Why Foreign Companies Prefer WFOE as their China Business Entity

The Wholly Foreign Owned Enterprise (WFOE or WOFE) is a Limited liability company wholly owned by the foreign investor(s). It offers a wider business scope compared to a representative office (RO), and possesses several unique features.

WFOE includes-

  • Free Trade Zone company
  • Representative Office
  • Joint Venture
  • Partnership enterprises

Although China has revamped its WFOE formation rules ( under the new rules, the investor must provide a complete organizational chart detailing ownership of the shareholder and identifying the actual controlling person), still more than 90% foreign companies prefer WFOE as their China business entity. This can give greater control over the business venture in mainland China and avoid a multitude of problematic issues which can potentially result from dealing with a domestic joint venture partner.

WFOE

 

 

 

 

 

 

 

WFOE Types-

  • Consultancy Service WFOE
  • Manufacture WFOE
  • Trading WFOE – Wholesale, Retail or Franchise in China
  • FICE (Foreign-Invested Commercial Enterprise)

It can also employ local staff directly, without obligation to employ services from employment agencies. Although there is no legal restriction on the number of foreigners a WFOE can employ, in practice the number of foreign employees does depend on the amount of registered capital (discussed below) that the respective company injects.

Special advantages of WFOE-

  • An enterprise can be wholly owned by one foreign individual or joint owned by several foreign investors
  • Can engage in product sales both domestically and internationally
  • Total management control within the limitations of the laws of the PRC
  • Increased protection of trademarks and intellectual property, in accordance with international law
  • Requires only one investor, can be of any nationality and reside anywhere outside of China. Corporate investors are also permitted
  • More effective means of protecting technical information and trade secrets and allows for full authority over staffing
  • Ability to eliminate extra commission charges and other fees, since intermediaries are not legally required. This means they don’t have to liaise with agents and distributors
  • A suitable investment vehicle for establishing a long-term presence in China
  • Avoids the 11-12 percent tax on expenses that representative offices (RO) pay

A WFOE can only operate within the business scope as set forth in its business license. If it decides to pursue other activities than the ones mentioned in its Scope of Business, it will first have to gain approval from the relevant authorities. The duration of a WFOE can be up to 15 – 30 years, with possibilities of extension up to 50 years and occasionally even longer (Only for certain types of projects, and with express approval of the State Council).

WFOE is often used to produce the foreign firm’s product in mainland China for later export to a foreign country. They do not automatically have right to distribute their products in mainland China.

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All You Need to Know About Forming China WFOE

WFOE formation procedures have been remodelled by China. The effects are two-fold. In one hand it makes few things easier in some ways, on the other hand, it has converted few things bit more difficult. The Wholly Foreign Owned Enterprise (WFOE) is a limited liability company wholly owned by the foreign investor(s). In China, WFOEs were originally conceived for encouraging manufacturing activities.

Because WFOE is relatively new, Western companies make a huge number of queries to understand the in-and-outs of this entire WFOE formation procedures from our China lawyers. What our China attorneys do for our clients is to offer them a complete understanding of the spanking new China WFOE and proper measures that could be taken to get the full advantage of WFOE formations procedures.

I had received an email from one of my firm’s China attorneys about the queries made by a client for whom we are working on setting up a China WFOE. I have furnished a complete guideline on what procedure to follow in order to form a WFOE under the new WFOE formation rules. This guideline may prove highly beneficial to the business owners who are looking to form a China Wholly Foreign Owned Enterprise (WFOE).

PRC government has drafted a new foreign investment law. It has also brought in new set of laws and regulations for registering WFOEs in China. For acclimatizing with this new system, local government has been working out their internal procedures.

The local AIC has finally made their basic decisions on the procedure they will follow for the formation of a WFOE under the Foreign Invested Enterprises (FIE) law and associated Ministry of Commerce (MOFCOM) regulations.

The following steps mentioned in the application need to be followed

1. WFOE name approval

2. MOFCOM online registration.

3. Application to form WFOE submitted to local Administration if Industry and Commerce (AIC).

4. Issuance of business license by AIC.

5. Start of business processes includes:

  • Open bank accounts
  • Cut and register chops
  • Open tax and other government accounts
  • Set up daily bookkeeping and reporting to the local government
  • Execute written employment agreements with employees and open employee tax/social benefit accounts

We will assist you to successfully accomplish each and every step in a proper way. Our team will work with you on Steps 1 to 4 mentioned in the application and in case of Step 5. we will work with you on drafting your employment agreements for China and your employer rules and regulations. For other requirements that need to be fulfilled in Step 5, we can swiftly guide you through and make you eligible to conduct business in China.

You need to furnish the following information in Step 5 (mentioned above):

  • Local bank
  • Local bookkeeper
  • Accountant for tax returns and annual audit and reporting to the parent entity (can be same as B, or different)
  • Employee payment processing and maintenance of employee social benefit accounts

During the formation process, you must submit all this information. We would be able to offer you reliable service support.

You can contact me for detailed information on WFOE.

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