Procedure for Establishing a WFOE in China

Please note that the procedures set out below for establishing a WFOE may differ depending on the location of the WFOE. Once the location of the WFOE is finally settled, we can review this advice and highlight any differences to the procedures set out below.

Step 1: Reservation of the WFOE Company Name

Prior to any of the following applications, foreign investors should reserve a name for its prospective WFOE with the local Administrative Bureau for Industry and Commerce ("SAIC"). This is called "Name Pre-registration" in China.
SAIC requires that a proposed name and two alternative names be provided.

Step 2:  Project Proposal and Approval

According to the PRC WFOE Law and its Implementing Rules as amended in April 2001, there should be a Project Proposal Approval stage before the final examination and approval. In practice, however, these two stages have been combined as one.

2.1 Project Proposal

The foreign investor is required to submit a Project Proposal to the local approval authority ("Approval Authority") where it intends to establish the WFOE. Generally, the Project Proposal should cover the following points:

(a) the purpose of the WFOE, production plan and market forecasting;
(b) the scope and scale of the business, the products to be produced / services to be provided (a 4-5 line description should suffice);
(c) financing, financial forecasts and evaluations;
(d) the technology and equipment to be used;
(e) land-use requirements (including the area), selection of sites;
(f) personnel and wages; and
(g) any requirements for public facilities (water, electricity, coal, gas or other energy source).

2.2 Examination and Approval

The following documents should be also be submitted to the local Approval Authority:

(a) a written application for the establishment of the WFOE;

(b) a Feasibility Study Report. Based on our experience, this is generally a 20 page document;

(c) the Articles of Association of the proposed WFOE;

(d) a list of the proposed chairperson and the members of the WFOE board of directors, and appointment letters;

(e) the incorporation document of the WFOE investor;

(f) a credit certificate of the WFOE investor issued within 3 months;

(g) lease agreement for the premises. Based on our experience, an actual executed lease agreement is not required and it is generally acceptable and common for the WFOE investor to merely show an intention to enter into a lease agreement by entering into a space reservation agreement with the landlord;

(h) the reply of pre-registration of name approved by the relevant SAIC; and

(i) such other documents as may be required by the Approval Authority.

As for the timing of approval, Approval Authorities are required to make its decision within 90 days from receipt of all the documentation. However, many local Approval Authorities are able to give its decision within 5 to 15 working days upon receiving all the required documentation.

Step 3: Registration for Business License

Within 30 days after obtaining the approval certificate, the foreign investor will need to register and apply for a business licence for the WFOE from the local SAIC. As part of this step, the foreign investor will need to submit similar documentation to the approval documentation for SAIC filing purposes. This is purely a procedural step and the local SAIC must issue the Business License within 30 days, but in our experience SAIC will usually issue the Business Licence within 5-10 days after receiving all the required documentation.

Once the business license is issued, the WFOE is deemed to be a legal person duly organised and existing under PRC law and will have full operational rights to operate a business in China within the scope of its Business Licence.

Step 4: Registrations with other Government Authorities

Registration is also required with other government authorities such as tax bureau, Foreign Exchange Control and Customs and so on. Some of the post-established is listed below:

(1) Making of Office Stamp (Office Seal)
(2) Opening of bank accounts
(3) Registration with the State Tax Bureau
(4) Registration with the Local Tax Bureau
(5) Application of “Enterprise Code” and card
(6) Registration with of Foreign Exchange Control Authority
(7) Registration with Custom

Documents and Information Required

The following is a list of documents and information which needed to be prepared by the foreign investors prior to submission of application:

(1) the name, address and place of registration of the investor(s);

(2) the name, nationality and position of the legal representative of the investor(s);

(3) the investor's incorporation evidence and its credit standing;

(4) the name and address of the WFOE. Please provide the proposed name and 2 alternatives (see step 1 above);

(5) a summary of the proposed scope of the business, the types of products and the scale of production;

(6) the total amount of investment in the WFOE, including:

(i) the registered capital. The amount of registered capital will depend on the location of the WFOE. Generally, a minimum amount of RMB100,000 to RMB1,000,000 is required is required for most types of businesses;

(ii) sources of funds; and

(iii) method and time limit of contribution of capital;

(7) the form of organisation, management structure (including directors) and legal representative of the WFOE;

(8) the main equipment to be used and the age of such equipment;

(9) the level and source of the production technology and production processes to be used;

(10) the targeted buyers and areas of sale of the products, including sales channels and methods of sale;

(11) the arrangements which will be put in place for the receipt and expenditure of foreign exchange. As set out in our email to you of 19 September 2003, this may comprise of related company transactions to transfer money out of the country and it may also include payment of dividends. We recommend that you also seek PRC tax advice from an accountant in respect of such arrangements;

(12) the establishment and staffing of the structure;

(13) the details of land to be used (ball park details of lease or space reservation agreement including the total area);

(14) please confirm our understanding that minimal energy or raw materials will be needed for the operation of the business and that there will be no construction (of premises or other facilities);

(15) a time line for implementation of the project; and

(16) the proposed term of operation for the WFOE. The standard term is generally 20 to 30 years.

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