Archives: form a WFOE

One of the most frustrating things about doing business in China is the paper work.

The seemingly endless paper work….

I was cc’ed on an email the other day from one of our China lawyers to one of our clients.  The client had signed the documents required for a WFOE using the wrong ink.  The ink the client used looked like the required ink, but it wasn’t.  We told the client that the local Administration for Industry and Commerce (the “AIC” is where the WFOE filings go) would likely reject the application due to the wrong ink, but the client chose to go ahead anyway so as to potentially avoid having to go through the signing process again.  This email (with all identifiers, including city) hidden, is to let our client know that the AIC did in fact refuse their application and setting out all that our client now needs to do to ensure acceptance the next time around.

To form a WFOE in China, you typically need around 25 documents, 33 originals, 594 signatures (18 times the 33 originals) and 297 seals (9 times the 33 originals).  Fun stuff, let me tell you.   I was quoted the other day in a New York Newsday article on China, in which a China consultant talked about how forming a China WFOE takes 6-12 months.  The Wall Street Journal’s China Real Time Report, in a piece entitled, American Firms Find China Hard Work, noted the following from the recently released AmCham survey:

Investment approvals are particularly vexatious, with complaints ranging from apparently arbitrary decisions to excessive paperwork. The proportion of U.S. firms who think foreign and local companies compete on a level playing field with regard to approvals has fallen to 14% from 29% in 2011, according to the chamber’s survey.

The below email should give you a bit of flavor as to why forming a company in China can be so “vexatious.”
In line with our expectations, the _______ AIC  rejected your WFOE application documents for having been signed with the wrong type of pen. Accordingly, please have the attached documents re-executed.

The instructions for signing follow:

1.    AOA-Chinese: We need 5 Originals, all signed by ____________ and bearing the seal of ___________.

2.    AOA-English: For reference only. No need to sign or return to me.

3.    Application form-Chinese: We need 2 Originals, both signed by both _________ and _________ and bearing the seal of ___________.

4.    Application form-English: For reference only. No need to sign or return to me.

5.    Application Letter for Economic promotion bureau-Chinese: We need 2 Originals, both signed by __________ and bearing the seal of ___________.

6.    Application letter for Economic promotion bureau-English: For reference only. No need to sign or return to me.

7.    Application letter for stamp carving-Chinese: We need 1 Original, signed by ____________.

8.    Application letter for stamp carving-English: For reference only. No need to sign or return to me.

9.    Appointment letter (executive director and supervisor)-Chinese: We need 3 Originals, all signed by __________ and bearing the seal of ____________.

10. Appointment letter (executive director and supervisor)-English: For reference only. No need to sign or return to me.

11. Appointment letter (General manager)-Chinese: We need 3 Originals, signed by all of the board members (i.e., _________, _______________, and ______________).

12. Appointment letter (General manager)-English: For reference only. No need to sign or return to me.

13. Foreign exchange registration application form-Chinese: We need 1 Original, signed by ____________.

14. Foreign exchange registration application form-English: For reference only. No need to sign or return to me.

15. FSR-Chinese: We need 3 Originals, all signed by _____________ and bearing the seal of __________.

16. FSR-English: For reference only. No need to sign or return to me.

17. Letter of authorization by legal person-Chinese: We need 2 Originals, both signed by ___________.

18. Letter of authorization by legal person-English: For reference only. No need to sign or return to me.

19. Letter of authorization for delivery of legal documents-Chinese: We need 3 Originals, all signed by ___________ and __________ and bearing the seal of ____________.

20. Letter of authorization for delivery of legal documents-English: For reference only. No need to sign or return to me.

21. Letter of undertaking to work safety-Chinese: We need 2 Originals, both signed by ___________ and bearing the seal of __________.

22. Letter of undertaking to work safety-English: For reference only. No need to sign or return to me.

23. The list of board members-Chinese: We need 3 Originals, all signed by _________ and bearing the seal of ___________.

24. The list of board members-English: For reference only. No need to sign or return to me.

25. Power of attorney: We need 3 Originals, all signed by _________ and bearing the seal of __________



(1) The execution documents listed above have yellow “stickies” in the document indicating where to sign, and whose signature is required. When you print out these documents, make sure you do not print out these notes as well.

(2) Make sure to use A4 paper to print the documents and that your printer is set to A4. Note the number of pages and formatting of the documents to ensure that the formatting is consistent. If you have problems printing the documents, we can mail them to you. If you do not use A4 paper and the proper formatting, the documents will be rejected.

(3) All signatures must be made with a fine point rollerball pen using water-based ink, such as a Uniball, or a fountain pen. Do not use a thick ballpoint pen or a pen with oil-based ink. Sign in BLACK INK ONLY. All signatures must match the signature in the respective person’s passport.

(4) On those documents where the company seal (of __________) is requested, the seal should be affixed over the signature.

Once all of the above documents have been signed, please scan and email a copy to me, and send the physical documents directly to our China company formation agent.

Got all that everyone?

Companies seeking to form a WFOE in China are often confused about Chinese law regarding the minimum registered capital requirements for forming a WFOE.  Part of the confusion stems from disreputable entity formation companies that encourage their hiring by claiming they know exactly how much will be required and that they have the ability to get the Chinese government to agree to a really low amount.

Under Chinese law, anyone forming a WFOE typically must put up a minimum of about USD $15,000 as a registered capital requirement.  What exactly does this mean?  Well, first off, the $15,000 is a minimum, but many Chinese cities have their own, much higher, minimum threshold.  In fact, virtually every city in which foreign investment is common has a much higher minimum capital requirement.  We just did a consulting WFOE in Qingdao and the capital required was about USD $80,000.  We also just did a consulting WFOE in Shanghai for which around USD $150,000 was required.  Our most recent Beijing WFOE needed around USD $300,000, but that was for a software development company.  The amount of minimum capital required is going to depend primarily on the city and the nature of the business.  Just by way of example, we did a WFOE not that long ago in not all that big a city but because of potential food safety and transportation risks, the minimum capital required was in the millions of dollars.  To a certain extent you just never know and anyone who claims to know before engaging in serious and substantive discussions with the right governmental authorities is just guessing.

But here’s the most important and least understood thing you need to know about China’s minimum capital requirements: the lowest amount possible is not necessarily what you will want.  Contrary to what many believe, the minimum capital required to go into a Chinese bank to secure a China WFOE is not frozen; you can use that money to fund your operations almost right away.

And that really matters. It matters because instead of seeking the lowest minimum capital required, you should be seeking the “just right” amount of minimum capital. In other words, the disreputable entity formation companies that seek to woo you with promises of securing you an ultra-low minimum capital requirement will almost certainly do you a disservice if they actually succeed — which they might as there are some cities in China where USD $15,000 will be enough.  But what can be so bad about only having to put in a small amount?  Surely you can put more in later if you need to do so, right?  In theory, you can, but it will no doubt cost you a lot, either in legal help in getting approval for a new registered capital amount or in taxes.

If you do not have sufficient capital to operate, you mind find yourself having to shut down. For good.  I have heard of that happening. The problem is that getting money over to China is not always easy and if you send that money over as anything other than registered capital, your China WFOE will get taxed on it as income, which is exactly what it will be. Alternatively, you could apply to have your registered capital increased and then send the money over as that, but we hear that takes at least two months, usually considerably more.  My firm has actually never been involved in such a transaction (knock on wood), in large part because we make sure that our clients understand registered capital ramifications when we first register their WFOE for them.

In fact, there are all sorts of things that some local governments tie to a WFOE’s minimum capital, including the following:

  • Temporary Residence Permits. Some local governments do not allow WFOEs with “too low” minimum capital to sponsor temporary residence permits for their local employees that have their Hukou in another city.
  • Expat Employees. Some local governments link the registered capital amount to the number of foreigners allowed to be employed by the WFOE.
  • Future Branch Office. The potential for securing approval to open a branch office is oftentimes lower if the registered capital is “too low.”

Calculating the registered capital for your WFOE at its inception is the key to avoiding costly problems with it down the road. For more on the minimum capital requirements for a WFOE, check out How To Start A Business In China — The Minimum Capital Requirements For A WFOE.


The United States Chamber of Commerce recently came out with a report comprehensively detailing what it takes to get a foreign investment approved in China.  I started skimming it, but stopped becuase it caused a sinking feeling in my stomach as it hit too close to home.

But for anyone wondering why it takes so damn much time and takes so damn long to form a WFOE in China (figure on 4-6 months), read the report.  No wonder I use words like “slog” and “excruciating” and “unending” to describe to our clients what it is going to be like as we secure their WFOE registration in China.

Enjoy.  And don’t let anyone tell you that forming a WFOE in China is easy.

One of the things we are always writing about and always trying to get a handle on is what the attitude is in China towards foreign investment.  That attitude is never static for long, always shifting with the economy and sometimes shifting due to other factors such as politics.

We are in the midst of forming a WFOE right now for a couple of companies in somewhat difficult businesses.  Our advice was that they first form a Hong Kong entity as that likely would make WFOE formation go more smoothly. We told these clients that we have in the last six months or so been seeing Chinese governmental authorities increasingly throw minor roadblocks in the way of American and European companies seeking to form a WFOE in China.  One of these clients said that they had talked with someone who claimed not to have noticed any such tightening by China’s governmental authorities. All I could say was that we are seeing otherwise. I also talked of how China is even making getting visas tougher.

I thought about this today after reading a Variety Magazine article, “China: Market loosens quotas, but still cautious.” The article quotes Mathew Alderson(our lead China entertainment lawyer) on how China’s State Administration of Radio, Film and Television (SARFT) has stepped up its reviews of Sino-foriegn co-productions in an effort to make sure there is adequate China content to constitute a co-production.

A purely foreign film entitled to share in box office revenue must be imported into China as part of China’s annual quota. An official Sino-foreign co-production will be regarded as a domestic Chinese film, to which the quota does not apply. The distinction between foreign imports and Sino-foreign co-productions is also significant because they yield different box office shares. When films are imported on a revenue-share basis, the foreign distributor now gets 25% of box office takings under the new deal announced earlier this year. In a Sino-foreign co-production, around 38% of box office is available to the producers. The share available in a co-production is the same as it is for a purely domestic production.

The Variety article highlights the Chinese government’s increased vigilence:

The country’s State Administration of Radio, Film, and Television recently highlighted that its rules for co-prods require at least one third of production funding coming from China, along with one third of the main cast, while scenes must also be shot in China.

Co-prods help boost China’s image overseas while benefitting from learning expertise.

“Co-productions were definitely not intended as de facto quota busters, which is how they are often regarded in Hollywood,” says Alderson. “The authorities are now more vigilant about what they call ‘stick-on’ productions in which the Chinese elements are contrived and insubstantial.”

The Chinese are sensitive to the idea that Hollywood might be cynically taking advantage of its booming film market. Zhang Peiming, deputy head of SARFT, accused “Looper” and “Cloud Atlas,” accusing them of making superficial attempts at co-prod status.

“These co-productions get around the quota system and take domestic investment away and threaten Chinese movies,” Zhang said at the time.

For more on China co-productions and the China movie business, check out the following:

For more on the pros and cons of using a Hong Kong entity to form your China WFOE, check out How To Form A China Company (WFOE or JV). Hong Kong Entities. They’re Baaaaack.
Are you seeing what we are seeing in terms of China getting tougher on foreign business?


If you’re in a creative industry like graphic design or filmmaking or advertising, you want a suitable space for your China WFOE (Wholly Foreign Owned Entity). A sea of cubicles in a nondescript office park isn’t going to impress your clients, and isn’t going to inspire your employees either. You want a building with character and style – a grand old mansion, a funky warehouse with exposed beams, maybe even a classic Chinese courtyard. The problem is, most of these places are not suitable locations for a WFOE.

We have written before about the leasing requirements for a WFOE-to-be (see here, here and here). Among other things, the proposed leasing space in China for a WFOE must be owned by the landlord and approved by the government for the use intended by the WFOE. All too often, leasing agents in China will elide these requirements with a sophisticated bait-and-switch. They show a beautiful space to the client, and then, just when the client is ready to sign a lease, they present two documents. One is a lease for the beautiful space. The second is a lease for another space, often in a completely different part of town, which will be the official address of the WFOE.

If this sounds fishy, it should. When forming a WFOE, the official address should be the location where the WFOE will actually operate. In most cities, and especially in big cities like Shanghai and Beijing, the authorities will check the official address as part of the approval process. Even if they don’t check, the WFOE’s official address will be critical throughout the life of the WFOE. Why would you have the official address be some random address across town? It is of course possible to have two full-fledged offices, but that is usually not what the leasing agent is proposing (the proposed “registered” space is often only one room) and even if it was, that would mean double the expenses for the WFOE.

The underlying message of the two-lease proposal is this: the beautiful space cannot be leased for the formation of a WFOE. You will need to move on and find a new space that will work. There is no other alternative. If you’re going to form a WFOE, do it right.