Wholly Foreign Owned Enterprise Formation in China
The Wholly Foreign Owned Enterprise (WFOE) is a Limited liability company which owned by the foreign investor(s). In China, WFOEs were originally conceived for encouraged manufacturing activities that were either export orientated or introduced advanced technology. However, with China's entry into the WTO, these conditions were gradually abolished and the WFOE is increasingly being used for service providers such as a variety of consulting and management services, software development and trading as well.
Since March 1, 2014, No minimum registered capital is required for WFOEs with scope of business of consulting, Trading, retailing, information technology etc. in China. There are minimum registered capital still required for some industries for instance: Banking, Forwarding etc.
In Mainland China, there are 4 modes of business presences for foreign investors: WFOE - Wholly Foreign Owned Enterprise (65%), RO - Representative Office (20%), FIPE - Foreign Invested Partnership Enterprise (10%) and JV - Joint Venture (5%). About 65% of foreign clients chose WFOE as their China business entity since a WFOE could freely conduct its business in China and allows the client to the maximum level of control over its business like any Chinese domestic companies. The client may also be able to bring in management personnel from its parent company to oversee the operation. A roughly comparison between these 4 modes, check the Comparison Chart for 4 Business Structures in China.
Contact us for detail information about registered capital, required documents and procedures to establish a WFOE in below major cities:
1st tier cities: SHANGHAI BEIJING SHENZHEN GUANGZHOU
2nd tier cities: HANGZHOU CHENGDU CHONGQING TIANJIN WUHAN
3rd tier cities: NINGBO SUZHOU XI'AN
Pros & Cons
With Separate legal entity in China
Feasible to carry out all business activities (subject to the business scope stated in the registration certificate)
Negotiable for tax incentive with local government
Allow to hire local staff and fully HR administration and management control
More flexibility in company strategic management
Conducive to the protection of WFOE’s intellectual property rights and patent technology
More complex application process and each step may have profound impact in future development of the company: business scope, financing, tax rates, director board management etc.
Capital injection is required to meet the minimum level for specific industry and in specific territory of China
Even though WFOE is limited liability in nature, a legal representative needs to be appointed and take up unlimited liability of the WFOE
The business scope of all industries in China is very strict and precise. Foreign enterprises can only carry out business activities within the business scope on the Business License. If the company needs to modify the business scope, then needs to apply and obtain approval first. Consulting company, for example, its business scope includes: investment consulting, international economic consulting, trade information consulting, marketing consulting, corporate management consulting, technical advice, etc.
The name of the WFOE should be in the form of “Name of the City + Name of the Enterprise + Industry + Co.,Ltd.”. For example, British ABC Consulting Company in Shanghai is officially known as Shanghai ABC Consulting Co.,Ltd.
Operation Period & Dissolution
In China, terms of 15 to 30 years are typical for a manufacturing WFOE (although some may have a longer term). It is also possible to obtain extensions of the WFOE's duration. For projects in which the amount of investment is large, or the construction period is long and the return on investment are slow, projects producing sophisticated products using advanced or key technology provided by the foreign partner, or for projects producing internationally competitive products, the term of WFOE may be extended to 50 years. With special approval from the State Council, the term may be even longer than 50 years.
The WFOE may be terminated under certain conditions. For example, the inability of the WFOE to operate due to heavy losses, or in the occurrence of an event of force majeure, etc.