Pre-Licensing Registration Stages

Last updated: Apr 2024
Regulations Guide to WFOE Establishment, Registration & Liquidation

The following article details the entire process of company registration in China. We’ve also included our recommendations. PTL Group specializes in company registration in China. We make sure that China company registration is done right, and is supported by extensive operational support for registered entities. This is where our knowledge and expertise really make a difference.

Pre-Licensing Registration Stages

Once you have decided to register a WFOE in China, this is what you need to take into consideration:

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. It can be transferred under the WFOE’s name only after the business license is ready.

Our two cents:

  • PTL Group may be able to assist with finding a suitable address for registering the WFOE. In addition, if you have 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 third-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 certain 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 significant experience with handling foreign companies. Being in a remote area that does not have a lot of experience with WFOEs may make the monthly, quarterly and annual 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. When looking for available names, the trademark office offers access to a business registration database and a trademark database.

Registered capital

In order to establish a new business in China, companies need to specify an amount as “registered capital” on the business license. This amount should be based on what they consider to be enough funds to run the business for the duration of its initial stage until it achieves a balance (break-even).

As per China’s Company Law (2023), effective July 1st, 2024, all companies must pay the registered capital as indicated on their business license within five years of their establishment, with a few notable exceptions:

  • Companies established before July 2024 will have a grace period of five to eight (5-8) years to generate the amount and pay it in full. Regulations might vary between locations in China.
  • This legal requirement will overridecorresponding provisions set in the company’s AoA (Articles of Association), which might indicate a period of up to 30 years to complete the capital injection.
  • For companies with several shareholders, more details should apply. As the application can vary on a case-by-case basis, we recommend you consult with your lawyer or local accounting firm for the specifics.
  • This law will be fully effective, without exceptions, for all companies established from July 2024 onwards.

How much, then, should you set for your registered capital?

Interestingly, there isn’t any official criterion regarding the amount of the registered capital required for a WFOE set-up approval. That said, we don’t recommend aiming for the minimum amount; on the contrary. We strongly advise setting a reasonable bar for the registered capital, so it covers the expected expenses of the WFOE for the first two years without considering any income, plus some extras. Here are the reasons why:

  • Any remittance to the capital account is tax-free. If you plan to monetize the business in China by injecting funds from HQ to your Chinese entity, this money should not be considered “revenue,” and the Chinese entity should not pay taxes on it.
  • Direct remittance to a basic account (generated from sales revenue) is taxable. You can use the registered capital to plan your budget ahead.
  • In case you need to Increase the registered capital to continue supporting your operation in China, doing so after the initial amount was set would be an intricate, time-consuming bureaucratic process. Do know that decreasing the amount is also possible, but it would take some time and effort to complete as well.
  • One incentive a foreign-owned company operating in China could offer its employees is to register their Hukou in the city where the company is based. To be able to do that, your registered capital should meet the local criteria. For example, in Shanghai, the requirement is 1 million RMB. While it isn’t necessarily a top priority during the company establishment phases, it is something you should have in mind for the future development of the company in China.
  • If you plan to bid for government contracts, you should know that your business license might be checked for the listed registered capital. A larger amount indicates your operational scale in China and the potential risks associated with partnering with you.
  • The same principle applies when working with big Chinese companies, who will review your credentials in the local corporate credit system. They will be looking for indicators of your operations’ size and financial capabilities to back yourwork in the Chinese market. A higher registered capital can enhance their confidence in you.

Overall, international companies and investors can use the registered capital to make a solid business projection and a strategic development plan for the WFOE.

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

Learn more about the WFOE’s registered capital in the comprehensive financial guide for foreign companies in China

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 the 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 becomes 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.

The 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 to appoint representatives and identity their documents
  • Certificate or identity document of investors and legal representative for the application
  • Shareholder chart

Getting a Five-In-One business license

The aforementioned stages provide the company with the ability to register and apply for a business license at the local AIC within 30 days of receiving the Approval Certificate from MOFCOM (Ministry of Commerce).

The Five-In-One business license has basically simplified the previous process. It really makes China company registration much easier. 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

Get more info about the WFOE’s licenses

At PTL Group, we specialize in registering and managing foreign-owned entities in China. Get in touch today and let us support your China operations.

Last updated: Apr 2024