China has greatly revamped its WFOE formation procedures, making WFOE formations easier in some ways and more difficult in other ways. See China’s New Foreign Investment Law — Less Than Meets the Eye.
Because the WFOE formation procedures are so new, our China lawyers have been getting a number of calls from Western companies whose WFOE formations have stalled or simply died out, usually stemming from an inability to work through the new system with the local authorities. One of the things our China attorneys do with our WFOE formations is to set out early and often the steps that must be followed and accomplished for our clients to come out on the other side with a spanking new China WFOE.
I was cc’ed on an email the other day from one of my firm’s China attorneys to a client for whom we are working on setting up a China WFOE. The email does such a good job setting out what must be accomplished to form a WFOE under the new WFOE formation rules, I thought my reprising it here (taking out any and all identifiers of course and adding in a few links) could prove helpful to anyone out there looking to form a China WFOE.
As you know, the PRC government drafted a new foreign investment law last fall and also promulgated a new set of regulations concerning the procedure for registering WFOEs in China. Each local government has been working out their internal procedures for adapting to this new system. Your WFOE in _____________ will be one of the first WFOEs to make use of the new system.
We have been working closely with the ____________ authorities (the Administration of Industry and Commerce of AIC). The local AIC has finally made their basic decisions on the procedure they will follow for the formation of a WFOE under the Foreign Invested Enterprises (FIE) law and associated Ministry of Commerce (MOFCOM) regulations.
The steps in the application will be as follows:
1. WFOE name approval.
2. MOFCOM online registration.
3. Application to form WFOE submitted to local Administration if Industry and Commerce (AIC).
4. Issuance of business license by AIC.
5. Start of business processes: a) open bank accounts, b) cut and register chops, c) open tax and other government accounts, d) set up daily bookkeeping and reporting to the local government, e) execute written employment agreements with employees and open employee tax/social benefit accounts,.
We will be working through each step in order. I will shortly be sending you a series of emails on what we need for step one, the WFOE name approval.
Our team will work with you on Steps 1 to 4 above. With respect to Step 5, we will work with you on drafting your employment agreements for China and your employer rules and regulations. On the other procedures in Step 5, we can take you through all the procedures up to the point where you are ready to formally do business in China.
Step 5 will involve your needing to decide on the following:
- Local bank.
- Local bookkeeper.
- Accountant for tax returns and annual audit and reporting to the parent entity (can be same as B, or different).
- Employee payment processing and maintenance of employee social benefit accounts.
We must report these names during the formation process, so we will need an answer as soon as is practical. We, of course, are happy to assist you in finding appropriate service support.
As noted, I will send an follow up email explaining the name approval process and the current status.
Please contact me if you have any questions on this matter.