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Setting up a WFOE in China – the neglected nitty-gritty

Setting up a WFOE in China is easier than in the past, though still not without headaches. There are some details which are tedious but important.

Taking too much time to obtain your business license? Be patient.

If you are setting up a WFOE in a popular city, do think about which district to apply for the business license. Something that goes unnoticed is the appointment scheduling system set up by the local authorities. After the WFOE’s name is approved, your agent will start filing an online application for the business license. However, physical application documents adequately signed are required to be presented to the authorities in person.

With the appointment scheduling system in place, your agent will need to reserve a timeslot online and submit the documents in person at the reserved time and hour. Take Shenzhen as an example: the quota of appointments is different district by district. The district government may restrict the quota of appointments per day without any notice if there is an overwhelming demand for registering companies.

Signing application documents? The devil is in the details.

Signing application forms to set up a company in China could be cumbersome, and this is where the delay is on YOU if you do not pay attention to the details. Follow your agent’s instruction carefully regarding the type of pen, the size of paper, where to sign and where to apply your company seal (also called chop).

The weight of a signature might not be the same in China as in other countries. This is when a seal or a chop comes into effect. If a document does not bear the proper seal or chop, it may not be accepted at all. Additionally, pay attention to the type of pen you use to sign the papers. The ink must be in black and water-based, which means you can use a black fountain pen or a black ballpen with water-based ink.

If it is too troublesome for you to pay attention to all these details, ask your agent to mail you a signing pen along with the application forms where the places of signatures and company seals/chops are clearly marked.

Additional costs? Notarization and translation.

Gathering all the registration documents from the investing company might take a long time depending on the complexity of the structure and people involved in the organizational chart. One of the required documents to set up your WFOE is a set of notarized documents which proves the legitimate existence of the investing company. The notarized documents must also be certified by the Chinese embassy/consulate and translated into Chinese. The notarization procedure is sometimes out of your agent’s hand. This is true unless your holding company is registered in Hong Kong, in which case the agent can liaise with a China-Appointed Attesting Officer in Hong Kong to notarize the Hong Kong company’s bilingual (English and Chinese) registration documents within days.

Different requirement every week? Expect so.

Even if you get off to a good start with the ideal business structure, tax planning, and the accurately signed papers, hiccups will occur at some point during the project. Although on a national level we all follow the same law, the implementation of the law relies heavily on the procedures set forth by the local governments. This is because China’s reform has been a process of trials and adjustments until finding the best practices based on the lessons learned. The local authorities are constantly looking for changes, a method which is described as “crossing the river by feeling for stones”. Therefore, do expect delays and hiccups. Work closely with your agent to cope with the new requirements.

Are you still moving forward with your WFOE set-up? Keep calm and contact us!