WFOE means wholly foreign owned enterprise, Foreign-funded enterprises are also popularly used. If you want to invest in Shenzhen China, you don’t just turn to the relevant government departments for so many certificates and formalities, but also turn to ATA. At ATA we don't just give you tailor-made service for your need, but for your satisfaction. ATA—serving the world of business, professional and worldwide.
OVERVIEW OF WFOE SHENZHEN
The Wholly Foreign Owned Enterprise (WFOE) is a Limited liability company wholly owned by the foreign investor(s). In Shenzhen China, WFOEs were originally conceived for encouraging manufacturing activities that were either export orientated or introducing advanced technology. However, with China's entry into the WTO, these conditions have been gradually abolished and the WFOE is increasingly being used for service providers such as a variety of consulting and management services, software development and trading as well.
ADVANTAGES OF WFOE
From the foreign investors' point of view, the advantages of establishing a WFOE include: profit tax holidays for the first two years from the start of business and half profit tax-free for the following three years; Independence and freedom to implement the worldwide strategies of its parent company without having to consider the involvement of the Chinese partner; Ability to formally carry on business rather than just a representative office function, Issue invoices to their customers in RMB (Chinese Currency) and receive RMB revenues .Convert RMB profits to US dollars for remittance to their parent company outside China, Employ staff directly within China or import labor from abroad, Protection of intellectual know-how technology. Not required to share profits with Chinese counterpart; and Greater efficiency in its operations, management and future development;
In Shenzhen China, only Chinese company names are officially used, while English company names are for reference only. NOT every name will be accepted by the Company Registry. And in China some sectors need special license, it is interesting for you to know the wording of a company name which should be in conformity with the registered capital, such as with the words “international” or “investment” or “industrial” within a company name, the registered capital should be more than RMB 10 millions, while “group’’ or “holding” more than RMB 30 millions. Your company name should be distinguished from the others registered before,
One of the most important issues covered in the project documentation is the business scope of the WFOE. Business scope is narrowly defined for all businesses in Shenzhen China and the WFOE can only conduct business within its approved business scope, which ultimately appears on the business license. Amending the business scope requires further application and approval. Inevitably, there is a negotiation with the approval authorities to approve as broad a business scope as is permitted. General business scope usually includes, investment consulting, international economic consulting, trade information consulting, marketing and promotion consulting, corporate management consulting, science and technology , manufacturing, etc.
With China's entry into WTO, more and more business are open to wholly foreign owned enterprises. Especially, trade, commercial and wholesale businesses are gradually granted to WFOE to enter into the Chinese markets. ATA confirms every unique Chinese name with Registry Department before you make a final decision.
TRADING IN CHINA
Now more and more foreign businessmen attach great importance to the trading role in China’s import and export business. In order to protect China’s domestic trading companies, Chinese government is not likely to widely open the trading sector to the outside world as fast as expected. Therefore If a foreign individual or enterprise intend to be involved in trading business in China, they will face some difficulties and they have to find some solutions or alternatives: Here are some advice for those who intend to be involved in the trading sector in Shenzhen China:
※ After we have a WFOE incorporated in Shenzhen, we have the right to import and export the type of the products within the business scope indicated on the business license, but the actual business operation need more flexibility in trading business scope. If a foreign individual or enterprise wants to have wider business scope, he can negotiate with the relevant authorities at the time of application. If a foreign individual or enterprise wants to get the same business scope in trading as Chinese counterparts, they should go to Beijing for special approval at present.
※ In order to meet the demand from foreign individuals or enterprises in import and export businesses, and also not affect the domestic competitors, Chinese government set up some TAX-FREE-ZONES for foreign businessmen to trade freely in, such as THE WAIGAOQIAO TAX-FREE-ZONE in Shanghai and THE YANTIAN TAX-FREE-ZONE in Shenzhen, but the products are all buying from and selling to the foreign markets, not from China market. If China goods go into the zone, export duty should be levied before doing so.
※ All the problems will be solved if we could find two nominee shareholders with Chinese Identity, so we can set up a local trading company in replacement of wholly foreign owned company. But there arises another problem whether you can find the right shareholders and their creditability.
※ Time will solve this kind of touchy problem, China has become the member of WTO, China is working hard to reach the standard and requirement of WTO, so the trading environment is getting better and better, and finally not only domestic but also foreign company enjoy same policy and business convenience in China.
REGISTERED AND PAID-UP CAPITAL
For the WFO enterprises, the minimum registered capital is required as much as RMB1,000,000(about USD120,500), in 2006, RMB500,000 is also accepted in Shenzhen, In China the paid-up capital is equal to registered capital, With the registered capital of RMB1 million or less, you are required to pay in the company’s bank account within 12 month, for the first 3 months, 30% pay-in is mandatory.
Here are some tips for the registered capitals under the CEPA agreement: the registered capitals for the sectors of consultancy, technology, market research and development are usually required RMB100,000 or above; for the sectors of retailing, wholesaling and trading are RMB1 million or above; for the sector of trading in the tax-free trading zone, the registered capital is USD300,000 or above. But the sector of investment is USD10 million, for chain-retailing is RMB50 millions or above.
Employment is an advantage in China. China occupies one fifth of the world population, and with the popularity of China’s education, Chinese labor is becoming more and more competitive, the cost of labor is much lower compared with the developed areas. Foreign labor is permitted to work in China, as far as a working permit is approved by both the Public Security Bureau and the Labor Bureau..
TERM AND TERMINATION
In China, terms of 15 to 30 years are typical for a manufacturing WFOE (although some may have a longer term). It is also possible to obtain extensions of the WFOE's duration. For projects in which the amount of investment is large, or the construction period is long and the return on investment low, projects producing sophisticated products using advanced or key technology provided by the foreign partner, or for projects producing internationally competitive products, the term of WFOE may be extended to 50 years. With special approval from the State Council, the term may be even longer than 50 years.
The WFOE may be terminated under certain conditions, for example, the inability of the WFOE to operate due to heavy losses, in the occurrence of an event of force majeure, etc.
DOCUMENTS REQUIRED FOR A WFOE
The documents required for setting up a WFOE are listed below. Some of the documents could be prepared
※ Application letter for establishing the foreign enterprise;
※ The WFOE's proposed name (in Chinese), and provide two back-up names in case the first name is not available.
※ Detailed information about the WFOE business scope ;
※ Total investment and registered capital, layout and proportion of investment injection;
※ Corporate documents of investor cert. of incorporation, memorandum & articles of association; HK investors must provide business registration certificate, Investor's legal representative's identification (i.e. passport);
※ Copies of the business licenses , certificate(s) of incorporation, M&A of the foreign (investor) corporation and a set of certified true copies signed by Notary Public. All the documents should be certified by the qualified institutes such as the China’s Embassy or lawyer’s firms; legalization should be done by Chinese Embassy.
※ Two original bank(from investor's bank) reference letters indicating foreign investors’ creditability, issued within 6 months in both English and Chinese language;
※ Two original copies of leasing contracts with signature by Housing Management Authority , showing the recognized registered address of WFOE. The signing party should be in the name of WFOE or its legal representative;
※ Project proposal,Feasibility study report;
※ Four original articles of association signed by members of the Board and with company chop;
※ Annual return report (necessary for the investor is a artificial person who establish more than one year)
※ Company operational structure and number of employee; products, production scale, List of materials, equipment and technology to be imported and process scheme;※ If it is manufacturing sector, project reports are necessary for the approval by the relevant government department, such as, business service, environmental and fire departments.
Foreign companies are not allowed to directly submit the application documents to the relevant authorities. They must retain a PRC entity that is authorized or permitted by relevant authorities to act as a sponsor such as ATA. The sponsor will submit all documents to the government on behalf of the foreign enterprise. Procedures to set up the Wholly Foreign Owned Enterprise in Shenzhen China are as follows:
※ Step1: Fill in the Application letter
※ Step2: 50% prepayment as the registration fee
※ Step3: Company name search and confirmation
※ Step4: Apply for the Approval Certificate from the Business Service Dept
※ Step5: Apply for Business License from the Registry Dept
※ Step6: Apply for the company's seals from the Public Security Bureau
※ Step7: Apply for the Organization Code License from the Inland Revenue Dept
※ Step8: Register in the Inland Revenue Dept
※ Step9: Register Foreign Currency Certificate with the Bank of China
※ Step10: Opening RMB bank account
※ Step11: Applying for Imp/Exp license
※ Step12: settlement of the balance
All the steps need about 20-40 days.
ATA provides one-stop tailored-made services for foreign companies which would like to set up wholly foreign owned enterprises in Shenzhen China.
※ Consultancy service on laws & policies, application procedures of WFOE;
※ Draft application letters, standard articles of association, standard feasibility study, and providing samples for necessary documents such as board resolution, bank reference letter;
※ Research and obtain approval for the company name of WFOE;
※ Obtain approval certificates from various authorities: the Approval Certificate, Business License, the company's seals, the Organization Code License, articles of association and so on;
※ Four kinds of cachet;
※ Perform all the necessary financial, tax, labor, banking, customs and other registrations;
※ Assist in opening the necessary bank accounts;
※ Obtain the necessary work permits and resident permits for the legal representatives, etc.
Other than the above incorporation services, we can offer other services to clients wishing to set up WFOEs in China. Through our network of local service providers, we can assist in the sourcing of suitable offices, sourcing of local staff and management, the structuring of expatriate salaries for maximum tax efficiency, legal drafting of leases and employment contracts, and the provision of accounting services. Fees will be quoted on a case-by-case basis.
GENERAL INFORMATION ON SHENZHEN’S TAX STRUCTURE
The tax system is quite complicated in China, ATA will give some timely advice and help you deal with tax formalities. In China we have BUSINESS TAX and PROFIT TAX for consultancy and technology companies, VALUED ADDED TAX(VAT), IMP/EXP TAX and PROFIT TAX for manufacturing or trading companies. The business tax is 6% based on the business volume, while the profit tax is only 15% ,the lowest in China, compared with 33% of the Inland China, Here are some tips from ATA on Shenzhen’s tax structure:
※ For foreign-funded projects, encouraged by the local governments, the imported equipment for self-use within the gross investment (including the technology, components and spare parts imported with the equipment), shall be exempted from import tariffs and import stage value -added tax.For foreign-funded enterprise which purchase domestic equipment within the gross investment and the equipment belong to the range of tax-free catalogue, the value-added tax of domestic equipment will be refunded.
※ For manufacturing foreign-funded enterprises with an operation period over 10 years, starting from the first year of profit-making, their profit tax for the first year and the second year shall be exempted from and that for the third to the fifth year shall be reduced by 50% .The local income tax shall be exempted from for tax exemption or reduction period. Annual loss of foreign-funded enterprise can be made up with the income of next financial year. In case of insufficiency, it may continue to make up for the lose by years. But it cannot exceed 5 years at longest.
※ Shenzhen is implementing the lowest preferential profit tax around the whole country. The enterprise income tax of manufacturing foreign-funded enterprises shall be levied at the rate of 15% .
※ The foreign investor in a foreign-funded enterprise using its share of profit to directly reinvest in that enterprise, expand the registered capital or to fund the setting up of other foreign-funded enterprise in China for a period of not less than 5 years, at the application of the investor and with the approval of taxation authorities, may be refunded 40% of the income tax already paid on the invested portion.
※ For the approval product-exporting enterprises launched by foreign investors, after the expiration of the enterprise income tax exemptions and reductions enjoyed by them in line with tax laws, if their annual export value exceeds 70% of their output that year, they may have their enterprise income tax reduced by half. The local income tax of that year shall be exempted from accordingly. Besides, if the foreign investor uses its profit derived from the foreign- funded enterprise to launch or expand a product-exporting enterprise in China for a period of not less than 5 years, at the application of investor and with the approval of taxation authorities, the investor may be refunded 100% of the enterprise income tax already paid.
※ For the approval technologically-advanced enterprises launched by foreign investors, if they still are technologically-advanced enterprises after the expiration of the income tax exemption and reduction periods according to tax laws, they may have their enterprise income tax reduced by half for another three years based upon the tax rates as provided for in tax laws.The local income tax shall be exempted from accordingly.
Besides, if the foreign investor uses its profit derived from the foreign-funded enterprise to launch or expand a technologically-advanced enterprise in China for a period of not less than 5 years, at the application of the investor and with the approval of taxation authorities, the investor may be refunded 100% of the income tax already paid.
※ For foreign-funded enterprise which R & D expense is increased)10% (include 10%) over last year, with the approval of taxation authorities, the taxable income amount of that year should be allowed to deduct the 50% of real R & D expense again. Besides aforesaid policies, the foreign-funded enterprise established in Foshan National Hi-tech Industries Development Zone may enjoy the following preferential policies:
※ The profit tax rate imposed on the approval hi-tech enterprises in the Development Zone shall be 15%.
※ For hi-tech enterprise in the Development Zone, the imported hi-tech products, samples and sample machines, etc, used to disassemble or test, upon Development Zone authorities and customs approval, shall be exempted from tariff. The aforesaid samples and sample machines cannot be used to the others, transfer or sale.
※ When recruiting technical personnel of middle technical titles or above (including master's degrees or above received abroad) in the country or from foreign countries, hi-tech enterprises in the Development Zone shall be exempted from paying city expansion fees.
※ Personal Income Tax: In Shenzhen personal Income Tax ranges from 5% to 45% with 9 levels at the base of RMB500 Yuan extending to 100000 per month.
※ Technical and business personnel of the hi-tech enterprises in the Development Zone may apply for passports going abroad and multi-entry certificates to Hong Kong and Macau for business purposes.
HOW TO BEGIN
Download and fill in the application form, fax or email to us. When we receive your
application, we’ll send you a confirmation letter for your final decision. At this time
you pay 50% down payment, and we begin processing your application.
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