WFOE SERIES – SECTION 1.3 – WFOE COSTS
WFOE Costs
- Registered capital should be the amount of capital required to run the WFOE until it can break even, and is paid over a period.
- During set-up there are 2 main costs. The first is the registration cost. You are also expected to invest at least 20% of the registered capital to start operations.
- The basic costs of running a WOFE include Employees, office rent and bookkeeping. The costs vary significantly in different cities.
Optimizing Registered Capital
Registered Capital is often considered as an annoying cost to be minimized, but this is perhaps not the best approach. The idea behind the registered capital is that it should be the amount of capital required to run the WFOE until it can break even. In fact, Registered capital can be a great opportunity to invest money into China without having to pay taxes on the invested capital. Moreover, Registered Capital is not paid all in one go, but over an extended period.
Foreign Investments beyond registered capital are liable to be taxed. Getting local authorities to approve a new level of registered capital later can be problematic and time-consuming. Thus, being able to accurately estimate your initial cashflow needs during the first couple of years of operation is very important. Having a good understanding of the costs of running a WOFE will help you to optimize, rather than minimize, the level of capital you register when setting up a WOFE.
Setting up a WFOE
Maxxelli offers a service to register and set up a WFOE. Please contact us for more information. In addition to the registration cost you will still be expected to invest a minimum of 20% of your registered capital at the beginning in order to launch operations.
Running a WFOE
The basic costs of running a WOFE include Employees, office rent and bookkeeping. In short, local research is crucial; finding out the typical rates in different cities is a very important step before setting up a WFOE. Not only do wages and rent very significantly, but China’s economic and legal systems have many idiosyncrasies. Preconceived notions of what things cost at home may be misleading. Good local knowledge will ensure you choose an optimal location for the WFOE and optimize the WFOE’s level of registered capital.