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.