For foreign investors who want to start a business in China, establish a WFOE is one of the most common option.
China WFOE Registration
China WFOE is one of the most common type of entity when establish a company in China among foreign investors. China WFOE stands for Wholly Foreign-Owned Enterprise in China. A Wholly Foreign Owned Enterprise (WFOE or WOFE) is a Limited Liability Company (LLC) that is entirely owned by foreign investors (Typically, under a parent company).
Type of China WFOE
There are three key types of WFOE in China, consulting WFOE, trading WFOE and manufacturing WFOE.
Consulting Wholly Foreign Owned Enterprise (Consulting WFOE)
Consulting WFOE is one of the most basic type of foreign company in China. The entire China WFOE formation process and required documents are much easier than the other type of WFOE in China. Foreign investors should be aware that the consultancy WFOE’s business scope is limited, and part of the activity can only be undertaken after getting a specific license or certification.
Trading Wholly Foreign Owned Enterprise (Trading WFOE)
Trading WFOE is established when a company wishes to engage in the trading of products in China. In China, a trading China WFOE allows foreign companies to work in not only trading, but also wholesale, retail, or franchises.
Manufacturing WFOE
Manufacturing China WFOE enables you to start as a manufacturer in China. You may need to get a special license based on the product category that you would like to manufacture in China. The process and required documents of setting up a manufacturing WFOE is quite complex comparing the consulting and trading WFOE. A required size plant is required. The manufacturing WFOE can only start on manufacturing when obtaining the environment safety certificate, fire protection approval and energy impact assessment approval.
China WFOE Incorporation Steps & Timeline
Once you have decided to register a China WFOE to start a business in China, this is what you need to take into consideration:
China WFOE Registration Requirements and Basic Information
China WFOE must be led by three main personnel: legal representative, supervisor, and the financial manager/supervisor. The three personnel shall be three different people. Any of the three person can be registered as the Liaison Person.
- At least one foreign investor; (can be individual or oversea parent company)
- One legal representative (can be Chinese, or foreigner)
- One finance manager/supervisor (suggest Chinese)
- One supervisor
- One Liaison Person
- Company registration address (can be a virtual address)
- Company business scope
- Company Chinese name (suggest preparing 10 Chinese name)
- Registered Capital
Advantages & Disadvantages of establishing a WFOE in China
Before establishing a company in China, it is very important for foreign investors to understand the Pros and Cons for set up a China WFOE.
China WFOE Registered Capital
Registered capital is the amount that required to mention during the company registration procedure in China. There is no minimum registered capital amount for most of the business in China. However, for some specific industries and business, a minimum registered capital is required when applying the special license. Below is the guideline of the registered capital in China for different type of China WFOE for your reference.
Creating Company Name in Chinese
A China WFOE must have an official company name in Chinese. The Chinese name must be submitted to the local administration system during the registration’s initial stage, which is the name approval stage. There are some requirements and constraints to creating a Chinese name for your company. When it comes to choosing a Chinese name for your firm, there are a few criteria and limits to consider. We suggest foreign investors consider at least 10 Chinese names for their China WFOE before name approval phrase, as duplicate or similar Chinese names will not be allowed by the government.
Below is the general company name structure:
[City of formation] Company Name [business type] [Co,.Ltd.]
Example: Shanghai AAAA Consulting Co., Ltd.
China WFOE Registered Address
In order to register a company in China, a registered address is required at the very beginning of the process. The term “registered address” refers to a legitimate business address that can be used to register the company in China. In China, a residence address is not permitted. For the manufacturing WFOE registered address, a plant space of a certain size is required.
During the China WFOE registration process, a leasing agreement must be submitted. In the early stages of doing business in China, if foreign investors do not intend to rent a physical office, a virtual registered address can be used as a registered address. However, virtual registered addresses are not permitted in some industries or areas.
China WFOE Business Scope
A WFOE’s business scope in China lists the services or activities that a WFOE is permitted to provide and carry out in China. Each company’s business scope will be listed in the company’s business license. Such a business scope can only be chosen from a list of categories based on various industries and businesses listed on the government website. Here is one of the government website that can check China business scope.
Foreign investors should be aware that the business scope mentioned in the business license does not imply that the company can conduct such activities. Some businesses, such as labor dispatch and finance, require a special certificate and license to operate legally.
Carving Company Chops
A company chop is required in China and serves as the official seal or stamp for the China WFOE. Only documents with the company chop are permitted to deal with government or bank issues when doing business in China.
In addition to the company chop, there are some other chops that are commonly used when doing business in China that are listed below.
- Legal Representative Chop
- Finance Chop
- Contract Chop
- Fapiao Chop
- Customs Chop (Trading WFOEs)
The company’s official chop must be in Chinese, and the naming must be exactingly the same as the full name in the business license. Please keep in mind that only licensed agencies can carve company chops.
China Business License
Below is one of the example of China WFOE business license in China, business license is also treated as the incorporation certificate of all the companies registered in China. Each company can receive their original business license after establishment.
The original business licenses should be kept safe and used when dealing with the government or banks. The government and banks now recognize electronic business licenses, which can be used and found online.
Open Foreign Currency and RMB Bank Account in China
In China, a foreign WFOE must have at least two bank accounts.
- RMB basic account: used for WFOE’s day-to-day operations in China, such as payments to vendors, governments, and employee payroll in China.
- Foreign currency capital account: This account is typically used to receive capital amount from an overseas parent company or foreign investors.
Required Documents List for China WFOE Formation
- Parent company incorporation certificate and:
- Certified Notarization documents for Business License, Articles of Association and List of Directors/ Passport of investor
- Translated Certified Notarization documents for Business License of investor
- Legal Representative, Director/Supervisor, Finance Manager, or liaison person Information and passport/ID
- All shareholders shall sign on the authorization letter
How to Hire Employee in China Before WFOE Formation
Usually it takes couple of months to complete the WFOE formation in China. If foreign companies would like to hiring employees before company establishment, they can engage a China employment agency to hire employees working for you in China. The employment agency will sign labor contract with your employees in China, and handling payroll and mandatory benefits in China.
Frequently asked questions for payroll and hiring employees in China.
No, you do not need.
If you don’t have a company in China, you can hire employees through PEO service through the employment agency in China.
a) Hire employee through the PEO/employment service.
If you don’t have a legal entity in China, this is the only compliance way to have employee working for you in China.
b) Hire employee under WFOE.
If you already set up a WFOE in China, you can sign the labor contract with employees directly. You can either choose to handle their payroll land benefits yourself, or you can choose to outsource.
c) Hire employee under representative office (Ro)
Representative office in China is not allowed to hire employees directly. The only compliance way is hire employees through labor dispatch agency under PEO service
PEO refers to a professional employment organization, in China it’s also called employee outsourcing, labor dispatch. Foreign companies can hire staff in China through a PEO agency without setting up a legal entity in China.
Severance payment in China is based on the number of years employee has worked for the company.
Each full year employee worked for your company, one month salary shall be paid as severance payment.
For the working periods that are less than 6 months, half month salary shall be paid.
If employee’s monthly salary is higher than 3 times local average monthly salary, each year of the severance payment compensated shall be 3 times local average monthly salary.
If employees are in the probationary period, both employee and employer shall give 3 days as notice period for termination.
After probationary period, both employee and employer shall give 3o days as notice period for termination.
If employer need immediate termination, employer shall compensate one month salary.
No, you do not need.
No, You shall have a company registered in China to sign a written labor contract with each of your employee.
In practice, employer will sign a fixed term contract with their employee. However, when it goes to the third time renewal of the contract, then the contract becomes to a permanent contact.
Sign a two years or three years contract is more common in China.
Labor contract in China shall be at least in Chinese, and including but not limited to:
Company details including full name, address and legal representative or person in charge.
Employee details including full name, ID number, address.
Term of the employment contract; (E.g., 2 years, 3 years…).
Position (job title), location(city), working hours, holidays, leaves.
Package: gross salary, bonus, commission, social insurance, other benefits.
Occupational safety, and occupational hazard prevention.
Other terms which laws and regulations required.
You need to set up a company in China and then set up a separate Social Insurance and Housing Fund Account. After the company has been set up, you can contribute the benefits to the employees who have signed a contract with you.
The most popular job portals in China is: Zhaopin.com, Liepin.com, zhipin.com. However, these three job portals only accept a registered company in China.
If you don’t have a company in China, you can search candidates through Linkedin.com or engage a headhunting or recruitment firm to help you search the candidates.
In China, employees’ individual income tax (personal tax) shall be declared monthly by the employer, and yearly by employee themselves.
