China’s Greater Bay Area holds great potential for foreign market expansion as the opportunities are snowballing in this region. Meanwhile, our partners at FastLane Group have successfully expanded their business presence into Mainland China, located in Shenzhen. As they are keen to help companies with their China incorporation process, here is their complete guide to setting up a WFOE in China.
What you will learn from this article:
- What is WFOE?
- The incorporation process of a WFOE in China
2.1. Company Name Approval
2.2. Obtain Registered Office Address
2.3. Apply for Business License
2.4. Other Considerations
What is a WFOE?
Wholly Foreign-Owned Enterprise (WFOE) is the China-based business entity designated for non-Chinese enterprises to establish their limited liability company in China. Most importantly, it is the most favored investment vehicle for non-Chinese enterprises expanding the business to China. Although there are multiple company structures available to non-Chinese enterprises, setting up a WFOE is the most favored investment vehicle.
The incorporation process of a WFOE in China
Company Name Approval
The first step of your WFOE registration is to decide on an appropriate name. Above all, China maintains legislation that dictates specific requirements for a company name to be put into consideration.
Company names must incorporate the following:
- Administrative region name of the company's incorporation
- Brand name
- Industry or business the company is operating in
- The company name must include "Company Limited"
Chinese legislation outlines certain restrictions regarding what is not allowed in a company name or what may require special approval from government authorities. Generally, names that may mislead consumers or hinder fair competition, damage, or challenge Chinese national unity, policies, social ethics, culture, or religion are not allowed.
Additionally, the rules do not permit special characters and specific words that imply business operations in certain industries. For instance, banks or insurance companies may require special approval. Lastly, terms such as "China", "National", "State", or "International" also require special approval.
Obtain Registered Office Address in China
Before incorporating a WFOE in China, applicants must provide documentation stating that it has a registered office address where the business will operate. Subsequently, applicants should submit a document showing this registered address in the form of a copy of the lease contract or a property deed.
Current Chinese laws and regulations prohibit applicants from applying for China company formation when utilizing a virtual office as a registered office address.
Apply for Business License for your WFOE
Upon receiving approval for a WFOE name and obtaining a registered office address, applicants must obtain a business license from the local State Administration for Industry and Commerce (SAIC).
To prepare for document submission, applicants must compile the following documentation:
- Documentation evidencing that their company name has been approved
- Proof a registered office address
- Business scope (the incorporated WFOE will only be able to conduct business activities the outlined business scope)
- Identity documents of the shareholders
- Evidence of registered capital injection
The location you incorporate your WFOE in will have considerable effects on your business operations. Different geographic regions in China may possess varying subsidies and initiatives to support start-ups and SMEs. Besides, these regions may offer different consumer markets for other specific industries.
We encourage applicants to take full advantage of these subsidies and incentives. Therefore, take your time to research which geographic region is most suitable to your firm and business intentions.
When drafting your WFOE's business scope, give careful attention to defining what business operations your WFOE will perform. The Chinese government maintains the right to prohibit or restrict your business activities if your business scope does not align with Chinese laws and regulations. To avoid any unnecessary complications upon the commencement of your business operations, make sure that your business scope aligns with your company's long-term goals.
There are no rules about the minimum amount of registered capital for a WFOE. However, we recommend that the initial investment is sufficient to support the WFOE's business activities proposal. Consequently, an adequate initial investment should allow the WFOE to operate in China for at least one year, without the risk of its insolvency for its operations.
FastLane initially published this article on November 27, 2019. Greenhouse has received permission from FastLane to distribute the content.
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