WFOE(Wholly Foreign-Owned Enterprise) in China

WFOE(Wholly Foreign-Owned Enterprise) in China

There are 3 kinds of WFOE(Manufacturing, Trading, Service) in China, and someone always doesn't make it clear. Here are the features of WFOE in China:

Operational features:

For manufacturing enterprise: They process or assemble the products they sell. The procedure of purchasing and processing of raw material with labor force is its great feature. For technical companies, they can be deemed as manufacturing enterprise if their operation activities include the procedure of processing the raw materials. Otherwise, they can't be defined as manufacturing enterprises.

For trading enterprise: Their chief feature is that they mainly carry on commodity or service exchange using some kind of currency. Generally, its operation pattern is a buying and selling.

For service enterprise: They provide certain invisible services, such as consultation, technology, patent and so on. Generally there is no trading of physical commodities.

Tax affairs: Manufacturing enterprise: they have to pay Value Added Tax (output tax payable minus input tax), where there are generally two different tax rates: 13% and 17% (For some special industry the rates will be different). Instead of VAT invoice, small taxpayers can issue plain invoice with the tax rate of 5% based on sales revenue. Enterprise income tax rate is 25% based on net profit at the year end.

Trading enterprise: they have to pay Value Added Tax (output tax payable minus input tax), where there are generally two different tax rates: 13% and 17% (For some special industry the rates will be different). Tax refund with rates from 4% to 13% is available for companies engaged in international trading. Enterprise income tax rate is 25% based on net profit at the year end.

Service enterprise: generally use plain invoice with the tax rate of 5% (few companies such as advertisement service and so on are exposed to different tax rate). Enterprise income tax rate is 25% based on net profit at the year end.

Registration request: According to the new Corporation law, the minimum registered capital for an enterprise is 30,000 RMB (except sole proprietorship and industry with special permission). Considering respective operating environment and convenience for registration, we suggest as follows:

Manufacturing enterprise: The minimum registered capital is 500,000 US dollars. It shall have at least 1 executive director and 1 supervisor if it doesn’t have a board of director or a board of supervisor. The executive director is the legal representative, and may hold a concurrent post of general manager. The registration procedure needs the enterprise to provide leasing contract of manufacturing location (it should be the contract of factory location, instead of office location), the environmental protection examination opinion and the Fire service opinion.

Trading enterprise: The minimum registered capital is 200,000 US dollars. It shall have at least 1 executive director and 1 supervisor if it doesn’t have a board of director or a board of supervisor. The executive director is the legal representative, and may hold a concurrent post of general manager. The registration procedure needs the enterprise to provide leasing contract of office (or building) location.

Service enterprise: The minimum registered capital is 100,000 US dollars. It shall have at least 1 executive director and 1 supervisor if it doesn’t have a board of director or a board of supervisor. The executive director is the legal representative, and may hold a concurrent post of general manager. The registration procedure needs the enterprise to provide leasing contract of office (or building) location.

Feel free to contact me if you wanna set up WFOE in China.
Email: haoenjun@goinvestchina.com