The Wholly Foreign Owned Enterprise (WOFE) is a Limited liability company wholly owned by the foreign investor(s). In China, WOFEs 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 WOFE is increasingly being used for service providers such as a variety of consulting and management services, software development and trading as well.

Advantages of WOFE

The advantages of establishing a WOFE include:

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 on business rather than just a representative office function and capable of issuing invoices to their customers in RMB (Chinese Currency) and receive revenues in RMB.

3. Capable of converting RMB profits to US dollars for remittance to their parent company outside China

4. Protection of intellectual know-how and technology

5. Greater efficiency in its operations, management and future development.

Business Scope

One of the most important issues covered in the project documentation is the business scope of the WOFE. Business scope is narrowly defined for all businesses in China and the WOFE 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.

General business scope usually includes, investment consulting, international economic consulting, trade information consulting, marketing and promotion consulting, corporate management consulting, technology consulting, manufacturing, etc.

Registered Capital

For the WOFE, the minimum amount of registered capital required is RMB1,000,000 (about USD120,500), Under the Company Laws, the paid-up capital is equal to registered capital, Investors or shareholders must pay for the shares subscribed and deposit the money into a specified bank account. The amount of share capital so deposited should be audited by a firm of certified public accountants.

Taxation

China adopts a low-tax policy for foreign-invested enterprise, and a preferential tax policy for the areas or those projects listed in the state-encouraged industrial catalogue for foreign investment.

The income tax of foreign-invested enterprises should be levied at the rate of 33 percent; but in special economic zones, national high and new technology industrial development zones, national economic and technological development zones, the income tax paid by foreign-invested enterprises is at the rate of 15 percent. In open coastal areas and the capital cities of each province, income tax of the foreign-invested enterprises remains at the rate of 24 percent.

Generally, the foreign-invested enterprises can enjoy the preferential treatment that starts from the first profit-making year. Corporate income tax will be exempted for the first two years and half of the corporate income tax will be exempted for the following three years. If foreign-invested enterprises remain advanced in technology, corporate income tax will be exempted for the first two years and half of the corporate income tax will be exempted for the following six years starting from the first profit-making year. The export-oriented enterprises enjoy the general preferential treatment, except that if annual total export volume makes up the 70 percent of the annual sales volume, half of the corporate income tax will be exempt. If the homemade equipment purchased by the foreign-invested enterprises within the total investment falls into the catagry of duty-free imported equipment, the corporate income tax will be deducted in accordance with related regulations.

Annual Return

Any limited companies should summit annual return to the relevant authorities. Any company will be subject be to a fine if the Annual Return is not submitted in a timely manner.

Operation period and operation termination

1. Operation period
The operation period of the foreign enterprise is confirmed by investors in accordance with relevant stipulations, varying with specific conditions of different industries and projects, and generally remaining 10 to 30 years with a maximum of 50 years. With special approval of the State Council, the foreign-invested enterprise operation can be exempt from time limits. Foreign-invested enterprises with limited operation periods, will terminate upon the expiration of its licence. If each investment party agrees to prolong the operation period, they can apply for approval to the authorities in charge of examination and approval within 180 days of the operation termination. In the operation period, the enterprises enjoy autonomy of business operations. The state shall not nationalize or requisition any foreign-invested enterprise. Under special circumstances, when public interest requires, foreign-invested enterprises may be requisitioned by legal procedures and appropriate compensation shall be made.

2. Termination:

When it is time for termination, the enterprise shall create an application for termination and refer it for approval to authorities in charge of examination and approval. The approval date is the termination date of the enterprise operation.

DOCUMENTS REQUIRED

The documents required for setting up a WFOE are listed below:

1. An original copy of application letter signed by the Chairman of the Board (in printed form with company chop). a project proposal and feasibility study report ( in print and under the company seal).
2. Original copies of the application paper and the resolution by the Chairman of the Board of the foreign investor (in printed form signed by members of the Board and with company chop).
3. An original copy of leasing agreement with chop of the Housing Department.
4. Directors name list of board or management institution name list, importing equipment list.
5. Copies of the business licenses or certificates of incorporation of the foreign investor (usually with the permission chop from the Industrial and Commercial Administrative Bureau).
6. An original copy of the corporate ratification paper (2 copies in duplicate).
7. Two original bank credibility letters for the foreign investors, stating a 7-digits bank balance, issued within 6 months in both English and Chinese language.
8. A copy of the approval paper for corporate formation and other papers for company alterations (the original are required for check-up).
9. Notice of enterprise?|s name confirmation appraised by the Industry & Commerce Administrative Bureau.
10. Contracts and charter versions (signed by legal representative or Bailor).
11. An application form for company alteration;
12. A copy of the stub of corporate certificate of approval.
13. Whole set of materials for application of project establishment and approval documents (original) for project establishment.