The Types of WFOEs You Can Consider
As long as your company will not be engaged in industries listed in the ‘Market Entry of Foreign Investment (Negative List)’ published by the Chinese government, you will be allowed to operate with 100% of foreign capitals, bringing significant advantages over other business types in China (click here to read more about the pros and cons of a WFOE). In general, based on the main business, WFOEs can be classified into three types:
Service Industrial WFOE
A service industrial WFOE (also called consulting WFOE) is the simplest foreign-owned legal entity to set up and is usually used for most types of business purposes, including marketing, legal consulting, staff training, software development, international logistics, and financial services. However, industries such as education, telecommunications, and healthcare cannot be wholly owned by foreign investors. There are also different regulations regarding the proportion of Chinese holding in these sectors. In these cases, you should consider forming a Joint Venture (link to JV page) with a Chinese partner to start your business.
Some businesses may require a special license to legally operate. For example, if you wish to engage in the international logistics industry, a non-vessel operating common carrier license (NVOCC) is compulsorily needed to issue the bill of landing to your customers. For more information about Hongda’s special license application services, please click here or book a free consultation with us.
Trading WFOE
A trading WFOE, which involves importing goods from abroad or exporting goods from China, will have "import and export of goods" or "import and export of technology" included in its business scope. Consequently, trading WFOEs must also apply for an "import and export license" to legally conduct import and export activities. In most cases, trading WFOEs can import and export various types of goods or technologies. However, some "special category" goods, such as cosmetics, medical devices, and pharmaceuticals, as well as meat, seafood, and dairy products, require additional certification and inspection. Furthermore, after importing certain goods into China, you will still need to apply for special permits. For example, if you want to deal in medical devices, you need to apply for a Medical Device Operation Permit; if you want to deal in food, you also need a Food Operation License.
Manufacturing WFOE
A Manufacturing WFOE in China represents a fully foreign-owned entity established to engage in manufacturing activities within the Chinese territory. This type of WFOE is specifically designed for foreign investors aiming to produce goods in China, whether for domestic consumption or international export. By setting up a Manufacturing WFOE, foreign companies can benefit from full control over their production processes, quality standards, and supply chain management.
When preparing to set up your manufacturing WFOE, the location selection of the manufacturing facilities or factories might be the most important issue you need to consider, thinking about the significant differences on the supported industries encouraged by various industrial parks and the tax incentives from the local governments. Please book a free meeting with Hongda’s consultants to obtain more information on how we can help you decide your optimal business location with our industrial location selection services.
All-in-one Business Solution for WFOE Registration
For you to understand what we are doing, we will report different steps and stages to finally set up your WFOE. Our thorough WFOE checklist will also guide you in every process.
Step one: Company Name Pre-approval
The first step in establishing a WFOE in China is to come up with a name for your company. According to the regulations in China, you need to follow a format when giving your company a name. You can read more about ‘how to name a Chinese company (for foreign investors)’.
Step two: Application Materials Preparation
After the company’s name is pre-approved, you will then need to prepare the registration materials and documents. Hongda will help you prepare the documents and guide you through all the difficulties while gathering the materials.
- Legal representative's passport or the copies of overseas company registration documents (required the foreign company serves as the investor). The passports or incorporation documents need to be certified by either consulate authentication or Hague authentication. You can click on this blog to learn more about Hague authentication.
- Company director’s passport copy;
- Copy of company supervisor's passport or ID card (the supervisor can be either a foreigner or Chinese citizen who is not the same as the legal representative);
- Company office lease rental contract: the office will be used as the ‘registration address’ shown on the business license. Hongda also provides affiliated registration address services to save your budget by cutting the fees of renting physical offices.
- Company’s information description: the registration information of the company including the business scope, investment capital, operation period, and the holding ratios of shareholders.
Among all the information mentioned above, the most important item might be the investment capital of your company. It is important to note that the Chinese Company Law has been revised in 2023, introducing significant changes to the investment capital system. To read more about the changes brought by the revised Chinese Company Law, please click our latest blog: the key changes by the Revised Chinese Company Law.
Step Three: Obtain Business License and company stamp.
Once all the documents are prepared, your company registration application will be submitted to the Administration for Industry and Commerce. After review, if your materials are complete and correct, the Industry and Commerce Bureau will issue a business license, marking the successful registration of your company.
Step Four: Tax Registration
Tax registration is the legal registration process that must be completed before WFOEs can officially commence operations. This process is designed to ensure that enterprises legally pay taxes and comply with Chinese tax laws.
Step Five: Open Corporate Bank Account
For normal operations in China, you need a company bank account to manage your daily income and expenses. You may go through various steps such as on-site visits, submission of documents, and account activation. Depending on the requirements of different banks, you might need to submit various application materials. Hongda's China Bank Account Opening service will assist you in selecting the most suitable bank and support you through the entire account opening process. You are welcome to visit our bank account service page to learn more about the relevant information.
Step Six: Obtain Work Permit and Employment Residence Permit
According to Chinese legal regulations, foreigners residing or staying in China are required to hold the corresponding type of visa. This means that if you want to work legally in China, you need to apply for and hold a work-type work permit and residence permit, otherwise, you may face penalties from the Chinese immigration authorities. Applying for a work permit is a relatively complex process, requiring the preparation of many documents and taking about 1.5 months. Let Hongda assist you in applying for a work permit and residence permit to comply with the regulations of Chinese immigration law. Please click here to learn more.
Step Seven: Hire Qualified Employees
Depending on the needs and scale of your enterprise, you may need to recruit employees to support the operation of your business. Before hiring employees, you need to clarify job requirements, develop a recruitment plan, and conduct recruitment according to local labor laws. Hongda now provides comprehensive HR services, including EOR, PEO, and headhunt to find the ideal candidates for you! We are also happy to support your employees with our payroll services. Please read related service pages or book a free meeting with us to know more!
Step Eight: Ongoing Compliance
Now your WFOE is ready to start operation. However, during this process, you will still need to face several compliance affairs throughout the life cycle of your WFOE.
- Bookkeeping and tax report: Bookkeeping involves the systematic recording, organizing, and maintaining of all financial transactions of a company. This practice is fundamental for tracking income and expenditures, financial analysis, and strategic planning. Outsourcing bookkeeping to Hongda will help you save money while enjoying high-quality services. We will provide daily transaction recording and monthly tax report for your company!
- Annual Maintenance: Annual Maintenance refers to a series of tasks performed yearly to comply with legal, regulatory, and operational requirements. These tasks may include renewing licenses and permits, completing annual filings with regulatory bodies, updating corporate records, and performing financial audits. By choosing Hongda’s yearly maintenance service, you will easily pass the annual inspection process without any stress!
Documents Required For WFOE Setup
Gathering the documentary evidence needed to apply for a WFOE is difficult and time-consuming.
We will require, roughly, the following documents from you in order to open a WFOE (updated May 2020):
- Company director/s passport copies
- Legal representative's passport copy and details
- Company supervisor's passport copy and details
- Company office lease rental contract
- Chinese name of company (Hongda will assist with this)
- Business scope (Hongda will assist with this)
- Copies of overseas company registration documents (required if a company is the foreign investor)
