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Economie - Établir une société
Wholly Foreign Owned Company (WFOE)
This document was written by Mr. Nicolas Musy,
Senior Consultant, CH-ina
SinOptic remercie M. Musy d'avoir fort
aimablement mis ces textes à sa disposition.
1. Status
Such a company is registered with foreign capital in China and under
Chinese law. Board of directors and legal representatives are appointed
by the foreign mother company. The WFOE abides by the Chinese company
law and regulations like any other Chinese company.
It is generally treated the same, with some differences, sometimes
favourable sometimes not. In general the differences are reducing
and I would not consider that WFOE are at a disadvantage against Chinese
companies from a legal and regulatory point of view.
2. Legal liability
The WFOE is liable to its assets like a limited liability company
in Western legal practice. The minimum capital to be registered is
usually around USD 200'000.-.
3. Commercial Activity
Chinese corporate law restricts companies to their business scope,
i.e. the range of business activities it can perform. A WFOE is also
restricted in such a way. The business scope of a WFOE is usually
restricted to a manufacturing or processing activity. Certain special
economic zones allow WFOEs to have a purely distribution activity
for products of the mother company's group. Pure trading as a business
scope (i.e. just buying and selling as a third party between 2 partners)
is normally not allowed for a WFOE.
Within its business scope, the WFOE can have normal commercial activities
of buying materials, transforming them and reselling its products,
locally or abroad. If it approved to do so, it can just buy, store
and distribute and act as its mother company's Chinese agent.
The WFOE can declare customs, import and export according to its
business scope.
Local currency can be exchanged against hard ones provided it is
for legal buying activities in respect with the business scope.
Profits can be repatriated, in foreign currency.
4. Personnel
Local staff is hired directly under the Chinese labor law. All its
dispositions must be respected. They do not make it difficult to hire
and fire people. Trade unions are encouraged but not obligatory. In
any case, they have proved to be no hindrance to the management.
Foreign managers can be apointed and receive work and residence permits
as well as the apropriate visas.
5. Premises
They can be any premise in China. Restrictions occur in case a WFOE
applies for a business scope only available in a special zone. Premises
must then be bought or rented in that zone. Foreigners are still restricted
to live in approved housing.
6. Taxes
WFOE pay income tax as Chinese companies (usually 33% of the net profit).
Tax breaks can be obtained for encouraged industries or export-oriented
industries.
In addition WFOE normally obtain the right to import all of their
production equipment free of VAT and customs tax.
Personal income tax of the WFOE must be paid by the employer.
7. Requirements for Registration
The WFOE must be approved to be registered. This approval will include
checking:
a) The articles of associations of the company (they must abide by
the Chinese WFOE law) and its feasibility study. The business scope
is a key element of the approval. An environmental protection study
must also be made and approved.
b) The premises rental or purchase contract
c) The résumés and passports of the board members and their proper
appointment by the mother company's legal representatives
d) The mother company's financial situation, as for the RO Final
registration is granted after the registered capital is paid in.
Copyright © Nicolas Musy, Senior Consultant, CH-ina
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