Who has Legal Responsibility in a WFOE, and for what?
We often get a confused look from WFOE owners when it comes to appointing key roles in the company. Sometimes it’s unclear to them whether the roles in question are necessary for the business and operational side, or for meeting local regulations.
One key concept to understand is the delegation of liabilities between different roles. That is to say, the local law distinguishes "financial liabilities" from the company's "general performance liabilities", hence separated roles are required.
The Legal Representative
As you probably know, every company in China, regardless of its founders’ identity, has to appoint a legal representative.
The legal rep is an employee who possesses the legal authority to execute the powers and duties of the company. More importantly, this person is accountable for them. Consequentially, this individual should be a key figure involved in, or at least well aware, of all aspects of the company’s operations. Accordingly, this person is one of the company’s executives or even the owner.
This individual can live either in China or overseas, and be either a Chinese national or a foreigner.
Important to know! Financial legal liabilities
Though the legal rep might not be directly in charge of the ongoing financial operation, in the eyes of the law, he or she will be held accountable if there are any suspicious financial-related issues. In that sense, the legal rep shares similar responsibility as the Financial Person In Charge (read on).
More than that, the legal rep will need to go through the process of real-name authentication in the tax bureau. If they cannot, due to being outside the country, limitations will be imposed such as setting a small amount of Fapiaos the company can issue per month and also, the amount on the Fapiao will be smaller (10k for example).
Last but equally important, the legal rep cannot also serve as the Financial Person in Charge.
The Financial Person in Charge
The second role with a legal responsibility. This individual is responsible for the company’s financial affairs in front of the tax authorities and could be called in for questioning in several cases: for example, if any issues are found in the company’s financial reports; if there is anything wrong with the accounting books; if a tax report was not submitted in time; or when a new system upgrade or important policy change is introduced and needs to be signed.
It’s advisable that this individual have some financial background, and that he or she will get regular reports from the accounting team regarding the company’s ongoing financial activities.
The Tax Bureau Contact Person
As the first point of contact with the tax authorities, this person is in charge of the basic, ongoing tax-related work; He or she is the one to buy invoices, do tax declarations and submit or collect documents from the tax bureau.
There is no legal responsibility for this role.
Though it’s advisable that this individual have some basic finance background, it’s not a must.
While WFOE owners often opt to outsource this position, in some locations in China (Suzhou and Guangzhou for example), the local regulations require this position to be filled by one of the WFOE’s employees.
Dealing with Tax Bureau
Like the legal rep, these positions of the Tax Bureau Contact Person and the Financial Person In Charge require real-name authentication, submitting an original ID and having a local phone number for the ongoing communication with the tax bureau (this number should be registered under their real name).
It is also recommended that these individuals will be able to read Chinese, as all messages sent from the tax bureau are in Chinese.
A foreigner can serve as the Financial Person In Charge if they are qualified for all the requirements above. But for the operator, it is better to have a local Chinese in the role.
At PTL Group we are always at your disposal, contact us for financial management services.
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