Establishment of Wholly Foreign-Owned Enterprise in China

Due to the reform and opening up, foreign direct investments in China are mainly as follows: setting up wholly foreign-owned enterprises, Sino-foreign equity joint ventures and cooperative development, etc. In recent years, the legal system in China and the business climate are changing in favor of the WFOE, especially after China joined WTO. WFOE is a limited liability company wholly owned by foreign investors. The Registration of WFOE would need to be approved by Ministry of Commerce of the PRC. Different capital is required in different industry. WFOE is a real company in China, it can conduct business and transfer the profit to its overseas investors after paying tax. Since more industries are encouraging WFOE, and also WFOE is fully managed by the foreign investors, it has become the main investment type now. This article will introduce Chinese laws and relevant regulations on establishing wholly foreign-owned enterprise: the legal procedures, documentations required and some other matters need attention. 1.Procedure (1)Pre-approval of company's name Investors shall apply for pre-approval of company's name to local municipal industrial and commercial bureau, and prepare 3-5 company names to ensure the pre-approval succeed. (2)Commercial Bureau's examination and approval After investors obtained the notification on the approval of company name, they need to submit applications and other relevant documents to local municipal Commerce Bureau, to obtain Certificate of Approval for WFOE. (3)Industrial and commercial registration After the investors got Certificate of Approval for WFOE, they shall complete the formalities for business registration in local municipal industry and commerce bureau and claim the business license. Then the newly registered company needs to register with public security bureau and carve company chops. Certificate of taxation, certificate of foreign exchange, certificate of bank account and relevant certificates also need to be registered. If a company intends to engage in import and export trading business, then the registration with Customs is also required. The final step would be to achieve the import and export qualification. Completing all the registrations usually takes 3-4months, and additional one month would be required to achieve the import and export qualification. 2.Register documents (1). Qualification certificate of investors a). If investor is a company: copy of valid business registration license (the company business license shall reflect the chairman or the legal representative of the company). b). If investor is an individual, he/she shall provide his/her passport (copy). (2). Certificate of credit issued by the bank which investor's account in. *Investor's certificate of incorporation, bank credibility letters issued by bank and investor's passport copy need to be notarized by law office and proved by Chinese embassy in investor's country. (3). Investor's audit report in last year. (4). Documents identifying the registered address of the new company, including leasing contract and housing property permits (copy). (5). Articles of Association, applicant letter, feasibility study report, application form for the registration of the establishment , registration form of the enterprise, appointment, guarantee letter which are signed by the investor. (6). Photo of new company legal person, passport (copy), and personal resume. (7). Other documents needed. 3.Other matters need attention (1). If the planning project is not listed in the encouraged industry in the Guidelines for the Direction of Foreign Investment and the Catalog for the Guidance of Foreign Invested Industries, it must be approved by Chinese government and related departments. (2). Registered capital a). The minimum registered capital, generally is between 75.000 dollars and 150.000 dollars, no less than 150.000 dollars is better. Although the legal minimum registered capital is 100.000 RMB, in reality, it might be difficult to prove the project feasibility using such some registered capital. b). How to invest the registered capital: one-time investment and investment by installment. One-time investment means invest within six months after obtain the approval certificate. Investment by installment means invest at least 15% within three months after obtain the approval certificate, and the rest can be paid within two years after the fist investment. In addition, if the investor is one natural person or one company, the capital must be invested in one time. Investors are several natural persons or companies, the capital can be invested by installment. The above is a brief introduction on the legal procedures of establishing a WFOE in China. In order to successfully register enterprises, we suggest investors find a China business consultant or China law firm to learn the detailed information and related regulations of registering a foreign company in China.