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Founding a company in China
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Wholly Foreign Owned Enterprise (WFOE) As restrictions on foreign direct investment in China have declined, the number of foreign subsidiaries established as WFOE's has increased significantly. When setting up a business in China, particular attention should be paid to two aspects. We discuss the restrictive capital requirements in a separate article. In addition, the purpose of the company, the business scope, should reflect as accurately as possible what the company should do. Because what is not expressly permitted in the business license is forbidden to the company or is threatened with sometimes very severe sanctions.

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Advice on setting up a business in China

We advise you comprehensively and competently on all questions when setting up a company in China and accompany you up to the issuance of the business license and beyond.

Limited liability company (Ltd.)

  • Activities: Permitted for almost all business sectors.
  • Capital: See separate section “Capital resources”.
  • Liability: Unlimited with the paid-in capital, but within the group the parent company is liable for the liabilities of the subsidiary.
  • Personnel: Can be hired directly by the company.
  • Taxes: 25% income tax, 15% reduced income tax rate possible under certain conditions.
  • Other: Legal understanding analogous to GmbH. Creation of a group, check classification as SME.

Foreign Invested Commercial Enterprise (FICE)

  • Activities: Limited to trading.
  • Capital: See separate section “Capital resources”.
  • Liability: Unlimited with the paid-in capital, but within the group the parent company is liable for the liabilities of the subsidiary.
  • Personnel: Can be hired directly by the company.
  • Taxes: 25% income tax, 15% reduced income tax rate possible under certain conditions.

 

Follow a 100% subsidiarysociety

By founding a subsidiary, a (de facto) group is created in which the parent company is liable for the liabilities of the subsidiary. The creation of a group results in expanded financial statement requirements. In addition to the national financial statements that every company must prepare, financial statements must be prepared for the entire group, which are subject to a separate audit requirement. The establishment of a subsidiary can question the status of the parent company as an SME and thus mean exclusion from EU or national funding programs.

Jürgen Bächle
Jurgen Bachle

has been working as an independent tax consultant and expert in international tax law since 1989 and has been a member of the board of the German Association of Tax Consultants Baden-Württemberg, DSTVBW, for over 20 years.

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