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.
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.
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
The proposed name of WOFE must be approved by the Administrative Bureau for Industry and Commerce (工商局) before registration.
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.
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.
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.
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.
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.
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).
The applicant should complete “Form for Establishing Wholly Owned Foreign Enterprise” and submit together with the following documents:
Upon issuance of the Business License, the applicant is required to complete the following post registration procedures:
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.
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:
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.
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:
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: