- Wholly Foreign Owned Enterprise
- Foreign Invested Commercial Enterprise
- Representative offices in China
- Joint Venture Company registration in China
1. Wholly Foreign Owned Enterprises (WFOEs)
Wholly Foreign Owned Enterprise (WFOEs) is a limited liability company. In this, the complete shareholds the foreign entities and individuals. Only International business enterprises or foreign individuals can be the shareholders in WFOE and a Chinese partner is not mandatory.
WFOE is the best investment vehicle if the investor is planning to manufacture, process, or assemble in China. Having paid up capital is not necessary to establish a consulting, trading or IT firm etc. in China. The foreign companies which are planning to sell or make high-value products generally prefer to a WFOE. This is to resist any violation of intellectual property that has already cast-out China,
It is the amount mandatory to operate the business until it arrives at the break-even point. A WFOE operates with the registered capital until it built up its own cash- flow.
Minimum Registered Capital Requirement
- RMB 100,000 – Consulting WFOE
- RMB 500,000 – Trading WFOE
- RMB 500,000 – Manufacturer WFOE
Adviced Registered Capital
- RMB 300,000 < Consulting WFOE
- RMB 1,000,000 < Trading WFOE
- RMB 1,000,000 < Manufacturer WFOE
Business Scope of WFOEs
WFOEs can work within the limited approved business ambit that is mentioned on the business license. Further its application and its approval are required for changes regarding the business scope of WFOEs. The common business ambit includes the consulting services of investment, international economic, trade information, international economic, manufacturing, etc. It also has the emerging scopes in trading Wholesale and Retail business.
2. Foreign Invested Commercial Enterprise
The regulations for Foreign Invested Commercial Enterprise registration are relatively easy. It caters to the foreign investors a larger scope for administering the trading activities. They are established for the purpose of retailing, wholesaling, franchising or trading business in China.
The minimum registered capital required
- RMB 500,000 – Wholesale FICE.
- RMB 300,000 – Retail FICE
Adviced Registered Capital
- RMB 1,000,000 < Wholesale FICE
- RMB 1,000,000 < Retail FICE
3. Representative Offices (ROs) in China
Representative offices betoken the parent company. They work for market research activity to understand the scope and depth of Chinese Market for the future investment. They are not allowed to perform any business for profit-making. They cannot sign contracts on behalf of the parent enterprise, receive revenue, issue official tax invoices, deal a property or import manufacturing equipment.
TAX on ROs
Representative officers in China are liable to pay taxes on all the expenses incurred by him. It includes staff salary and rental. Approximately 10% of the total amount is payable as the tax. They submit a monthly report to the Chinese Tax Administration Department.
Staff recruitment cannot be done by ROs themselves. They need to seek the advice of an HR agent which is appointed by the Chinese government for recruitment purposes.
4. Joint Ventures Company
Types of Joint Ventures Company:
- Equity Joint Ventures
- Cooperative Joint Ventures
Joint- Venture is the collaboration of both domestic and international entities. It is secured by both, foreign and Chinese partners. It is built for the purpose of transfer of technology.
Similarities between WFOE and Joint Ventures Company:
- In case of a foreign employee, his is required to register with the local Social Security Authority within 30 days of employment.
- Corporate taxes differ from 15% – 25%, depending on the company’s jurisdiction and industry sector. Reporting to the Tax Administration Department is essential on a monthly, quarterly and annual basis. The cost of an annual audit report will be around RMB 6,000 and if not submitted company will subject to a fine.
- The company can easily repatriate the profit, there are no such conditions by China Government. If a company wants to remit the profits out of the country, then the approval of the State Administration of Foreign Exchange is not required. However, if the losses of the previous year have not been completed then distribution and repatriation of profit are not allowed. Registered capital cannot be repatriated to the home country during the term of business operation.
- Generally, the working duration of the manufacturing for WFOEs are 15-30 years. The duration is easily extendable on the basis of prior approval from the government. The WFOEs term is extended to 50 years if the company has:
1. a huge investment
2. a long construction period
3. manufactures internationally competitive products
4. advanced technology for producing cultured products
5. received key technology from a foreign partner