Guide to Setting up Wholly Owned Foreign Enterprise in Shanghai, China

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Guide to Setting up Wholly Owned Foreign Enterprise in Shanghai, China

Foreign enterprises can establish Wholly Owned Foreign Enterprises (WOFE) in Shanghai upon application and approval.

  1. Characteristics of a WOFE

Wholly Owned Foreign Enterprise (WOFE), normally in the form of a limited liability company, the establishment of which is governed both by the Company Law of the People’s Republic of China (PRC) and Law of the PRC on Enterprises Operating Exclusively with Foreign Capital (“外資企業法”).

A WOFE can engage itself in approved business activities and issue tax invoices on its own. It is a corporation and a tax resident. All shareholders of WOFE should not be Chinese nationals or China incorporated enterprises. In terms of company registration, Hong Kong and Macao residents and companies are not considered to be China nationals.

  1. Company Name

The name of the WOFE is governed by “Regulations on the Management of name of Enterprises ” (“企業名稱管理規定”). The proposed name should contain 4 components: (1) location; (2) enterprise name; (3) industry; (4) company limited. Please note that if over 50% Registered capital come from foreign investors, the name can be formed as “enterprise name” + “industry” + “location” + “company limited”, for example:

ABC Trading (Shanghai) Company Limited.

There are certain restrictions on the use of company names

  • It should be in Chinese.
  • Arabic numerals, foreign characters or alphabets are not allowed.
  • It should not have content which contradicts national policies, damages social ethics, religions and culture.
  • It should not have content which damages fair competition and misleads the public
  • Unless special approval is obtained, it should not contain the following restricted words: China(中国) . Chinese(中华), national(全国), 国家 (State), international(国际) are restricted word unless they are used to designate the industry in which the company is operating, e.g. ABC International Trading Company Limited (XXX 國際貿易有限公司).

The proposed name of WOFE must be approved by the Administrative Bureau for Industry and Commerce (工商局) before registration.

  1. Approval Authorities

The Ministry of Commerce of the PRC (中華人民共和國商務部) is the ultimate approving authority of foreign investments. Different cities have different requirements, regulations and threshold for approval. Taking Shanghai as an example, the following table illustrates the specific criteria in the approval of foreign investments in Shanghai:

 

Amount of Investment Category Location Approving Authorities
1 Less than USD 30,000,000 Encouraged Unrestricted District or County Government
Less than USD 10,000,000 Permitted Unrestricted
Less than USD 30,000,000 Encouraged and Permitted Located in municipal Industrial Area
2 Less than USD 30,000,000 All included, except Restricted Pudong New Area Government of Pudong New Area
Waigaoqiao Free Trade Zone Administrative Commission of Waigaoqiao Free Trade Zone
Zhangjiang Hign-tech Park Zhangjiang Hign-tech Park Office
Jinqiao Export Processing Zone Administrative Commission of Jinqiao Export Processing Zone
Shanghai Chemical Industry Park Administrative Commission of Shanghai Chemical Industry Park
Linhai New Urban District Administrative Commission of Linhai New Urban District
3 Less than USD 100,000,000 Encouraged and Permitted (the above two categories are not included) Unrestricted Shanghai Foreign Investment Commission
Less than USD 50,000,000 Restricted Unrestricted
4 More than USD100,000,000 /Projects specially approved by the State All included, except Prohibited Unrestricted Minister of Commerce and National Development and Reform Commission (Central Government in Beijing)

Kaizen will provide you with the latest information regarding the approval criteria of the city/ district where your WOFE is located. The Chinese government has produced a list of “Approved Investment Projects” which categorizes investment projects into four categories: encouraged, permitted, restricted and prohibited. Please note that the high-tech industry, electronic industry, and service industry are all encouraged for foreign investments.

  1. Application

Application is a three-step procedure.

Step one: Application for intended name to be used by the WOFE with the Shanghai

Administrative Bureau for industry and Commerce

Step two: Application for the approval of the proposed investment in China from Foreign Economic Relation & Trade with submission of the approval of feasibility study, constitution (memorandum and articles of association).

A feasibility study will be prepared covering financing, site selection, technological process, equipment, raw material supply, market survey, economic results, foreign exchange, infrastructure facilities, etc.

Articles of Association should be prepared and submitted to the examination and approval authority. The examination and approval authority shall reply within 30 days on receipt of the feasibility study report and articles of association.

After the feasibility study report and articles of association have been approved, the applicant shall apply to the examination and approval authority, which shall issue the Approval Certificate within 3 days after receiving the application.

Step three: Registration with the Administration Bureaus for Industry and Commerce.

The company may then register with Shanghai Administrative Bureau for Industry and Commerce within 30 days after receiving the Approval Certificate and apply for the business license. Shanghai Administrative Bureau for Industry and Commerce shall issue the business license within 10 working days to those projects approved by the examination and approval authority of Shanghai. The enterprise is deemed as established on the date when the business license is issued.

The foreign enterprise may engage an agent authorized by Shanghai Municipal Foreign Economic Relations and Trade Committee to handle its application on its behalf.

  1. Registered Address and Business Address

Registered address is the official and legal address of a WOFE, which is attached to one of the administrative and tax districts in Shanghai. It must be located in a non-residential building. A tenancy agreement for the office premise to be used by the WFOE is required and the term should not less than 12 months.

  1. Legal Representative

Legal representative is the only representative of the company in Shanghai, appointed by the board of directors. Local representative is not required. Normally, if the legal representative does not intend to stay and work in Shanghai for over 90 days (within a year), no employment visa is needed. In case that the legal representative is a foreigner and intends to stay in China for over 90 days in a year, working visa is required.

  1. Capital and Shareholders

A minimum of one shareholder, either a corporation or a natural person, who must not be Chinese national, is required. Capital must be of private nature; public offering of capital is not allowed.

China adopts a registered capital system. All registered capital has to be paid up in cash, physical assets or intangible assets. If injection of capital is not in the form of cash, valuation by a local “valuation professional” is needed, according to the regulations relating to the particular industry.

Strict capital injection requirement should be fulfilled. Capital includes not only registered capital but also promissory loans from the investor, parent company or financial institutions. Different regulations for different industries govern the minimum capital requirements and schedule of injection. Local auditors should be engaged to issue audit report on capital injection.

If capital is not injected according to the schedule, business license and certificate granted may be withdrawn.

  1. Directors

A minimum of one director is required. If there is only one director, the sole director appointed is also the managing director of the WOFE. In case the shareholder wishes to set up a board of directors, the board of directors must consist of 3 to 13 members. There is no nationality or residential requirement for the director(s).

  1. Documents required for application

The applicant should complete “Form for Establishing Wholly Owned Foreign Enterprise” and submit together with the following documents:

  • An application duly signed by the chairman of the board or general manager of the foreign enterprise with the following details: name of the WOFE, name of the legal Representative, scope of business, duration and address, etc;
  • Statutory documents of the parent company issued by the authorities of the country or region of origin; e.g. Constitution, Certificate of Incorporation, Business Certificate, Tax Certificate;
  • A letter issued by a bank which has business relations with the applicant certifying its financial and credit standing;
  • A list of persons to be appointed as directors and legal representatives of the WFOE and their curriculum vitae;
  • A feasibility report.
  1. Post-establishment Registration Procedures

Upon issuance of the Business License, the applicant is required to complete the following post registration procedures:

  • Opening bank accounts
  • Registration with the tax department
  • Application of an Enterprise Code
  • Preparation of statutory stationery, including company chops
  • Registration with the State Statistics Bureau
  • Registration with the Customs Office
  • Application for Employment Visa (For foreign representative)
  1. Time Required

It normally takes 60 days from receiving instructions and full particulars and necessary documents from the applicant to issue the Approval Certificate. Thereafter, the Post establishment Registration procedures take about 60 days.

  1. Annual Examination

Annual examination is a system that is peculiar to corporations in China. The Shanghai Administrative Bureau for Industry and Commerce, together with other departments concerned (e.g. tax authority, customs, foreign trade) are authorised by law to conduct an annual examination of the enterprise. In brief, the objective of the examination is to investigate whether the enterprise abides to the laws, regulations and the conditions for granting its licenses. In particular, the examination will concentrate on the following areas:

  • Registered capital whether the capital has been paid up according to the constitution and conditions for application and in the proposal.
  • Operations whether the company is still operating within the approved activities, at the approved location and within the approved scale and employees.
  • Registration details whether there are any changes in registration details.
  • Financial details whether the company is still a profitable enterprise, whether necessary tax and customs duties are paid and whether foreign exchange is used according to government policies and regulations.

The examination is in the form of a report to be completed by the enterprise concerned annually (together with the payment of an annual fee). The Shanghai Administrative Bureau for Industry and Commerce will examine the report and make necessary enquiries.

The annual examination will be conducted from March to June every year. Those enterprises unable to fulfill the requirements of the annual examination may have their business license revoked.

  1. Audit and Accounting

Accounting records are required to be kept in Chinese or in another language with Chinese translation. Annual audit by a local auditor is required.

The Role of Kaizen

Kaizen can help investors to:

  • Prepare pre-establishment documents (minutes, power of attorney etc.), arrange translation, notarization and certification from various authorities.
  • Engage Registration Agent and supervise the registration work (only in the case where the law requires certain work to be performed by Registered Agent).
  • Draft the necessary project proposal and feasibility study report.
  • Engage auditors for the examination of capital injection and annual examination.
  • Locate suitable business address and arrange for leasing, set up office, including arranging telephone, fax and broadband, acquisition of office machine and furniture.
  • Employ local staff and complete formalities in accordance with labour laws.
  • Post -establishment registration work and open bank accounts.
  • Annual Joint Inspection Report.

Through our offices and staff in Hong Kong, Shanghai, Shenzhen, Beijing and Singapore, Kaizen shall follow through the establishment process and save investors time and trouble.

Kaizen offers the following services:

  • Formation of corporate and business structures in all major cities in China, including Shanghai, Beijing, Shenzhen, Guangzhou, Zhuhai
  • Incorporation of companies/structures Hong Kong
  • Incorporation of companies/structures Singapore
  • Incorporation of companies/structures in other onshore/offshore jurisdictions, including BVI, Samoa, Delaware, Panama, UK, Cayman Islands and Bermuda etc
  • Full corporate management services
  • Registered office, business office, mail redirection and business centre
  • Accounting and re-invoicing services
  • Tax and asset planning services
  • Asset protection and preservation advisory services
  • Market exploration services
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