Setting Up A WFOE In China: A Step-by-Step Guide(3)

Setting Up A WFOE In China: A Step-by-Step Guide(3)

Over the last few years, there have been a number of changes to the wholly foreign owned enterprise (WFOE) establishment process in China. Primarily, the latest update to the Catalogue for the Guidance of Foreign Investment Industries, which lifts regulatory thresholds for certain industries...

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Step 7: Open foreign exchange and RMB bank account

A WFOE in China needs to have a minimum of two banks accounts: an RMB basic account, and a foreign currency capital contribution account. An RMB basic account is a must for a WFOE’s daily business operations in China. This account is the only account from which the company can withdraw RMB cash, and often acts as a designated account for making tax payments. The foreign currency capital contribution account is necessary to receive capital injections from overseas. Approval to open this account can be obtained from SAFE.

A WFOE can establish bank accounts with both Chinese and international banks. Although many foreign investors prefer to establish an account with an international bank due to an existing business relationship, creating accounts with a Chinese bank has some advantages regarding efficiency, convenience, and security. A WFOE’s financial and legal chops are usually required in order to verify the ‘signature’ of the company when opening a bank account in China.


Step 8: Import and export registration procedures (only for trading WFOE)

In order for a trading WFOE to conduct import/export trading & distribution activities, it must first obtain a customs registration certificate and an import-export license, which essentially allows it to exchange foreign currencies to RMB, and refund sales or VAT on imported or exported products. In addition to this, a trading WFOE must complete foreign trader operator filing with MOFCOM, make quality inspection registration with the Entry-Exit Inspection and Quarantine Bureau, and obtain an E-port IC card, software, and card reader with the China Electronic Port.


Step 9: General VAT taxpayer related procedures

Taxpayers in China are split into two categories when it comes VAT: general taxpayers and small-scale taxpayers. The latter are entities involved with wholesale and retail with sales of less than RMB 800,000 per year, manufacturers (including those providing processing, repair, and replacement services) with sales not exceeding RMB 500,000 per year, and taxpayers offering VAT-taxable services with maximum annual sales of RMB 5 million. All other taxpayers come under the general classification.

Despite lower VAT rates for small-scale taxpayers, general taxpayers can deduct input VAT from output VAT, reducing the overall tax burden of the company. General taxpayer status also permits the company to issue special VAT fapiao to its clients and customers. Fapiao are important in business transactions and can be used as legal receipts and for tax deduction purposes, where appropriate. Provided a sound accounting system can be demonstrated, entities who fall into the small-scale taxpayer category can also apply for general taxpayer status, the application process for which has recently been simplified.

To gain general taxpayer status, an application form and tax registration certificate must be submitted to the local tax bureau. The registration will then be checked and confirmed by the bureau. Previously, extra steps, such as an interview and on-site inspection, were required; the removal of these steps has shortened the time required from 30 working days to around five. It is important to note that once this status is acquired, it is not possible to convert back to small-scale status.

Conclusion

Steps towards the simplification of the WFOE set up process are continually being made. Most noticeable are the developments with the business license. The five-in-one business license departs from the need for multiple sets of application materials to multiple authorities, and with it, the streamlining of administration, which is becoming more tightly knit and effective. Sharing of information via the means of integrated and digitalized management systems facilitates not only quicker application times, but also more uniform ratification and assessment means. However, components such as the Catalogue and other requirements and regulations are always in the process of being updated. Therefore it is important to keep on top of these changes in order for the establishment process to run smoothly, particularly as the different business intents of WFOEs will affect the nature and steps of the set up process.


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