China WFOE: Hong Kong Company Formation, Offshore Company Incorporation

Studio Alpha Concept & Partners Costituire Società Offshore

Hong Kong Company Formation, Offshore Company Incorporation, Company Formation, China, Hong Kong Company, Limited and Unlimited Company in Hong Kong, Offshore Companies

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Hong Kong Company Formation, Offshore Company Incorporation

WFO

Pros & Cons

Pros

•With separate legal entity in China;
•Can carry out all business activities (subject to the business scope stated in business license);
•Can negotiate for tax incentive with local government;
•Can hire local staff.

Cons

•Application process is more complex and each step may have profound impact in future development of the company: business scope, financing, tax rates, director board management etc.;
•Capital injection is required to meet the minimum level for specific industry and in specific territory of China (such as free trade zones and export processing zones). The minimum capital is around US$ 140,000;
•Even though WFOE is limited liability in nature, a legal representative needs to be appointed and take up unlimited liability of the WFOE.

Setup Key Points

•Shop around in China to decide where to form the WFOE (WOFE) because it seriously affects

◦the minimum capital
◦the tax rate
◦the operation efficiency
◦the amount of profit allowed to be "exported", etc.

•Select professional service company to handle application because all steps and documentation may have profound effect.
•A legal representative needs to be appointed who is the ultimate person taking up all responsibility of the WFOE.
•All the documents submitted to the government authorities must be conducted in CHINESE language.

Documents Required

•Bank creditability statement of the foreign investor;
•Project proposal;
(purpose, business scope, period, investment amount, among others)
•Certificate of registration;
•Statement on the products and technologies;
•Duplicate of confirmation letter of the 3 proposed company names;
•Report on feasibility study;
•Memorandum & Articles of Association;
•Name list of the board and senior executives;
•List of equipment to be provided (if any);
•Passport or residential card of the legal representative;
•Lease agreement or purchasing contract of company premises;
(The contract must not be less than 1 year and need the sealed copy of property right certificate of the owner)
•Certificate of property of the lessor;
•Authorization documents for the board and senior executives;
•Photos of legal representative;
•Other documents that the authorities may require as per specific cases.

Setup Steps

1.Preparing and Presenting a Project Proposal

◦The foreign investor has to complete a project proposal and present it to the government authority that will decide whether or not to approve the proposal within approximately one month after receiving the proposal.

2.Submitting the proposed company names

◦3 optional names are required.

3.Preparing and Submitting a Feasibility Study Report

◦After the project is approved, the foreign investor has to prepare a feasibility study. The authority will help to coordinate on the project if any problems should arise.

4.Submitting the Articles of Association

◦While the foreign investor is preparing the report on the feasibility study, he may also draw up the articles of association and submit them to the authority that will reply around one month after receiving the feasibility study report and articles of association.

5.Application for the Approval Certificate

◦After the report on the feasibility study and articles of association are approved, the foreign investor has to apply for the Approval Certificate, which will normally be issued within 30 days.

6.Application for the Business License

◦The foreign investor has to make an official registration with the government authority within 30 days upon receiving the Approval Certificate and then apply for a Business License. The authority will normally issue the Business License within 10 working days.

The procedures and related documents may vary depending on specific projects, Chinese regulations and special approval as well. However, the Wholly Foreign-Owned Enterprise is officially established on the date when the Business License has been issued.

Tax Implications

Tax duty of a WFOE includes

•Foreign and local staff's Individual Income Tax (IIT);
•Business Tax (BT);
•Income Tax (IT) etc.

As a WFOE may have different tax incentive from local government, different tax rates applies to different company.

However, one should bear in mind that tax in China can be categorized into federal tax or local tax (local government). In most cases, tax incentive can only be got from local tax.

Introduction of company chops in china

A company in China may hold several chops and each being for different purposes and document.

Some chop is mandatory for every company incorporated in china and some is not.

Example :

•Company Chop is mandatory.
It should be only one and required to record in local police station.
If this chop is damage or by any reason need to make a new one to replace.
Company need to :

◦Notice in the newspaper that the old Company Chop can not be used;
◦Make a new one and record in the police station.

•Financial Chop is mandatory.
For every company incorporated in china, a RMB bank account is mandatory. And for all bank issue, a Financial Chop is mandatory.
Therefor, Financial Chop also become mandatory.
•Contract Chop is optional.
Generally a business agreement will use the Company Chop to sign.
For some big company, since only one Company Chop, the company will consider to make a Contract Chop to sign the business agreement.

Usage of china company chops

•Company Chop [ Sample (Shanghai) ]

◦This chop is must;
◦This chop is represent the company;
◦It should be only one and required to record in local police station;
◦Usage :

■Government license application : Application Form, Company License shall cover the Company Chop.
■Monthly Tax Declaration : Government Form shall cover the Company Chop.
■Bank Issue : Some documents required the Company Chop.
■Business Agreement signing;
■Daily use to acknowledge receipt of document from courier company.

•Financial Chop [ Sample (Shanghai) ]

◦This chop is must;
◦Usage :

■It is used in accounting and bank;
■Both Chinese Bank and foreign bank requires it.

•Representative Chop

◦This chop is not must;
◦This chop is not represent the company. It only represent a person.

■For WFOE is Legal Represetative Chop ;
■For RO is Chief Representative Chop ;

◦Usage :

■Generally, it is only used for Chinese Bank, since the Chinese Bank requires the chop as the authorized signature in Bank. The chop is used to apply the bank issue like TT, Check, etc.;
■For some foreign bank in China, RO and WFOE can choose the representative's signature or representative chop as the bank authorized signature.

•Contract Chop

◦This chop is not must;
◦Usage : Business Agreement signing

■Generally it will use the Company chop to sign it;
■However, for some big company, since only one company chop, the company will consider to make a Contract Chop to sign the business agreement;