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How to Form a China WFOE/WOFE

Forming a China WFOE

There are some excellent international company formation companies and there are some where you are all but guaranteed to waste your money.  Some of these company formation firms (truly, always the better ones) call my law firm for assistance when they are facing a new or unusual or difficult legal situation. Sometimes a foreign company using a company formation company will call in our team of China business lawyers to assist when they become worried about their chances for WFOE formation success. Other times, we get called in to deal with the more legalistic aspects of a formation.

I mention all this because I recently was cc’ed on an email to a client experiencing difficulties with forming its China WFOE. This email provides a pretty good example of the typical issues involved in forming a WFOE and, stripped of any identifiers, it reads as follows:

At this point, I will need to review the following:

  1. Application for reservation of name;
  2. Feasibility Report together with supporting financial statements;
  3. Most recent proposed Articles of Association.

These three documents have to match, so review of all three at the same time is necessary.

With respect to your questions, let me know how you want to proceed. Do you want to provide me with a list of questions or do you want to schedule a conference call?

In terms of reviewing the application process, please let me know how you want me to proceed. I will need to know where you are in the process and what documents have already been prepared.

Usually I find that most clients have questions/problems with the following:

  1. Proof of existence of the U.S. shareholder. Appropriate documents must be authenticated by both the California Secretary of State and the Chinese consulate in San Francisco.
  2. Appropriate lease for the WFOE in China. In particular, for trading companies, the Shanghai authorities frequently insist on a warehouse space that can be quite expensive and possibly unnecessary.
  3. Registered capital. Shanghai generally insists on at least $150,000 in registered capital. For trading companies, certain districts insist on even more. The actual amount of registered capital depends on how the total investment is explained in the feasibility report. For this reason, the actual required registered capital may be substantially higher than the local minimum.
  4. Management structure: Board of directors or managing director. Who is the general manager and what will be its duties? Who acts as supervisor?

For trading companies, Shanghai usually imposes two additional requirements:

a. Audit of previous year’s performance for the shareholder. Closely held companies frequently do not have an appropriate audit report.

b. Listing of customs commodity codes for any product to be imported or exported.

Employment is a separate issue not directly part of the company formation process. However, your WFOE will directly employ Chinese nationals. Since this process is quite different than the indirect employment you have been using for your Rep Office, your rep office experience is not likely to be transferable to your situation as a WFOE. A major issue in the employment area is protection of intellectual property and trade secrets with respect to employees. The employment issues should be considered now, so that you are ready to proceed when the WFOE is approved.

Let me know how you want to move forward on this project. I look forward to hearing from you soon.

Our law firm has never once had a WFOE application rejected in China and though past performance is no guarantee of future success, our past performance is based in large measure on how we work with the appropriate Chinese authorities before our clients get locked into something that may lead to a rejection of their WFOE application. Sometimes we have to go to the authorities multiple times to test out “ideas” before we actually submit anything. These idea testing conversations are done without our naming the company we represent that is seeking to register a WFOE.  Once the Chinese government rejects a WFOE application — for any reason — the chance of the company ever securing approval goes way down.

Be careful out there.

5 responses to “How to Form a China WFOE/WOFE”

  1. Do you have any comment regarding the forming or operating of a Joint Venture with a subsidiary of a Chinese National Company? The JV will have operations outside of China and outside of the U.S.

  2. I had a friend who used a company formation company for his WFOE. About halfway through the process, the company formation company just gave up and refunded my friend’s money, saying it had become too difficult. This company was not a thief, but it set my friend back three months and it cost him more than had they just kept his money. I am sure there are some good company formation compinies setting up China companies, but so many are bad that my advise to my friends who come over here now is to use a good lawyer.

  3. i already have a WFOE registered. it’s a small restaurant in jinhua city (zhejiang).
    my certificate of investment says that my capital should be 100.000RMB. i have to send this money from my account back home. my question is what currency should I send, us dollar or Euro????? i have to send the money before the end of march. or it doesn’t really matter as long as the money is changed has a total value of 100.000 RMB.
    thank you for your help
    danny hanyan

  4. We are a well known marketing company of Asia and we are providing services to all regions of the world. Now we plan to establish a WOFE in china. Our scope of business will be as follows.
    Provide the Services to well known B2B portals of the world by placing products of different companies of China on their portals
    For this purpose we will be making contracts with B2B Portals, will be issuing invoices to them and collecting services charges from them.
    As the B2B portals will be both the local and the non resident, so we will be receiving revenue local as well as foreign.
    Client ( Chinese Companies ) will be paying directly to Portals ( either local or Foreign)
    We just want to know the following Questions
    1- Is marketing WOFE is allowed in China or not?
    2- As we will be receiving Revenue locally and globally, on which revenue we will be collecting Businee tax, only on local revenue or foreign as well?
    3- As we will be issuing invoices to foreign B2B portals too, how will we collect Business Tax from these Portal?
    4- As the Client is Paying directly to B2B portal and receiving invoices from them, should he deduct any tax from foreign remittance or not ?
    5- If yes then how much?
    6- Will Client remit the net amount (after deducting Taxes) or gross amount? and will bear all taxes from his own income?
    7- Will it be beneficial for us to open WOFE or not?
    8- What are the good law firms in Beijing or Guangzhou or if any one of you has dealt with any such Company, can you please recommend along with their fee structure?
    9- What are the usual timelines for establishment of WOFE?

  5. If we start off as a one man incorporated company in China, can I set up a director board and a share holder board

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