March 27, 2012

WFOE Requirements on Restaurants

We are currently handling the formations of two restaurant businesses in Shanghai. This article sums up my experience in these tasks and hopefully provide a useful overview for anyone interested in starting a restaurant here.

Registered Capital

Setting up a Wholly Foreign-Owned Enterprise (WFOE) restaurant requires 500,000 RMB as registered capital. Chinese laws on business formation and relevant regulations state less than that amount, but the half-million RMB requirement is from the local Industrial and Commercial Bureau, The amount makes sense when you consider the actual costs of running a restaurant in Shanghai.

Once the application is accepted, 20% of the registered capital is to be paid and verified by a licensed accountant within three months after the license is issued. The 80% balance is to be paid and verified by a licensed accountant within two years.

Tip: Ask your attorney if he or she could be of help in finding you a licensed, cost-effective Chinese accountant for registered capital verification and future accounting affairs.

Business Structure

Establishing a management company and then opening up an office under the management company is recommended. The company will be referred as “restaurant management WFOE”. Another way to do it is opening a” restaurant WFOE” directly. Click here to read the differences between the two.

Tip: Discuss your business plan with your attorney so that he or she could make sure that the WFOE is set up in a way that meets your long-term plans.

Restaurant Licenses

A license for selling food, beverage and alcohol is required and applicable for foreign-invested companies. A typical WFOE formation takes around two to three months, but there are a series of extra checks and applications specifically for running a restaurant business, e.g., license to sell food, beverage and alcohol as aforementioned, sanitation permit, environmental report, fire permit and so on. Government fees for getting those documents is around thousand only.

Tip: Whether you do it on your own or engage an attorney, be sure to conduct due diligence before entering into a lease with a landlord. Just this month, one of my clients who signed a contract and started paying rent soon realized the location is not suitable for applying for a new business license because the previous tenant didn’t cancel their business license for that location.

Documents and Procedures

Although the Industrial and Commercial Bureau is responsible for company registrations, the Municipal Commission of Commerce is the authority that issues the Certificate of Approval to WFOEs as a procedural prerequisite. To get a Certificate of Approval for WFOE, a series of documents listed by the Municipal Commission of Commerce must be completed for the examination before the business registration.

For a detailed documentations list and other requirements for setting up a WFOE restaurant, please seek assistance from a Chinese business lawyer who is familiar with all of the procedures, and of course charge reasonably.

Note: This article now has a Part 2.

If you are interested in learning about the services provided by myself and my team, please email us at and we will get back to you as soon as possible.

March 27, 2012