Setting Up A WFOE In China: A Step-by-Step Guide(2)

Setting Up A WFOE In China: A Step-by-Step Guide(2)

Step 3: Environment impact assessment (for manufacturing WFOE) The environmental impact assessment is set up to control the impact that a manufacturing enterprise may have on the environment. According to the Catalogue for Classified Administration of Environmental Impact Assessment,...

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Step 3: Environment impact assessment (for manufacturing WFOE)

The environmental impact assessment is set up to control the impact that a manufacturing enterprise may have on the environment. According to the Catalogue for Classified Administration of Environmental Impact Assessment, manufacturing projects can be classified as having either a “significant”, “moderate”, or “small” impact on the environment, which determines whether they need to provide an environmental impact evaluation “statement”, “report”, or “registration form”, respectively. The evaluation should be carried out by qualified institutions with a certificate issued by the environmental protection department of the State Council. In addition, the local environmental protection authorities will require information on the raw materials to be used, the equipment and machinery, measures for environmental protection, and the consumption and disposal of hazardous materials.

Step 4: MOFCOM approval or record-filing

As long as a company’s business scope is not restricted by the Negative list for Foreign Investment (in free trade zones), or is not subject to the special administration measures for foreign investment access, the application can go through a simplified record-filing process, recently promulgated in the Provisional Measures for the New Filing System issued by MOFCOM. This process requires:

1.An application form;

2.Commitment letter by all investors or their representatives;

3.Business license or pre-approval documents for the name of the WFOE;

4.Power of attorney appointing the representatives and the identity paper of the representatives;

5.Certificate or identity document of investors and legal representative for the application.

These documents must be uploaded through the online integrated management system. The commerce authorities – normally provincial-level – should verify the integrity and accuracy of the information and complete the filing within three working days. Interestingly, the filing process is not actually a necessity for obtaining a business license, but for restricted or encouraged industries with equity portion requirements, the setup of a WFOE requires the approval of commerce authorities.

The new filing system is being implemented within the scope of the 2015 Catalogue, but the draft of the forthcoming updated Catalogue has now been made public by the NDRC and MOFCOM for comment. The State Council has also issued an announcement for further opening-up of industries for foreign investment, with a notable emphasis on easing restrictions on the financial and energy sectors.

Step 5: Five-in-one business license

After receiving an Approval Certificate from MOFCOM, registration and application for a business license can be made to the local AIC within 30 days of receipt. As with the record-filing process, the application for a business license has recently been significantly simplified with the introduction of the five-in-one business license, which has replaced the previous three-in-one license.

Accompanying the new business license scheme is an online business registration system, which facilitates information sharing between all departments involved in the registration procedure, thereby simplifying the overall establishment process. One application form and one set of application materials can be submitted to an application terminal at the local AIC, reducing the process from one month to around 15 to 25 days.

Step 6: Carving chops

Unlike practices in the West, a company’s official seal in China has legal authority over the signature of a legal representative and has the power to validate documents and contracts, regardless of who uses it. Its possession and whereabouts are therefore of utmost importance.

All companies operating in China are required to have an official seal, which is round and bears the official company name in Chinese, and where applicable, in English. A company seal can be obtained from the local Public Security Bureau (PSB) after successful registration with the AIC. When signing a contract, it is always the opposite party’s responsibility to ensure that the signing party’s seal is authentic – if not, the contract is not legally binding. The PSB therefore keeps a duplicated copy of the official company seal in the event of fraud or disputes.

Other than the official company seal, a company must also have a legal representative seal, a financial seal, a seal for use on fapiao, and in the case of trading WFOEs, a customs seal. A legal representative seal is used for specific license and certificate applications and banking documents, while the legal representative seal is square in shape and bears the name of the company’s legal representative. The financial seal is used to validate financial transactions such as cash withdrawals, wire transfers, and bank checks. The company’s financial officer should keep possession of this seal separately from others, with a duplicate stored with the company’s registered bank for verification and anti-fraud purposes. With authority in a Chinese company residing primarily in the hands of the person who currently holds its seals, it is advisable to put in place a mechanism to track, record, and monitor their use.

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