There are three most common entities for Foreign investor as follows:
Wholly owned Foreign enterprise ( “WOFE”)
Representative office ( “RO”)
Joint venture ( “JV”)
In this article we are trying to describe the difference between WOFE and RO in terms of Allowable activities, setup procedure, Capital Requirement, Employment and Tax.
Allowable Activities
(A) WOFE: a WFOE is often established as a limited company with Legal Representative list every limited company in China. WOFE can perform all business activities based on the business scope which includes Marketing Research, Staff Recruitment, Signing Contract, Official Invoice Issue etc.
(B) RO: a RO is considered as an extension of its parent company in China instead of a branch office so it is not an independent entity. RO shall engage in non-profit making activities in China and is permitted to perform the following activities: (i) market research, exhibition, and publicity activities relating to the products and services of parent company; and (ii) liaison activities relating to the investing foreign company’s product sales, service provision, domestic procurement, and domestic investment.
Establishment Procedure
(A ) WOFE: WOFE establishment requires
Name Check in Market and Quality Supervision Commission or aka Industrial and Commercial Bureau.
WOFE Approval Certificate is issued by Economy, Trade and Information Commission or aka Foreign Investment Bureau.
Organization Code Certificate is issued by Organization Code Certificate Bureau
Company Seal, Financial Seal, Legal Representative Signature Seal are issued by appointed by stamp craving company who will submit the file in Public Security Bureau.
Taxation Certificate is issued by Taxation Bureau
Foreign Exchange Certificate is issued by Foreign Exchange Bureau.
(B) RO:
Representative Office registration Certificate is issued by Market and Quality Supervision Commission
Chief Representative Book is issued by Market and Quality Supervision Commission
Company Seal, Financial Seal, Legal Representative Signature Seal are issued by appointed by stamp craving company who will submit the file in Public Security Bureau.
Taxation Certificate is issued by Taxation Bureau
Capital Requirement
(A) WOF: WOFE needs subject to minimum registration capital depending on its business scope. For Instance: The minimum registration capital for consultancy rvice WOFE ,apart from special field like Bank, Insurance , is RMB100,000; for Trading WOFE , the minimum registration capital is RMB500,000 for business scope of Whole Sale. For retail trading WOFE, it is RMB300,000.
(B) RO: RO requires no registration capital because it is not independent entity in China. RO is used for market research, custom service, quality control, sourcing on behalf of parent company’s name.
Employment
(A) WOFE: WOFE is allowed to employ their staff directly based on the applicable labor laws.
(B) RO: RO is not entitled to employ the staff directly no matter what kind of nationality it is. It must be employed via the third human resource company to sign contract with RO and employees.
Tax
(A) WOFE:
Corporate income tax: at a rate of 25%, based on the profit made by WOFE
Value-Added Tax aka VAT: at a rate o 3 % or 17% for sales of goods.
For the VAT 17%, the tax can be deducted after export because the Chinese government encourages corporate to export product or service.
(B) RO: The tax is totally based on the Expense to calculate . Here is the formula for your reference as follows:
Income =Expense/0.8
Business Tax=Income*5%
Corporate Income Tax=Income *0.15%*25%
Education Tax=Business Tax * 3%
Embankment Tax=Income *0.01%