WFOE REGISTRATION [2]: Pre-Licensing process

December 26, 2018
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You have decided to register a WFOE in China. The first stage of the pre-licensing process is to apply for a license. Here is what you need to consider and do:

WFOE Address and Office Space Lease

In order to register a WFOE, the foreign entity must establish a Chinese location for its operation by renting office space (or a plant space for a manufacturing WFOE).  Note that the company’s legal name includes the city of registration.
Since the WFOE is not established yet, the lease agreement has to be signed by the Shareholder first, and only after the business license is ready it can be transferred under the WFOE’s name.

PTL Group may be able to assist with finding a suitable address for registering the WFOE. In cases where there are already some employees that need to be employed and hosted in an office, PTL Group is able to assist with temporary employment and hosting services in its offices in four locations: Beijing, Shanghai, Changzhou and Guangzhou. We also support individual companies in other locations within selected start-up hubs and shared offices.   Learn more about our shared offices solutions.  

Choose a registered address in a convenient location. Take into consideration that your finance person (or 3rd party accounting firm) will often need to visit the tax office where the WFOE is registered. If you register in a remote area (to enjoy some benefits), your team members may suffer and lose valuable time each month.
it is also advisable to register the WFOE in an area that has a lot of experience with handling foreign companies. Being in a remote area that does not have a lot experience with WFOEs may make the monthly, quarterly and annually reporting very difficult and may cause damage to the business.

WFOE Name Approval

When choosing a name for a WFOE, a company should comply with the legal demands of the format, ensuring special care to avoid forbidden words and characters. A company should also take into consideration the characteristics of the Chinese name, i.e., the meaning, pronunciation, auditory resemblance to the company’s English name and so on. The trademark office offers access to a business registration database and trademark database to look for available names.

Registered Capital

In order to establish a new business in China, companies need to prove they have enough funds to run the business for the duration of its initial stage until it achieves a balance (break-even).

The are no specific requirements regarding the amount of the Registered Capital and it is not even required to inject any money if there is no need for it’sdaily operation.

The amount of registered capital is dependent upon location and scope of business. The feasibility study report and the WFOE lease contract are part of the materials and documents that local authorities check on a case-by-case basis during the approval process.

From our experience, when setting up the registered capital the amount should cover the expected expenses of the WFOE for the first two years without considering any income. You should not aim for the minimum amount; on the contrary, you should have a registered capital that will allow you to transfer additional amounts of money in case the expected income goals are not met.
Increasing the registered capital is a troublesome bureaucratic process that takes time and effort. Therefore, it is better to set a higher registered capital.

You DO NOT need to pay the registered capital upfront if your WFOE does not need the funds, but it is advisable to transfer enough funds into the WFOE to cover the expenses of each quarter. The reason is that each time that you transfer funds into China you or your representative in China need to physically go to the bank and spend a long time to complete the process.

Here are suggested amounts for registered capital for different types of WFOE:

Business Scope

WFOEs in China are allowed to operate only in government approved industries.

Therefore, the business scope is an essential component of WFOE registration. Since business scope is a “one sentence description” that appears on the company’s license, it should cover the entire current and future activities of the WFOE and be as general / broad as possible. The business license category should be selected from a list of categories that are published by National Industries classification authority.
Consulting WFOEs can have sub-categories such as investment consulting, international economic consulting, trade information consulting, marketing and promotion consulting, corporate management consulting, and technology consulting.

Note that amending the business scope requires an additional application and approval., etc.

MOFCOM Approval or Record-Filing

WFOE application can be a straightforward record filing process. The process is complicated if the company’s business scope is restricted according to the Negative List for Foreign Investment), or if the company’s scope is subject to the Special Administration Measures for Foreign Investment Access.
This process of uploading documents via the online integrated management system requires the following documents:

  • Application form;
  • Commitment letter by all investors or their representatives;
  • Business license or pre-approval documents for the name of the WFOE;
  • Power of attorney appointing representatives as well as identity documents of the representatives;
  • Certificate or identity document of investors and legal representative for the application;
  • Shareholder chart

Getting a Five-In-One Business License

A company can register and apply for a business license at the local AIC within 30 days of receiving the Approval Certificate from MOFCOM.

The Five-In-One business license has simplified a previous process. The standardized national credit number covers five components in one application:

  • Business license
  • Organization code
  • Tax registration certificate
  • Social security registration certificate
  • Statistical registration certificate

 Next steps

  • Tax registration: Defining the tax status of the WFOE***
  • Purchasing and implementing tax software for tax reporting
  • Opening a bank account: Local and foreign currency***
  • Applying for import/export business license (if required)
  • ***Please note that the Legal Person should come to China and present his/her passport for these actions

Read more about WFOE registration in the following chapters:

PTL Group offers WFOE registration services  and Ongoing operational support to registered entities in China.
We provide comprehensive C-Level management outsourced services to international corporations with or without existing business entities in China.
For additional information Contact us.

**The information is based on a China Briefing article from 2017. In this version we have updated the details that have changed since then and added practical tips based on recent cases we have dealt with.

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