VISA & BUSINESS SERVICES
Incorporating a Foreign-Funded Enterprise in China
Foreign-Funded Enterprise 外商投资企业
Previously called a Wholly Foreign Owned Enterprise (WFOE), the Foreign-Funded Enterprise (FFE) is a limited liability company owned 100 percent by foreigners. It can generate profits, invoice clients, and hire local and foreign workers throughout China.
Sino-Foreign Joint Ventures 中外合资
An organization that combines the resources of a Chinese and foreign company or individuals (within Chinese territory), will be considered a Sino-Foreign Joint Venture 中外合资). Foreign companies typically contribute at least a quarter of the total investment, while Chinese companies don’t have any minimum investment requirements. Cash, capital goods, industrial property rights, and other investments can be made by companies.
Representative Office 代表處
The Representative Office is a company office that is used for marketing and other non-transactional activities. In addition to creating physical presences, it also allows foreign companies to send foreign staff here to conduct valuable business activities.
It is not permitted for the representative office in China to conduct profit-making business or to provide paid services to organizations other than its parent company.
The company is not allowed to send profits outside of China and to hold any products in China. A representative office’s parent company must have been established for more than two years. The business address must be in a commercial building.
Setting up an FFE
Setting up an FFE takes around 1 to 3 weeks (depending on the situation). There are a few Steps to Setting Up an FFE. To make this process as simple as possible for you, we will guide you through every step.
We pride ourselves in the fact that we try to be as transparent and open as possible, to our clients.
What’s Needed to Register a FFE / WFOE?
- List of Three possible names in Chinese, ranked from 1 (most desired) to 3 (least desired)
- English name
- Legal representative’s passport full page and home address
- Legal representative’s email and phone number
- Supervisor’s ID or Passport （Legal representative and supervisor can’t be the same person
- Business scope
- Initial Capital Investment Amount
- Chinese contact ID both side and phone number
- Shareholders’ structure
- Office address, house code
- Number of company employees
Registering the name
To choose an appropriate and suitable business name, certain requirements and prerequisites must be met. A name should consider linguistic, etymological, and social or cultural differences to avoid direct or indirect associations.
New, smaller companies must choose and register a name in Chinese. Choosing a name that sounds similar in Chinese to your language (or English), but with a different meaning, or choosing a name that has the same meaning but sounds different, is an option. In an example of a name that sounds similar but has a different meaning, consider Tesla’s Chinese name, Tesla 特斯拉 (Te Si La).
Other formats should also be followed when selecting a name. In addition to the City name, the name should mention the nature of the business, followed by the Chinese terms for “limited”.
The Legal Representative acts as the legal officer for the company and represents the company and fulfills its obligations on its behalf. The legal representative’s name will appear on the business license and is legally responsible for the company. The legal Representative can be either the Chairman Executive Director, or Senior manager. Foreigners (including FFEs) and Chinese nationals can serve as Legal Representatives. Legal Representatives are usually the main shareholders or owners.
Supervisor and/or contact person
A FFE must have at least one supervisor who oversees the conduct of business activities by both the directors and top management. To avoid conflicts of interest, not all directors and senior management personnel may act as supervisors at the same time.
It is mandatory that every FFE designate a contact person who has a Chinese ID. This contact person does not hold any authority in the company and has no responsibility there. This contact person can also be appointed as supervisor. It is easy to remove and replace the supervisor/contact person, and no permission is required.
Supervisors/contact persons can be current or prospective employees.
Scope of Business
Business scope outlines the main functions and business activities of the company and defines the industry it belongs to. In China, foreign investment is encouraged, restricted, and prohibited in three major categories. A government document called Catalogue of Industries Encouraged for Foreign Investment 鼓励外商投资产业目录, defines these industries clearly.
A FFE is only permitted to operate and engage in business within the scope of its license. A clear definition of your company’s scope will prevent limitations and other obstacles. Your business scope should be accurate and complete.
Registered Initial Capital Investment
The registered initial capital investment is the amount of capital invested at the time of incorporation in the FFE.
Although there are no general set rules that dictate the minimum initial capital investment, there are some guidelines for different industries, certain regions of the country, as well as the company’s business activities. A company’s business license reveals the initial capital investment amount, which is publicly available to demonstrate the strength or capability of the company.
In deciding on an initial capital investment, the investor must consider a variety of factors, including cash flow projections, growth projections, and future investment plans. It is possible to increase the initial capital investment later, but this requires re-registering the minimum capital. If the initial capital investment is not specified correctly, future cash injections may be subject to taxation.
Shareholders are individuals or companies that own shares of the company. In order to qualify as a FFE, 100% of the shares must be owned by foreign entities or individuals. FFEs can be owned by foreign companies. When one or more of the shareholders are Chinese individuals or local firms, the company will be incorporated as a Sino Foreign Equity Joint Venture (中外合资 企业).
The shareholders’ structure only defines the ownership and equity structure of the company as a percentage per shareholder.
Finding an Address
All companies, including FFE’s must be registered to a physical address. Companies can only be registered to Commercial Properties. There are certain apartment buildings where apartments can be used as both residential and commercial properties. A company that sponsors a legal work visa must have an office space of at least 30m2. You need the “housing code” or “red book” for the property, which you could get from the landlord.
Accounting and Taxation
As soon as your business is registered, you will also need to appoint an accounting firm to handle your tax administration. Basic tax administration services usually cost between 300RMB – 600RMB per month, though more comprehensive services can cost more.
FFEs are required to prepare and submit financial and accounting reports at the end of the year. An audit firm will assist the FFE in this process. A FFE is subject to various taxes, including corporate income tax, VAT and other taxes.
Choosing the right Type of WFOE and defining the right Scope.
There are three main types of WFOE’s, Consulting WFOE, Trading WFOE and Manufacturing WFOE.
Consulting (Servicing) FFE
A Consulting FFE is a service-oriented company providing consulting services to a wide variety of industries. There is no need for additional licenses or certificates at the beginning.
Consulting companies can consult on the following Industries:
- Legal consulting
- Education & Training
- Technology & Software
- Financial & Financial Services
- Human Resources & Other business services
- Other services
A Trading FFE is a foreign-owned company that trades products and goods. Trading FFEs should also obtain additional import/export licenses and specialty product licenses. A license can be applied for when a company is registered or later on.
Trading companies can trade in the following Industries:
- Retail product trade
- Wholesale Trade
- Food & beverage trade
- Alcohol trade
- Medicine trade
- Other products
Manufacturing FFEs are only allowed to engage in manufacturing activities.
Manufacturing FFEs must rent a factory as their registered address, which will be inspected and visited by the local Administration for Industry and Commerce (AIC) prior to registration. Environmental Protection Agency approval is also required.
A copy of your Business License (sized A4 and A3) will be sent to you once your FFE registration is complete. Additionally, you will receive 4 official stamps: the Company Official Stamp, the Financial Stamp, the Invoice Stamp, and the Legal Representative Stamp. These stamps are extremely important and should be always kept safe. A stamp is a vital part of Chinese business culture, as all official documents and contracts must have a stamp.