Guideline of China Wholly Foreign-owned Enterprise(WFOE) Incorporation

With in-depth understanding of Chinese market of foreign investors, many of them tend to set up wholly foreign-owned enterprise to do business. Setting up wholly foreign-owned enterprises will not only enable the investors to increase marketing decision and response speeds, but also provide the greatest security for the investors to protect their scientific research confidentiality and keep centralized management intact. Meanwhile, foreign investors contribute by installment towards the registered capital, where the first installment shall be paid in an amount at not less than 15% of the statutory capital within 90 days from the date of issue of the business license, and the last installment shall be paid up within 2 years.

Required Documents for Incorporation mainly includes:

  1. The feasibility study report
  2. Articles of association
  3. Enterprise Name Approval in Advance Notice
  4. The application for foreign investment company incorporation signed by the proposed legal representative
  5. Meetings Record
  6. The investor’s entity qualification certificate or the natural person’s ID card
  7. The appointment letters and ID cards of directors, supervisors and managers
  8. The legal representative’s appointment letter and ID card
  9. Certificate of assessment of capital
  10. Lease contract or certificate of property rights
  11. Documents or certificates for earlier setup examination and approval

Taxes Involved in the Operation of Wholly Foreign-owned Enterprise in China:

1. Corporate Income Tax: generally the tax rate is 25%; the high tech enterprises with key aided enjoy 15% preferential income tax; those enterprises qualified for small profit enterprises enjoy 20% preferential income tax.

2. Tariff, and Value-added Tax on Importation: foreign investors carrying out investment in related file or projects, shall be entitled to first taxation, and then refund, of tariff and value-added tax or enjoy the tax exempt.

3. Value-added Tax, and Consumption Tax:  The foreign investment productive enterprise being a general taxpayer shall be entitled to “Exemption, Credit and Tax Rebate” of taxation or “Collection First and Refund Later” on the self-managed export, or export on consignment, of its self-produced goods. Meanwhile, during the process of export sales, they can enjoy the tax exempt of value-added tax.

The foreign capital investment enterprise shall be exempt from tariff and value-added tax on importation and consumption tax payable on the goods imported by the trade method of processing materials supplied by customers, and processing imported materials, and exempt from the value-added tax on production and consumption tax on the exported goods produced by it. While, to those foreign capital investment enterprise categorized as “encouraged” shall be entitled to full refund of the value-added tax payable on the home equipment, falling within the scope of the Exemption Catalogue, and purchased within its aggregate investment.

4. Individual Income Tax: Foreign nationals are entitled to a monthly exemption of RMB4800, with the remainder subject to individual income tax at 3-45%. Foreign nationals are exempt from individual income tax payable on the interests from saving deposits with financial institutions

5. Staff Social Security: The enterprise will make a certain social security contribution for its employee at a percentage of the employee’s monthly salary, of which the base and proportion are calculated differently due to different living standards in different regions.

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