Avoiding Post Incorporation Problem's with WFOE in China

Posted by goldmillennium on April 10th, 2013

It is extremely crucial to understand the incorporation procedure of WFOE in China. Normally, people assume that setting up a wholly foreign-owned enterprise (WFOE) is a regular application process.

To set up a Company in China you have to visit many Bureaus and follow the standard procedures. These steps are very time consuming, and many foreign businessman believe they can prepare all the documents “in one day”. This is on the biggest mistake and will cause delays and legal issues in whole registration. For example after Successful Chinese Name Approval you have 6 months to complete obtaining Business License. Other good example is deadline writen in Business License to complete capital injection, and in case of delays applicant will pay high fines.

The fact is that incorporating a WFOE is certainly not an effortless and regular method at all. The legal elements of the entire process are comparatively easy; however, the trick with WFOEs is it demands perfect knowledge of the laws related to it.

The fact is all WFOEs are different from each other, and all demands precise focus on the legal requirements. If this is avoided, there will be a serious post-incorporation issues which will affect organizational operations, as well as the name and credibility of the company. To sum up, structuring a WFOE in China is less on the legal issue and far more a concern in tax and finance management.

It normally takes about four to six months to complete the WFOE application; however, some foreign investors cannot wait for so long and decide to send the start off amount to their local workers or local agents to bear the cost of the initial office set-up, overhead or even tool purchases. The problem is that these funds, which are paid for the WFOE setup, cannot be taken into consideration as a part of capital injection after the organization license is issued. The amount required is transferred from the foreign investor’s overseas account to the nominated capital account in China, without any proof of the amount being invested in company formation.

Before your capital injection you can hire people, apply for working visa, sign the contracts on the name of your Company

Initially the investors used to remit to their nearby supplier asking them to use the amount for rental and purchase tools prior to the license being issued. However, it became difficult for them to subsequently locate the use of this amount and show this kind of purchases as part of their capital injection. The solution of this can be easy – after you’ll receive certificate of approval and later business license in 30-35 days, you can use legally your Chinese name of the Company to deal with suppliers, sign the contracts and ask for fapiaos under your company name.

To avoid all issues, it is better to take expert advice from people who can help the investors thoroughly understand the legal system so that they can avoid any problems in the future. Our customers know what they can do from the first day of registration procedure, and we advice them how to properly use law, time and resources. Online is listed many companies which can provide expert advice in this field. Log in to find the best company for good assistance.

About the Author:

Mr. Javier Hernandez, CEO is an international lawyer with a Master’s in European Union Law, International Business Transaction and Commercial Law and Chinese Law. Mr. Hernandez has eight years of experience in China and specializes in the business and legal areas in China including laws related to company formation & representative office in China. He has published and gained recognition in several magazines, including the Tsinghua Enterprise Business School magazine, as well as European and American magazines.