The Setup of Chinese WFOE and Why SZQH Shenzhen Free Trading Zone


The People’s Republic of China is situated in East Asia, known as a one-party sovereign nation. Consisting of a total population of approximately 1.404 billion, it is the most popular country in the world. The total estimated area of China is about 9,600,000 square kilometers. The currency of China is Renminbi (RMB) having a common unit Yuan.

The governing party of China is the Communist Party. The state possesses control over China including 22+ provinces, 5 autonomous areas, special administrative areas of Macau and Hong Kong Island and 4 municipalities i.e. Beijing, Shanghai, Chongqing and Tianjin.

Beijing is the capital of China and Shanghai is the largest city. The national language of China, which is included in the 5 working languages in the UN is Putonqhua or Mandarin. However, the existing 55 minority communities in China have their own languages. In Southern China, one of the local dialects is Cantonese.

Chain – from the prospective of residence

 

Being one of the unique Asian countries, China is dynamic and large. Temporary residents of China experience wonderful continuous opportunities but some challenges as well. The reason many expats live in China for years is their love for its culture.

The benefits of being a Chinese resident are as under:

Generally, foreigners in China are welcomed as guests. The local residents are welcoming and kind. In case of any confusion, the Chinese will readily provide their help and also, food is often freely given so you do not have to worry about sleeping hungry.

The economic state of China is growing and there are opportunities for a well-paid job. These job opportunities include English teaching, International trading, art, music, architecture, marketing etc.

The public transport in the country is amazing. Almost all the cities have high speed trains. The subway systems in the major cities, along with public buses and bike hiring apps are available. Even if you don’t own a personal conveyance, an Uber like service known as “Didi” is available.

The tire 1 cities Shanghai and Beijing have numerous dining options. All kinds of food from around the world can be found in almost each area of China. The food can be delivered to your doorstep via an app.

Food and other shops are available in the vicinity of apartments and the rent is much cheaper than some other countries.

China’s Wholly Foreign Owned Enterprise (WFOE) 

 

It may be a huge and challenging decision to initiate a WFOE in China and the beginning might be the most difficult. After doing a sufficient amount of research, you can come up with the necessary data on how to start it, what to do, its expense and how to do it.

The setup of WFOE in China is private and a limited liability company that has foreign shareholders. It is considered a recommended plan of investment due to complete control and autonomy to the overseas parent organization.

The various forms of WFOE are:

  • The Manufacturing WFOE, permitting the manufacturing processes to be carried out by enterprises in China.
  • The Consulting WFOE, being the most convenient to setup.
  • The Foreign Invested Commercial Enterprise (FICE) or the Trading WFOE, authorizing the companies to conduct trade and import, export in China.

Advantages of Initializing a WFOE in China

Some of the benefits that come with opening a Chinese WFOE are as follows:

  • There is no requirement of a license to import or export your own products.
  • The validity of business license is 15-30 years.
  • All the profits earned are transferred to the WFOE.
  • A business fully under your control. You are independent for the implementation of global strategies of the parent company and there is no compulsion of having a Chinese partner.
  • Liability to conduct operations rather than merely being a representative of the office and having the authority to issue invoices to the clients in RMB and receive revenues.
  • You have full control over the human resources. Low-price workforce can be employed from the locals.
  • Guarding your technology and local expertise.
  • Activities, development and management is more efficient.
  • RMB gains can be converted to US Dollars for remittance to the WFOE’s foreign parent company.
  • Shareholder is restricted to be liable only to the amount invested initially.

Procedure to Set up a WFOE in China

 

The procedure of setting up a WFOE varies and is dependent on the type of business you are initiating, but explained below are the main concepts that are applicable to all the 3 types of WFOEs.

Certificate of Incorporation.

Passport copies of all the company’s Directors.

The registered office address.

Letter of Good Standing by the bank of investor.

Outline of the structure of company: registered capital, business scope, and proposed Chinese names of the company.

Business plan.

For a trading WFOE, there might be a need of some extra documents including:

Feasibility Study Report (FTS).

Appointment letter and ID of the Legal Representative.

An official copy of the recent annual audit report from the foreign parent company that the Certified Public Accountant submits.

Custom HS Code of the expected export or import goods.

Articles of Association.

Certified Public Accountant should submit a certified copy of the recent annual audit report from the foreign parent company.

Appointment letters and identification documents of the managerial team of the company.

Certificate of capital assessment.

Some of the additional documents required for a manufacturing WFOE include:

Business plan.

Approximated and Proposed capital investment.

Proposed project size.

Evaluation report and Environmental impact.

Staff capacity and Operational structure.

Complete equipment list.

Legal written permission to utilize land.

Measures for Environment conservation.

Expected need of production utilities such as water and power supply.

Qianhai Finance Business District, which mainly emphasizes on technology, financial, information, and other professional services.

Shekou Business District which focuses on the development of internet and technology services, innovative and cultural industries.

West Port Area of Shenzhen which deals with development of port logistics, international trade, supply chain management and top-notch shipping.

Mentioned below are some of the various benefits noted in the SZQH Shenzhen Free Trade Area Zone.

Capital injection condition can be one third of the total amount of share capital, which is normally RMB 100,000 for most types of start-ups (approximately RMB 10,000).

Availability of Foreign investors to conduct controlled business activities in China.

Company registration only needs a registered and virtual business address for specific business at the beginning stages.

Promotion of Closer Economic Partnership Arrangement (CEPA) arrangements in the SZQH Shenzhen Free Trade Zone.

The company goods or services can be promoted by foreign investors, contracts signing, or part can be played by them in legal business activities inside the whole of China (population of 1.4 billion) without the requirement of a true Chinese office, or merely with a small amount of capital funding i.e. RMB 10,000. Thereafter, investors are free to sell or promote their products or services via:

Mass media: newspapers and magazines.

Television.

Chinese search engines: Alibaba, Toabao and Baidu.

Establishment of a sales premises in China.

Local Chinese distributors.

This trade zone includes 15 percent enterprises profit tax on few businesses, and only 25 percent enterprises profits tax on all the goods or services.

China is considered as the first largest economy in the world. People are in a position to consume high volumes of products and services. Also, the demand for goods and services outside China is huge as they are concerned with quality rather than fees.

With a legal business, investors can protect their businesses through legal procedures if customers refuse to pay for goods and services offered. Investors are permitted to have legal protection of their commercial activities via legal means.

All the mandatory processes such as registration and opening Chinese bank accounts can be done remotely. Foreigners do not need to travel to China for the registration of the company or opening of bank account (the foreigner should visit China when the bank account has been approved to collect pin, token and account number).

SZQH Shenzhen is situated near Hong Kong (1 hour by traffic).

To promote goods and services through promotion methods mentioned before, investors are permitted to use common modes of direct communication like direct line forwarded to the country of origin, QQ and Skype.

Bank accounts can be opened with multiple currencies (RMB, EUR and US dollar), and with remarkable internet banking services, foreigners can take control of their bank accounts from outside the country.

Company formation processes and bank procedures take one month to complete.

WFOE Registration in the SZQH Shenzhen Free Trade Zone

The following steps are involved:

Registration of a new or existing Hong Kong Company.

Preparation of Hong Kong business formation documents.

Appointment of directors, general managers, legal representatives, or supervisors of the Chinese company who will be the head of the bank accounts in China and preparation of all the documents that require Chinese Apostilled.

Opening of a bank account in Hong Kong.

Confirmation of the names in the Chinese Registration Office and receiving approval to make use of the suggested business name.

Making of Feasibility Study Report of the proposed Chinese company and all business activities conducted in China.

Arrangement of constitutional documentation of the startup proposed.

Presentation of all documents at the Company Registry in China for processing.

Application for tax licenses: local, central and VAT.

Company chops issued by Public Security Bureau.

Opening of basic and overseas bank accounts in China under the proposed company name.

Injection of capital funds to your bank accounts and getting issued with a Capital Injection Verification Report by a Chinese auditor.

Applying for all the mandatory business licenses in China.

Buying VAT from a local tax authority, starting business operations and issuing VAT invoices to customers.

About twenty-five days can be taken to complete WFOE setup and extra 8 days for the approval of the proposed company name.

It is recommended that you take help from a trusted professional firm such as Stephen M. S. Lai & Co. CPA Ltd for the application process. Using a firm that is knowledgeable of the process will save your time and money.

Our professionals acquire company licenses in the SZQH Shenzhen Free Trade Zone for:

Gaming industry

General service enterprises

Non-cash financing

Advertisement in media

Logistics companies

Environmental goods or services

Application software

Clothing designs

Interior designs

Wholesale and retail of general goods

New energy and materials

Management of assets

Translations

If you want to get more information on the promotion of your business in China, you can contact us, and we will be here for your guidance.


Moreover, we are involved in the incorporation of other jurisdictions listed below. If you need more information, please contact us.

 

Anguilla,

Antiqua,

Australia,

Belize,

BVI,

Cayman Islands,

China,

Costa Rica,

Delaware,

Ireland,

Marshall Islands,

Mauritius,

Nevis,

New Zealand,

Panama,

Samoa,

Slovenia,

Seychelles, and

UK.

 
 

We appreciate your inquires and interests in our professional services.