Avoiding Post Incorporation Problem's with China WFOE's
- Author Chris Devonshire-Ellis
- Published November 29, 2010
- Word count 507
One of the frustrating issues about advising corporate clients in China is how many of them, prior to seeing our firm, are so often badly advised on the China establishment procedures. Far too often, assumptions are taken that setting up a wholly foreign-owned enterprise (WFOE), for example, is a standard application procedure. We’ve even seen "cookie-cutter" models used both by lower end firms and even China government investment departments keen on making it as easy as possible (for them) to secure your consulting fees and investment dollars.
The truth is that setting up a WFOE properly is not an easy, standard procedure at all. The legal administration aspects of the process are relatively straightforward, however the real trick with WFOEs, and one that requires actual on-the-ground China experience in both law and tax, is getting the financing right and the tax planning in place. In this regard, all WFOEs are different, and all require specific attention to detail to get right. Otherwise, serious post-incorporation problems can arise that can affect the very credibility of the business operations and, at the very least, cost you considerably in wasted monies and additional financing. In short, structuring a WFOE in China is less of a legal issue and far more of a tax and finance issue. In this article we provide details of some of the common mistakes that are made when adopting a "standard cookie cutter" approach to a WFOE application.
Pre-incorporation for foreign-invested enterprises: Faulty license applications and tax structuring problems
The scenarios and problems below apply to wholly foreign-owned enterprises, foreign-invested commercial enterprises and joint ventures, but for sake of convenience we have used the term foreign-invested enterprise (FIE) to cater for all.
Sending start-up funds to somebody else before FIE is ready
It takes normally four to six months to complete the FIE application, however, some foreign investors can’t wait that long and try to send the start-up funds to their local agent or local staff to cover the cost for the initial office fit-out, overhead or even equipment purchases. The problem is that these funds, as paid for the FIE setup, cannot be recognized as part of your capital injection once the business license is issued, as the capital injection has to be transferred by the foreign investor from their overseas account to the nominated capital account directly, and not via any third party.
We have previously had clients remitting up to US$200,000 to their local supplier asking them to pay for rental and purchase equipment prior to the license being issued, with them subsequently finding it very difficult for them to pursue the balance and show such purchases as part of their capital injection. Rather, it is better to open a temporary capital account right after the name registration is completed. Here’s the deal if you don’t handle this properly – the Chinese tax department will assume it is earned income and it will be subject to income tax of 25 percent. That is a very expensive way to fund a business.
To read the rest of this article written by Richard Hoffman and Chris Devonshire-Ellis, visit China-briefing.com.
Article source: https://articlebiz.comRate article
Article comments
There are no posted comments.
Related articles
- Sacred Spaces Inspired by the Five Elements
- Tree of Life Carved Wall Art & Custom Doors by Mogul Interior
- Heritage Reimagined: Repurposed Indian Bridal Trunks, Lotus Ceiling Coffee Tables
- Data-Driven Dollars: Why Your Personal Finances Need Data Science in Today's Economy
- Why You Need an Architect for a Self-Build Project
- Freight Price Rules in Business Central for Transparent Shipping Costs
- Tofu Takes the Spotlight: A Lifesaver for Vegans and a Rising Culinary Star
- What Are Branded Pin Badges and How Can They Help You Elevate Your Business?
- Understanding the Soi Dogs of Thailand: Are They Friendly and Should Tourists Be Concerned?
- The 2025 Earthquake in Bangkok: Impacts on Tourism and Recovery Efforts
- The Role of Waste Incineration in Mining Camps and Small Island Communities
- The Role of Structural Steel Construction in Furnaces and Incinerators
- Exploring Thai Culture: The Role and Influence of Women
- Fehmi Lights Inc.: Illuminating Excellence in Lighting Solutions Since 1994
- Top Hotels in Pattaya Catering to Indian Travelers
- Exploring the Vibrant Kite Festival in Thailand
- Understanding Grades of Steel Used for Structural Fabrication in Australia
- Coastal Farmhouse Style: The Perfect Blend of Country Charm and Seaside Serenity
- The Benefits of an 8-Seater Minibus Service
- The Importance of Reliable Airport Transfer Services
- Laing O'Rouke Contract Perfectly Executed with Offshore Fabrication with K999 Engineering in Thailand
- Essential Considerations When Booking Hotels for Your Vacation
- Essentials for a Well-Designed Mudroom
- Mediterranean Farmhouse Elegance: Timeless Elements for a Rustic Retreat
- Protecting Your Brentwood Home: The Importance of Professional Gutter Care
- The Visionary Producer Behind Television’s Biggest Hits
- Revolutionizing Marketing
- The Ultimate Guide to Choosing Accommodation at the Beach in Pattaya
- Akhal Teke Horse: The Golden Marvel of Turkmenistan
- Why Fehmi Lights is Brampton’s Top-Rated Lighting Store – Award-Winning Service?