The Wholly Foreign Owned Enterprise (WFOE) is a Limited liability company wholly owned by the foreign investor(s). In China, WFOEs were originally conceived for encouraged manufacturing activities that were either export orientated or introduced advanced technology. However, with China's entry into the WTO, these conditions were 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.

The registered capital of a Wholly Foreign Owned Enterprise (WFOE) should be subscribed and contributed solely by foreign investor(s). A WFOE does not include branches established in China by foreign enterprises and other foreign economic organizations. The Chinese Laws on WFOE do not have a clear definition of the term of "branches". The term of "branches" should include both the branch companies engaged in operational activities and representative offices, which are generally not engaged in direct business activities. Therefore, branches and representative offices set up by foreign enterprises are not WFOE.

Following are different types of WFOE. Commonly,

1.If the WFOE only be allowed to manufacture here. we can say it's manufacture WFOE.

2.If the WFOE is allowed to do Consultancy & Service, we call them Consultancy Service WFOE.

3.If the WFOE is allowed to do Trading, Wholesale, Retail or Franchise in China, we call them Trading WFOE or FICE (Foreign-Invested Commercial Enterprise), you can check "FICE Registration" on the right menu for more information and details about FICE.

The advantages of establishing a WFOE, compared with other types of enterprises, include, but not limited to:

1.Independence and freedom to implement the worldwide strategies of its parent company without having to consider the involvement of the Chinese partner;

2.Ability to formally carry out business rather than just function as a representative office and being able to issue invoices to their customers in RMB and receive revenues in RMB;

3.Capability of converting RMB profits to US dollars for remittance to its parent company outside of China;

4.Protection of intellectual know-how and technology;

5.No requirement for Import / Export license for its own products;

6.Full control of human resources

7.Greater efficiency in operations, management and future development.

8.To set up a WFOE, Investor doesn't have to be established it's business overseas for more than 2 years while

Representative office's parent company is required to have the parent company been established over 2 years

One of the most important issues in WFOE application is business scope. Business scope needs to be defined and the WFOE can only conduct business within its approved business scope, which ultimately appears on the business license. Any amendments to the business scope require further application and approval. Inevitably, there is a negotiation with the approval authorities to approve as broad a business scope as is permitted. Generally business scope includes investment consulting, international economic consulting, trade information consulting, marketing and promotion consulting, corporate management consulting, technology consulting, manufacturing, etc. With China's entry into WTO, more and more business is open to WFOE especially in Trading, Wholesale and Retail business.

Registered Capital: USD$140,000 is a decent investment capital for all types of WFOE, with USD$ 140,000 investment it's easy to get approved. Initial Paid-up would be 20% of the registered capital, the balance should be remitted within 2 years. According China company law, RMB 100,000 ~ RMB 500,000 is minimum investment capital for Consulting WFOE, Service WFOE, Hi-Tech WFOE registration.

Registered capital is the amount that it's required to run the business until it can break even - the 'registered capital' is a guideline only. If you do looking for a minimum registered capital, for instance RMB 30,000 (which is impossible to establish a WFOE in China) this means you will run out of money pretty soon, which leads to increased costs in reapplying for permission to increase capital, additional licensing fees and renewals of business licenses and so on. The WFOE needs funding via it's registered capital until it's about to support itself from it's own cash flow.

However the amount of registered capital is dependent upon factors like Scope of Business and Location. In reality local authorities will review the feasibility study report (and check the lease contract) approve the investment on a case-by-case basis; reduced registered capital could be negotiated in some cases.

The minimum registered capital guides for various industries according to our practice in China, for instance Beijing, Shanghai, Guangzhou, Shenzhen are given below: (Updated: Jun 23, 2009:, Pudong District authority in Shanghai announced in a meeting with PTC that they are stopping to approve the registered capital less than RMB 300,000 in Pudong District; Updated: Nov 18, 2009 Jing'an District authority in Shanghai won't approve a WFOE with registered capital less than USD 140,000 since Nov. 18, 2009 Some other districts of Shanghai already refused to approve registered capital below RMB 300,000 since the begin of 2009, while there were no official announcment from those districts. In Beijing, local authorities are still OK with RMB 100,000 registered capital)

Since Jan. 2008, China's new corporate tax rates begins range from15% to 25%, the rate depends on the places where the company is registered and the industry that a company engaged. Please check the latest Corporate Income Tax Law of China. ( 193KB: Corporate Income Tax Law of China ) All enterprises are required to report to the Tax Administration Department monthly, quarterly, annually. Path To China provides part time accountant service for our clients, you are welcome to contact us for more information.