How WFOE Allows Complete Control of all the Business Operations in China

Building up a business presence in China offers limitless opportunities, but the success of your business lies in the correct understanding of China’s complicated business and regulatory environment. Forming a company in China is much more complex, time-taking and expensive compared to forming a company domestically. But the good news is, if your WFOE has the proper documentation and goes through the right process, it will ultimately be approved and registered to conduct business in China.

As China has become the world’s top investment destination, market experts are of the opinion that WFOE has a huge potential in China. Global companies, in their quest for new markets, can get the best out of this country. A WFOE is a 100% autonomous, financial entity, bearing lawful obligation independently. It is also worthy to note that any foreign enterprise in China that does not engage in direct business activities is not regarded as WFOE, with no exception to branches that carries out operational activities and representative offices. A WFOE can only operate within its business scope as put forward in its business license. If it chooses to engage in a different exercise than the ones specified in its Scope of Business, it is imperative to gain approval from the local authorities.

 

A Wholly Foreign Owned Enterprise (‘WFOE’) is a common investment vehicle to do business in China. Some of the traits are:

>> It is a 100% foreign owned limited liability company so the registered capital of a WFOE should be pledged and contributed solely by the foreign investors.

>> Organization form of foreign capital enterprise is mostly limited liability company, also can be called as one person limited company.

>> The registered capital of a Wholly Foreign Owned Enterprise (WFOE) should be subscribed and contributed solely by the foreign investor(s) and it can also repatriate dividends back to the parent company or shareholders overseas.

>> Foreign companies are able to operate using Chinese Yuan (RMB), meaning that any invoices and costs could be tax-deductible.

 

The establishment process of a WFOE can vary somewhat depending on the chosen structure, namely a service WFOE, manufacturing WFOE or trading WFOE and its associated business scope. Foreign investors are not permitted to directly submit the application documents of incorporate a WFOE to the relevant authority in China. They must retain a PRC entity that is authorized or permitted by relevant authorities to act as a sponsor.

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The Growing Importance of WFOE Amidst US-China Trade War

With the growing US-China trade war and continuous slowdown in Chinese economy, US companies having business interest in China cannot afford to maintain a quasi-legal status in China. The value of forming a China specific WFOE has been stressed by the China lawyers time and again. And with the growing tension between the two countries, forming WFOE will take a greater significance.

The US has imposed three rounds of tariffs on Chinese products this year, totaling $250bn worth of goods. President Trump has warned even more could be on the way. Beijing announced it would retaliate against new US tariffs, with the commerce ministry saying that it would “immediately introduce countermeasures of the same scale and strength”.

China purchased roughly $130 billion in American goods last year — less than a third of what the United States ordered from Chinese enterprises. Now Beijing is poised to impose higher border taxes on a total of $110 billion in U.S. products. China’s $3 billion dollar counter punch to the US tariffs is just the first move from the world’s second largest economy, according to a Bloomberg report. One of the major retaliatory actions might be the cancellation of a $38 billion order to American aircraft maker Boeing, which China placed back in the year 2015. Agriculture and technology are other major sectors where the Asian superpower may plan to hit back US trade imposition.

China’s Foreign Ministry said it will respond to Trump’s latest round of tariffs with duties on more than 5,200 types of American imports and unleash a crackdown on the US companies operating in China without proper legal documents.

Beijing imposed a 25 percent additional tariff on imported American cars in response to U.S. tariffs on $34 billion in Chinese goods, including the automotive, solar panel. Electronics goods, furniture sector. US companies need to understand that the independent contractors are almost never legal in China and if US firm has Chinese employees, it must have a WFOE as a possible weapon for defending themselves from the wrath of the Chinese government.

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