This is the last of a four part series about the different choices you have to start a business in Shanghai. Today we will look at the

Wholly Owned Foreign Enterprise (WOFE) option.

Please check the previous three postings for details on the Representative Office, Hong Kong LLC, and Foreign Investing Partnership Enterprise (FIPE), and Joint Venture options.

From the title of this entity you may have guessed it is the most expensive option. There is no domestic partner involved.

Foreign investors assume all risk and provide all capital.

The minimum capital requirements according to China law are 100,000 RMB with very vague guidance. All Shanghai districts require a minimum capital requirement equal to $150,000 USD which is nearly 1 million RMB. The Jing’An district (part of CBD) requires 15% to be paid within 90 days and the remainder to be paid within 6 months of establishment. All other districts in Shanghai give better payment terms with 15% due within 90 days and the remainder due within 2 years of establishment. The capital requirement is determined by the level of capital needed for a company to break even for 2 years, though it cannot be less than $150,000 USD.

There are 5 types of WFOE registrations based on industry with different government fees.

1. Consulting Company: Approximately 5,000 RMB
2. Service/IT Company: Approximately 5,000 RMB
3. Trading Company: Approximately 6,500 RMB
4. Food & Beverage Company: Approximately 15,000 RMB
5. Manufacturing Company: Approximately 20,000 RMB

You can only engage in business for the type of WFOE you are registered as. For example, if you are a consulting company but develop software, you cannot sell the software under the Consulting WFOE. On your application you will be asked what your “Business Scope” is. Authorities who approve your application will want your scope to be narrow, but you can try to negotiate something more broadly. Once your Business Scope is approved, you can only legally conduct business that was originally defined. If your business changes or evolves you can apply for the scope to be amended.

Benefits:

1. Autonomy and independence without a local partner
2. Ease of carrying out strategy from an overseas parent company
3. An overseas parent company does not need to be at least 2 years old
4. Full human resource control
5. Ability to issue invoices and make profit
6. Protection of trade secrets and technology

WOFE Tax Rates (same as Joint Venture)

Profits are taxed as corporate income.

Non- Manufacturing: All profits are subjected to a 30% corporate income tax and a 3% local income tax.

Manufacturing:


There are more taxes for various areas of business! For more details, please check out:

http://www.shzb.gov.cn/en/policyfaq_list_d.php?parentid=157&sortid=163&id=9178


Support Agencies

Up to now I have summarized government costs, minimal capital requirements, and income tax for each strategy to give you an idea of the minimum amount you need for startup costs. There are also what I call optional or even “insurance” costs that can be added to navigate the complexities for your new business in China.

Starting a business in a foreign country is fraught with potential problems including but not limited to language barriers in speaking and reading, ever-changing laws and regulations, multi step processes, lots of paperwork, and time.

You may think you can do it yourself and save some cash.

But, hire an agency could save you from many headaches and delays and free up your valuable time. Local agency’s like these have relationships with the government, know what paperwork is needed, and know all of the steps required for you to be successful.



In partnership with DragonGate these local agencies will also set up bank accounts, navigating the employee visa process, accounting, HR, taxes, and auditing needs.
So don't hesitate to contact our partners to help you guide start-up your business in China.

This concludes our detailed look at starting a business in Shanghai. Check back in two weeks for a comprehensive look at starting a business in Hong Kong. Remember setting up a Hong Kong LLC is an option for Shanghai.