A few options are available for foreign investors to establish a business in PRC. The most popular ones are Representative Office (RO), Consulting WFOE, or Trading WFOE.
Chinese Representative Office
- It is the office set up by a company in a foreign country to conduct non-operational activities such as marketing or basic client consulting. Therefore, in theory, ROs do not generate revenues. Consequently, the taxable amount is not based on revenue, but expenditures incurred during the operation.
- The registration address of RO is required to be a Class A office.
- RO is not considered a legal entity.
Chinese Consulting / Service WFOE
- Consulting WFOE is considered a legal entity and enabled to carry out revenue-generating business activities. Therefore, the taxable amount is calculated based on revenue.
- There is no specific requirement for office address selection. Although, we usually suggest clients register under a virtual address as it will save the hassle to notify all relevant authorities with each office relocation
Chinese Trading WFOE
- It takes a longer time and more steps to register a trading WFOE compare to a consulting WFOE. Typically, the volume of transactions higher than that of other types of WFOE. Thus, the cost involved in the registration and accounting component is higher.
- Trading WFOEs are legal entities and tax is calculated based on revenue.
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