Concept
The ChineseWholly Foreign-Owned Enterprise (WFOE)— is the form in which a foreign owner holds100%of a company in mainland China. In the register this is a Foreign-Invested Limited Liability Company under theForeign Investment Law of the PRC(effective from January 1, 2020).
WFOE is used when you need to:
- enter into contracts with Chinese counterparties on behalf of a Chinese legal entity
- issue fapiao (official tax invoices)
- hire employees in the PRC
- receive payments in RMB to a Chinese bank account
- repatriate profits as dividends after taxes and SAFE procedures
Structure and requirements
To register a WFOE you need at least onedirector(Legal Representative), who signs contracts, manages the account and represents the company before government authorities. Since the 2024 revision of theCompany Law of the PRC2024, limited liability companies may not appoint a supervisor (Art. 83), which simplifies the WFOE structure for a sole shareholder.
Minimum registered capital has been formally abolished for most industries, but in practice banks and counterparties look at this figure. For a trading company, a reasonable minimum is ¥500,000 (≈ €63,000). For consulting — ¥100,000 (≈ €12,600). Capital can be contributed within the period specified in the Articles of Association — under the old law that was typically 20-30 years; the 2024 revision of the Company Law caps it at 5 years from the registration date for companies established from July 1, 2024.
Registration process
- Name approval— you submit an application to the Administration for Market Regulation (AMR). The name must be in Chinese and include: region + name + industry + organizational form. Example: 上海XX贸易有限公司 (Shanghai XX Trading Co., Ltd). 1-3 business days.
- Document preparation— Articles of Association, Feasibility Study Report, office lease agreement (or virtual address in zones where permitted), notarized and legalized shareholder documents through the Chinese consulate.
- Obtaining Business License— AMR issues a license with a Unified Social Credit Code (which also serves as the tax number). 5-10 business days.
- Making seals— company seal (official seal), financial seal, Legal Representative seal. Without seals you cannot open an account or sign contracts.
- Tax registration and fapiao— registration with the tax bureau, activation of the fapiao issuance system (Chinese tax invoices).
- Opening a bank account— a separate stage, takes 25-30 business days.
- Foreign exchange registration (SAFE)— if you plan to receive foreign currency or contribute registered capital from abroad.
- Customs registration— if the company conducts import/export.
Total time from document submission to operational company with account:45-60 business days.
Taxes
China applies aresident taxation system: a company registered in the PRC or managed from the PRC pays tax onworldwide income. This is a fundamental difference fromHong KongandSingaporewith their territorial principle.
| Tax | Rate | Basis |
|---|---|---|
| Corporate Income Tax (CIT) | 25% | Enterprise Income Tax Law, art. 4 |
| CIT for High & New Technology Enterprise (HNTE) | 15% | Enterprise Income Tax Law, art. 28 |
| CIT for small low-profit companies | Effective ~5% on first ¥3,000,000 of profit | Caishui [2023] No. 12, extended to 2027 |
| VAT — goods | 13% | Provisional Regulations on VAT |
| VAT — services | 6% | Ibid. |
| VAT — transport, logistics | 9% | Ibid. |
| Withholding Tax on dividends | 10% (may be reduced under DTT) | Enterprise Income Tax Law, art. 3, 27 |
How VAT works
VAT in China is fully refundable for general VAT taxpayers (standard category for WFOE). You charge output VAT on sales and deduct input VAT on purchases. The difference is paid monthly. Export of goods is taxed at 0% with input VAT refund — this is one of the main reasons to register a trading company in mainland China rather than Hong Kong.
Tax on dividends
10% withholding tax when paying dividends to a foreign shareholder. If there is a double taxation treaty (DTT) between China and the shareholder's country of residence, the rate can be reduced to 5% (Hong Kong, Singapore when holding ≥25% of capital).
Since 2025, a new incentive applies: when reinvesting profits in companies from the Encouraged Catalogue, the foreign investor receives a10% tax crediton the amount of reinvestment (provided the investment is held for at least 5 years). The policy is effective until December 31, 2028.
Reporting and accounting
China hasmonthlyaccounting reporting. Each month the company files:
- VAT declaration (by the 15th of the following month)
- CIT declaration (quarterly advance, by the 15th of the month following the quarter)
- Payroll and social contribution reports
Audit, fapiao and the annual reconciliation
A mainland company does not close its year with a bank statement: WFOE, joint ventures, representative offices and FTZ structures must pass an annual statutory audit by a China-licensed CPA firm — a foreign auditor cannot sign the report. The report is prepared in Chinese under Chinese Accounting Standards and feeds three procedures at once: the annual tax reconciliation (汇算清缴) for the STA with a May 31 deadline, the annual report to SAMR via the National Enterprise Credit Information Publicity System (January 1 – June 30), and the bank's periodic KYC refresh. A late tax reconciliation costs 0.05% per day on the underpayment; missing the SAMR report puts the company on the "abnormal operations" list (经营异常名录), which hurts banking and contracts more than a tax fine.
The audit is built around fapiao: under Golden Tax Phase IV the tax authority cross-checks invoices, bank flows and returns automatically, and nationwide e-fapiao has been live since December 2024. A year of unmaintained books cannot be "assembled from PDFs" at year-end — the auditor first restores the bookkeeping, which roughly doubles cost and timeline. The auditor also verifies paid-in registered capital: under the 2024 Company Law subscribed capital must be paid within 5 years, and an inflated unpaid figure is a standard trigger for bank and SAMR questions.
How that annual cycle looks from the auditor's side — what the STA, SAMR and SAFE each ask for, in what order the books get restored, and where fapiao and filings most often diverge — is set out separately in the company audit in China. It is the guide to reach for when the year's bookkeeping was kept irregularly and restoration becomes the main task.
Timelines and pricing. A standard audit with clean books takes 4–6 weeks; a WFOE's first audit — 5–8 weeks (accounting-policy setup, initial-capital verification); bookkeeping restoration — 8–12 weeks; a rush audit 2–3 weeks before the deadline carries a ~30% surcharge. Audit fees charged by Chinese CPA firms track fapiao volume and structural complexity; there is no single market rate. Books kept continuously in a local system (Kingdee/Yonyou) shorten the audit materially compared with restoring them at year-end.
Domicile for registration
The choice of region and city for domicile determines access to banks, maintenance costs, tax incentives and speed of government agencies.
Shanghai— financial and trading hub
Shanghai — the first city to launch a pilot Free Trade Zone (2013). Shanghai FTZ includes zones Pudong, Lingang, Waigaoqiao and others.
For whom:international trade, logistics, consulting, financial activities, technology.
Main advantage:ease of opening a bank account in mainland China. All major banks (ICBC, Bank of China, China Merchants Bank) have specialized branches for foreign companies.
Taxes:standard CIT rate 25%. IT companies with HNTE status — 15%. Small low-profit companies — effective rate ~5%.
Virtual address:permitted in FTZ.
Registration:15-20 business days. Export-import license — another 5-10 business days.
Account opening:25-30 business days.
Shenzhen (Guangdong)— manufacturing and cross-border trade with Hong Kong
Shenzhen borders Hong Kong and is the center of electronics industry, hardware and cross-border e-commerce. Qianhai FTZ — special zone for service companies with simplified registration procedure.
For whom:electronics, hardware, cross-border e-commerce, "Hong Kong + mainland China" linkage.
Main advantage:proximity to Hong Kong (40 minutes by metro). You can manage a Chinese company while living in Hong Kong. Developed ecosystem of suppliers and manufacturing.
Taxes:CIT 25%, but in Qianhai FTZ companies from the Encouraged Catalogue pay15%(extended until 2025, further extension expected). HNTE — 15% city-wide.
Virtual address:available in Qianhai FTZ.
Registration:15 business days.
Features:Shenzhen is the only city where cross-border RMB settlement with Hong Kong can be arranged directly via simplified procedure.
Hainan (Hainan FTP)— minimal taxes and zero customs duties
Hainan is China's only full-fledged Free Trade Port. Since 18 December 2025, the island has transitioned to an island-wide customs closure regime: imports of ~6,600 product categories (74% of all imports) are exempt from customs duties, VAT and excise taxes.
For whom:technology companies, tourism, modern services, zero-duty goods trade, international funds.
Taxes:
- CIT15%for companies in Encouraged Industries (extended until end of 2027 — Caishui [2025] No. 4)
- Personal income tax for qualified professionals — maximum15%(standard top rate in China — 45%)
- Zero customs duties on raw materials, equipment and most goods
- CIT exemption on income fromnewforeign branches and dividends from foreign subsidiaries (effective from 2025)
Limitation:to qualify for CIT 15%, at least 60% of revenue must come from encouraged industries, and the company must conductsubstantive operationsin Hainan.
Registration:10-15 business days. Procedure simplified compared to mainland cities.
Hangzhou (Zhejiang)— e-commerce and technology
Hangzhou is the headquarters of Alibaba Group and China's largest e-commerce hub. Hangzhou Cross-Border E-Commerce Comprehensive Pilot Zone is the country's first zone for cross-border e-commerce (launched in 2015).
For whom:e-commerce (Tmall, Taobao, 1688, Pinduoduo), SaaS, digital marketing, software development.
Main advantage:Alibaba ecosystem + developed infrastructure for cross-border e-commerce. Simplified customs procedure for online sales (models 9610 and 1210). Local subsidies for technology companies.
Taxes:CIT 25%. HNTE — 15%. Zhejiang has local subsidies: partial refund of paid CIT at district level (up to 40% of tax amount in first 3 years — depends on district and investment volume).
Virtual address:available in select zones.
Registration:15-20 business days.
Chengdu (Sichuan)— low cost and western China
Chengdu is the largest economic center in western China. Chengdu Hi-Tech Industrial Development Zone and Tianfu New Area attract foreign investment with aggressive subsidies. The city is part of the Western Development Strategy (西部大开发), which provides additional tax incentives.
For whom:low-cost manufacturing, back-office operations, IT outsourcing, companies working with the domestic market in western and central China.
Main advantage:rental and salary costs 40-50% lower than in Shanghai and Shenzhen. At the same time, developed logistics — Chengdu-Europe freight rail route (12-16 days).
Taxes:CIT 25%. Companies from the Encouraged Catalogue under the Western Development Strategy pay15%CIT (extended until 2030 — Caishui [2020] No. 23). HNTE — 15%.
Registration:15-20 business days.
Subsidies:Chengdu Hi-Tech Zone offers rental grants (up to 50% reimbursement in first 3 years), hiring subsidies, R&D expense reimbursement.
Harbin (Heilongjiang)— gateway to Russia and Northeast Asia
Harbin is the largest industrial center in Northeast China (Heilongjiang), historically connected with Russia. Convenient for Trans-Siberian logistics and trade with CIS countries.
| Parameter | Shanghai | Shenzhen | Hainan | Hangzhou | Chengdu | Harbin |
|---|---|---|---|---|---|---|
| CIT | 25% (HNTE 15%) | 25% (Qianhai / HNTE 15%) | 15% | 25% (HNTE 15%) | 25% (WDS / HNTE 15%) | 25% (HNTE 15%) |
| Customs duties | 0% in FTZ (on imports into the zone) | 0% in FTZ | 0% on 74% of goods | Standard | Standard | 0% in Bonded Zone |
| Banking | ||||||
| Virtual address | Yes (FTZ) | Yes (Qianhai) | Yes | Limited | Limited | Limited |
| Office rental cost | High | Medium-high | Medium | Medium | Low | Low |
| Registration | 15-20 days | 15 days | 10-15 days | 15-20 days | 15–20 days | 15–20 days |
| Profile | Trade, finance, consulting | Electronics, hardware, Hong Kong linkage | Tax optimization, free import | E-commerce, IT | Manufacturing, back-office, logistics to Europe | Trade with Russia, agriculture, Russia–China logistics |
Opening a bank account
Opening an account in mainland China is a separate project. Banks conduct due diligence, and the process takes 25-30 business days after obtaining the Business License.
Documents for the bank:
- Business License (original)
- All company seals
- Articles of Association
- Passport and biometric data of Legal Representative
- Office lease agreement
- Business description (business plan / narrative pack)
Banks that in practice open WFOE accounts, and what each is used for:
| Bank | Specialization |
|---|---|
| China Everbright Bank | Trade finance, cross-border settlements, work with non-residents |
| Harbin Bank | Settlements with Russia and CIS, RMB/RUB operations, border trade |
| ICBC | World's largest bank by assets, full range of corporate services |
| Bank of China | International operations, currency control, correspondent network |
| China Merchants Bank | Online banking with English interface, convenient for foreign companies |
| Agricultural Bank of China | Work with agricultural sector and regional operations |
| CZCB — Zhejiang Chouzhou Commercial Bank | RMB settlements, service for trading companies, work with non-residents of the PRC |
| VTB Bank Shanghai | China corridor settlements, Russian-language service, correspondent accounts with sanctioned banks |
Bank selection depends on registration city, business profile and payment direction. For trade with Russia — Everbright and Harbin Bank provide the shortest payment processing times. For international operations in Shanghai and Shenzhen — ICBC and Bank of China.
Currency control
China applies strict currency control through the State Administration of Foreign Exchange (SAFE). Key rules:
- Registered capital is contributed in foreign currency to a special capital account and converted to RMB as needed
- Profit repatriation — after payment of CIT and withholding tax, provision of audited statements and tax certificate
- Payment for services abroad — requires contract, invoice and tax confirmation (withholding tax certificate)
- Dividend transfer — 1-5 business days after submitting documents to the bank
Risks and unresolved facts
- The Qianhai 15% rate ran to the end of 2025; whether it was extended is checked against the current circular rather than assumed in a model.
- Hainan's 15% CIT is extended to end-2027 and the dividend-reinvestment credit runs to 31 December 2028: what follows those dates is undecided.
- The capital-payment transition for companies formed before 1 July 2024 turns on mid-2027; registrar practice on long-dated articles is not yet settled.
- Account-opening (25–30 business days) and launch (45–60) timelines are practical estimates: neither the banks nor AMR publish service standards for foreign companies.
- District-level subsidies (Hangzhou, Chengdu, Harbin) are granted locally and are not published in a single instrument — verify with the specific district authority.
Q/A
Can a foreign investor own 100% of a Chinese company?
Yes, if the stated activity is outside the national 2024 Negative List. The investor may then own all of a Chinese limited liability company, commonly called a WFOE. A restricted sector still requires the Chinese participation or prohibition specified in the list.
Must all registered capital be paid before incorporation?
No. For an LLC established from 1 July 2024, subscribed capital is generally paid on the schedule stated in its articles, but no later than five years after incorporation. A sector-specific law may impose a different minimum or deadline, so the general rule cannot simply be applied to a licensed activity.
Can an inflated capital figure be left unpaid indefinitely?
No. A capital subscription is an enforceable shareholder obligation, and the registry may require an obviously abnormal amount or contribution period to be corrected. The figure should match the operating plan and funding schedule: unpaid registered capital remains a liability, not marketing copy.
Is a business licence enough for imports and foreign-currency payments?
No. The business licence creates the company, but import and export activity requires customs registration, while cross-border payments require a bank account and evidence of a genuine transaction. The precise file depends on the business scope, goods, currency and payment route.
Can all profits be sent to the foreign shareholder immediately?
No. The company must first cover losses and comply with reserve rules, then adopt a valid corporate distribution decision. For a profit remittance, the bank reviews the shareholder resolution, audited financial statements and tax evidence; a positive account balance alone is not enough.