need to ensure your business scope is accurate and genuine. The requisite administrative government offices will quickly pass your proposed business scope, but that does not mean you are finished. Your proposal will then make its way to the state and local tax bureaus, and they will also thoroughly check your application. Any attempts to fool the tax bureau into thinking you are producing one thing when you are actually producing another will inevitably fail.

WFOEs can only operate within the business scope approved by the authorities. The scope of business article within your articles of association will define exactly what your company is going to do. If you are going to be selling your product domestically, be sure to mention China?s required compliance with the WTO treaty. This will allow easier access to the domestic marketplace.
Also, your business focus must be clearly indicated or problems with the tax bureau and customs will arise when seeking due tax refunds. This does not mean your WFOE must be one-dimensional, but that you must be honest and prescient when planning your operation. Beyond being a complicated approval process, it is also a lengthy one due to the requisite translations and multiple bureaucratic departments.

Registered capital requirements
Registered capital requirements are dependent on location and industry and are used as an entry barrier to ensure foreign-invested enterprises are of sufficient quality and financial strength.

Minimum capital requirement
The legal minimum capital requirement for a domestic commercial, manufacturing or service enterprise is RMB30,000 but immediately jumps to RMB100,000 for entities with only one shareholder is present. In reality, however, the minimum capital requirements vary drastically by location and industry. For instance, a manufacturing WFOE in Beijing may face different capital requirements than a manufacturing WFOE in Tianjin, a service WFOE in Shanghai, or a FICE in Guangzhou. Shop around and compare regional differences. But beware, people are often duped into attractive but untenable minimum capital requirements proffered by local magistrates trying to meet their quotas.
This will lead to complications with the central and local tax bureaus, both of whom will be intimately involved in your business life. It might be helpful to note that your registered capital is also your limited liability and this is also reflected in this amount. This could become a dealbreaker if a potential client wants to do business but cannot determine whether or not you are sufficiently capitalized.

Read next :
Foreign-Invested Commercial Enterprises

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