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There are two types of foreign company in China: wholly foreign owned enterprise and representative office.
The Wholly Foreign Owned Enterprise (WFOE) is a limited liability company wholly owned by the foreign investor(s). In China, WFOEs were originally conceived for encouraged manufacturing activities that have either exported orientated or introduced advanced technology. However, with China’s entry into the WTO, these conditions were gradually abolished and the WFOE is increasingly being used for service providers such as a variety of consulting and management services, software development as well as trading.
The Representative Office(RO) is a non-legal entity operating and representing its parent company. A RO is not allowed to engage itself in business activities, issuing invoices on its own, remitting outward, signing sales or purchasing contracts, or receiving income from services performed but may act as a liaison and promotion office for its parent company. It may be possible for a RO to engage in direct business activities provided that there is a bilateral treaty between the home country of the foreign parent enterprise and the PRC which clearly specifies a RO of the enterprises of that country is entitled to do so.
| Items | Representative Office(RO) | Wholly Foreign Owned Enterprise(WFOE) |
|---|---|---|
| Legal Status | No distinct legal identity | Separate legal entity |
| Business Scope | Acting as liaison and promotion office for parent company(non-direct business activities) Business Scope is not allowed to be changed | Perform business activities within its business scope, such as trading ,design, consulting, maintenance and technical support etc. Business scope can be expanded or made more precise. It can even expand business scope so as to make it as a trading company |
| Registered Capital | No requirement for Registered Capital | The investor can determine the amount and contribution time of the registered capital |
| Capital Verification | No | A capital verification report shall be submitted to the bank for examination when you apply for foreign exchange settlement and transfer the registered capital from WFOE capital account to RMB basic account. |
| Human Resource | Not allowed to employ Chinese personnel directly. It shall entrust a local labour services agency designated by the Chinese Government to recruit Chinese personnel. | It can employ staff, make salary payment and pay Social Security Insurance and Housing Fund for staff directly and independently. |
| Tax | Business Tax and Corporate Income Tax are based on total expense. | Business Tax or Value Added Tax is based on business revenue. Corporate Income Tax is based on total profit. |