You have set up your business in China, and now you have a plan to expand it. But one thing most of the foreign entrepreneurs would agree that forming companies in China is much more time-taking, complex and expensive than forming domestically. It is suggested by the China lawyers, opting for the WFOE is perhaps the best option for entering Chinese market.
A WFOE in a broader sense Wholly Foreign Owned Enterprise is a limited liability Chinese company which is invested into with 100% foreign capital and owned by only foreigners. It has a great potential in entering the market of the second largest economy of the world. The registered capital of a Wholly Foreign Owned Enterprise (WFOE) should be subscribed and contributed solely by the foreign investor(s). In the year 2016, Chinese authorities revamped WFOE formation rules. Foreign companies should keep in mind that depending on the nature of the activity and the province where you register your company, a different registered capital is required.
Here is a List of Province for WFOE-
First tier cities: Shanghai, Beijing, Shenzhen, Guangzhou
Second tier cities: Hangzhou, Chengdu, Chongqing, Tianjin, Wuhan
Third tier cities: Ningbo, Suzhou, Xi’an
The definition of a WFOE is neither clean nor pristine. The Ministry of Commerce makes the rules, but each province and tier 1, tier 2 and tier 3 city can interpret those rules to their benefit.
Sectors for Forming WFOE-
- Language School
Interesting thing is, the Chinese Wholly Foreign Owned Enterprise business entities are increasingly moving to the services such as trading, software development, and consulting and management services after Peoples Republic of China entered World Trade Organization WTO. The establishment process of a WFOE can vary somewhat depending on the chosen structure, namely a service WFOE, manufacturing WFOE, trading WFOE, consultancy of services WFOE and its associated business scope. Most of the prominent China lawyers believe, the term varies according to the nature of the enterprise, any extension is subject to the approval of the relevant government authority.
It is essential for every foreign enterprise willing to setting up and maintaining operations in China is to properly understand and comply with the PRC regulations because regulations in China change quite frequently. Take a note that the limitation of liability rules apply in China in the same way as in the United States in that the financial liability of the WFOE is limited to the amount of investment.