With the development of economy, China has became the biggest market for foreigners to open their business,so it’s necessary for foreigners to learn how to make the 1st step in China. Representative office (RO)and wholly foreign owned enterprise (WFOE)are the two common forms for foreigners to operate business or manage Chinese team in China, so this article will talk about features and comparison of RO and WFOE. Reindeer Station assist foreigners to start first step of business in Ningbo with low risk,valuable advice and right decision.
A China Representative Office (RO) is the easiest and most economic way of setting up a legal presence in China without requirement of capital investment. It is an office of a foreign enterprise set up for the purpose of liaising with Chinese businesses and customers on behalf of its parent company. All expenses of a representative office have to be fully funded by the company headquarters.
Parent Company Requirements
Since January 2010 it is a requirement, that the Parent Company of a China Representative Office must be established at least two (2) years old.
Name
The name of the Representative office should be in the form of "Name of the Parent Enterprise + Name of the City + Representative Office".
Business Scope
A China-incorporated Representative Office is restricted to conduct only “indirect operational activities”,and non-profit making activities such as business liaison，introduction of products,market research,technology exchanges,quality control
Accounting &Taxes
As Representative Offices are not allowed to generate revenue, their tax base for enterprise income tax (EIT) and business tax (BT) is presumed on the basis of their expenses. The presumed profit rate of 15% is used for calculations. RO can have one part-time or full-time accountant to do monthly tax report. It is therefore recommended to keep a series of bookkeeping accounts based on all the expenses of the RO and all original receipts should be kept in the office for a minimum of five years according to the PRC Law.
In Future Job
Every March to June, the additional annual audits and annual inspections are necessary for RO. Every 3 year, the additional registration extension is necessary for RO.
WFOE (Wholly Foreign Owned Enterprise)
The Wholly Foreign Owned Enterprise (WFOE) is a limited liability company wholly owned by foreign investor(s).The registered capital of a Wholly Foreign Owned Enterprise (WFOE) should be subscribed and contributed solely by foreign investor(s).
Investor Requirements
WFOE refers to a company funded only by foreigners without any investor from Mainland China. Foreign enterprise or individual(s) investor is/are allowed for setting up WFOE in China.
Business Scope
One of the most important issues in WFOE application is business scope. Business scope needs to be defined and the WFOE can only conduct business within its approved business scope, which ultimately appears on the business license. Any amendments to the business scope require further application and approval. The classification of business scope will further define the minimum required capital, type of invoices, type of applicable taxes and etc.
Terms and Termination
In China, terms of 15 to 30 years are typical. It is also possible to obtain extensions of the WFOE's duration.The WFOE may be terminated under certain conditions. For example, WFOE undergo heavy losses or in the occurrence of an event of force majeure and etc.
In Future Job
In accordance with China law, any limited companies in China should summit annual audit report and finish annual inspection between 1st March and 30th June every year. Any company will be subjected to a fine if the Annual Audit Report is not submitted in a timely manner.
The Comparison Of WFOE and RO
|
Main Features |
WFOE |
RO |
|
Registered capital |
According to business scope and own business plan, usually equal to above 500,000 RMB |
0 |
|
Function |
complete functions of a company |
liasion only |
|
Legal entity |
√ |
× |
|
Bank |
Can transfer and receive money from clients in China and other countries |
Can only transfer and receive money from its mother company |
|
Apply for export/import license independently and sign business contract |
√ |
× |
|
Employ staff |
Independently |
Only through qualified HR agents（Pay extra service fee monthly） |
|
Foreign staff number |
No limitation, but need match with company scale and captial |
≦4 employees |
|
Main tax |
VAT : 13% of invoice amount |
N/A |
|
Sur-tax: |
Construction tax 7*VAT |
N/A |
|
Education surcharge :3%*VAT |
N/A |
|
Local education surcharge:2%*VAT |
N/A |
|
Handicapped Employment Security Fund: 20RMB/Person |
Handicapped Employment Security Fund: 20RMB/Person |
|
Enterprise Income Tax |
25% of next profit (invoice income - expense) |
According to all expenses.The higher expenses, the higher the tax. About 4% of all expense of RO |
|
VAT Tax refund from government(Import and Export by own) |
√ |
× |
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宁波 . 灵达商务服务（涉外）有限公司
中国，宁波，江北区人民路189号中东欧大厦409-410
Room 409-410, 4th Floor, Central And Eastern European Youth Innovation
Center, #189 RenMin Road, Ningbo
Tel：+86 574 27721008
E-Mail: marketing@reindeerstation.com
