Important Factors & Tips to Consider when Registering a WFOE in China

In this guide, Asomerit Consulting explains everything you need to know—steps and required documents—so you can navigate the process with ease.

Introduction

In Asomerit Consulting’s previous blog, we introduced what a WFOE is and outlined the establishment steps. It’s important to note, however, that registering a WFOE is not just ‘submitting a stack of forms.’ Beyond the legal procedures, there are key details you should understand to avoid hidden pitfalls that may affect future operations.

In this article, Asomerit Consulting highlights the most critical factors to focus on when preparing to set up a WFOE in China.

Factor 1: Business Scope

Unlike many Western jurisdictions, China’s business license lists specific business items, and a company can only operate within that scope. The items recorded with the registry at incorporation collectively form your business scope.  By nature, business activities are divided into:

• General items: Activities that do not require special pre-approval at the time of business registration (e.g., management consulting, software development, ordinary goods trading).
• Licensed business items: These are activities that, during the process of enterprise registration, must be approved by the relevant government authorities in accordance with applicable regulations before the company can lawfully operate, which are further divided into:
  • Pre-licensing: Before applying for a business license, you must first obtain the relevant permit in order to proceed with commercial registration. For example, you would first apply for a permit to engage in the import of publications; only after approval can you apply for a business license.
  • Post-licensing: You may first obtain the business license, but before officially commencing operations you must secure the required approval. For instance, in the catering/food service industry, after obtaining a business license you must apply for a Food Business License before you can legally operate.

Why Business Scope Matters

During your operation, the invoices (fapiao) you issue will display the type of services or goods you provide. If you engage in activities beyond your registered business scope, that is deemed unapproved. While China’s State Council has clarified that non-licensed over-scope operations are not subject to penalties by market regulators, you may still be required to amend the business scope to align with your actual activities—adding paperwork and time. 

Any activity that does require licensing remains subject to licensing; operating without the requisite license constitutes unlicensed operation and may trigger warnings, fines, confiscation of illegal gains, or even revocation of your business license.

How to Make it Right

Tip 1: Add related items prudently and allow room for future expansion.

When drafting your business scope, base it on your core business and make sure not to omit any activities you plan to undertake. At the same time, consider future development and potential add-on services, and reserve appropriate wording in the scope. This approach won’t affect your current operations, and it will help you avoid complications when you later provide additional services.

Factor 2: Registered Capital

Registered capital is the total amount that shareholders commit to contribute and is shown on the business license. China generally follows a subscribed capital system, but under the new Company Law, registered capital can no longer be left unpaid indefinitely: for companies established on or after July 1, 2024, all subscribed capital must be fully paid within 5 years from incorporation (unless specific laws/regulations require otherwise).

Why Registered Capital Matters

While most industries have no statutory minimum, certain regulated sectors impose hard thresholds and require paid-in capital. For example:

Securities companies: minimum capital depends on business scope—RMB 50 million, RMB 100 million, or RMB 500 million; capital must be paid-in. 

Public fund (mutual fund) managers: not less than RMB 100 million, and it must be paid-in monetary capital. 

Labor dispatch companies: not less than RMB 2 million registered capital (local authorities typically verify paid-in status during licensing). 

If you plan to enter a regulated industry, you must meet statutory capital thresholds (and, where required, fully pay in) before starting operations to avoid penalties.

How to do it right

Tip 1: Pick a registered capital suited to your industry and funding plan. 

A low registered capital may affect client confidence or complicate bank account opening, while a high one increases the cash pressure because you now have a 5-year deadline to fully pay in.

If you’re unsure how to determine an appropriate registered capital range, you can contact Asomerit Consulting for professional advice. 

Tip 2: Pay in capital the right way. 

Due to foreign currency controls in China, foreign investors cannot wire capital directly to the RMB basic account. Here is how to do it right: after company incorporation and opening the basic account, apply for a foreign currency capital account, then have the shareholder remit the subscribed capital from an overseas account into the foreign currency capital account (with reference ‘WFOE registered capital paid-in’). Afterward, funds can be converted and transferred to the basic account for compliant business use—they can pay rent, salaries/social contributions, equipment, marketing, etc.

Factor 3: Registered Address

Your registered address appears on the business license and determines the jurisdiction of the market supervision and tax authorities. China allows address hosting/centralized registration to reduce early-stage costs.

Why Registered Address Matters

The registered address is the official contact point on record. Major cities (e.g., Beijing, Shanghai, Shenzhen) strictly verify address authenticity and may conduct on-site checks. PO boxes or purely virtual addresses are not accepted. If the actual operating site changes and you fail to file a change with the registry, or if you cannot be reached at your registered address, you may be placed on the 'Abnormal Business List', which can disrupt dealings with regulators and banks.

How to do it right

Tip 1：Choose the model that fits your stage.

Based on Asomerit’s experience, there are two popular choices for foreign investors to settle their addresses:

• Lease a physical office and use it as your registered address; or
• Use a compliant address-hosting service (affiliated registered address) for registration, lease a separate office for daily operations, and make the operational address publicly disclosed where required.

As large, dual-use offices in premium buildings can be costly, many early-stage WFOEs opt for hosting + flexible workspace (e.g., WeWork, Regus) to meet compliance across market supervision, tax and immigration while controlling cost. In addition, a real office address is needed during your China work visa application.

Tip 2: Consider future growth and local incentives.

When selecting an address, consider your 3–5 year business plan and choose a location that supports your operations. Do not prioritize saving on annual address fees at the cost of being too far from your clients.

Factor 4: Tax Compliance & VAT Taxpayer Category

A WFOE must set up books, keep accounts, and file taxes in accordance with law—even with no operations or revenue, you must file on time. For VAT administration, enterprises fall into small-scale taxpayers and general taxpayers:

• Small-scale taxpayers: annual taxable sales ≤ RMB 5 million.
• General taxpayers: annual taxable sales > RMB 5 million. 

By default, newly established enterprises are often registered as small-scale taxpayers. As business grows, once your annual taxable sales exceed RMB 5 million, you must apply for general taxpayer status. If needed, you may also apply for general taxpayer status earlier upon meeting the accounting requirements.

Why Taxpayer Category Matters

Let’s compare small-scale taxpayers and general taxpayers.

When an enterprise purchases goods or receives services, VAT is levied on the value added. The tax paid on purchases is input VAT, which can be credited against the tax collected on sales, i.e., output VAT. A VAT special invoice (often called a “special invoice”) is issued between enterprises for goods or services and can be used to claim input VAT credits. In other words, when filing taxes, a company may offset output VAT with input VAT and only pay VAT on the value added.

For example, you are the owner of a general taxpayer consulting company, and you purchase a computer and the supplier issues a special invoice: price RMB 10,000 + VAT 13% = RMB 1,300 input VAT.  That RMB 1,300 is your input VAT.

Then you provide services to a client and issue a special invoice: service fee RMB 50,000 + VAT 6% = RMB 3,000 output VAT.  That RMB 3,000 is your output VAT.

Credit calculation: Tax payable = Output VAT 3,000 − Input VAT 1,300 = RMB 1,700. Without the credit mechanism, you would pay the full RMB 3,000; with the credit, you pay only RMB 1,700.

How to do it right

Tip 1: Choose the right taxpayer category

A common misconception among foreign investors setting up a WFOE is that small-scale taxpayer status is always easier and comes with a lighter tax burden, while overlooking invoicing limitations that can hinder business cooperation. The appropriate choice depends on your primary business model: if you are mainly B2C (e.g., consulting services) with relatively low input costs, small-scale status may be acceptable. However, if you are primarily B2B (e.g., processing, manufacturing, import/export trading), your input costs for raw materials are likely higher and your clients may require VAT special invoices for input-tax credits as well. In that case, you can elect general taxpayer status from the outset. Although compliance costs are higher, with Asomerit Consulting's bookkeeping services,  it often results in greater overall savings.

Conclusion

Setting up a WFOE in China is more than completing incorporation forms—it’s about making early decisions that keep your operations compliant and scalable. Define a business scope that matches how you contract and invoice (and add room for near-term growth), choose a registered capital level you can realistically pay in within five years under the new Company Law, select a registered address model that passes on-site checks and keeps you off the Abnormal Business List, and pick the VAT taxpayer category that aligns with your customers and cost structure. With the right capital account setup and ongoing bookkeeping and filings, a WFOE can operate smoothly from day one while preserving flexibility for expansion. If you’d like tailored scope language, capital planning, or address-hosting options in specific cities, Asomerit Consulting can help you design a compliant, future-proof setup.