Wholly Foreign-Owned Enterprise (WFOE)

Due to the strong economic boom in China in the past years, a great amount of foreign investors have and continue entering into the China market wishing to have a share of the growth.  One of the most commonly used methods to enter the China market is to establish a WFOE (Wholly Foreign-Owned Enterprise).  WFOE in Mainland China is a limited liability company wholly owned by foreign investor(s) and RMB has to be its registered capital.  The registration process is famously known to be very complicated and time consuming.  We work with our network of affiliates in Mainland China to ensure that we get to every detail of the formalities.

Reasons for setting up WFOE：

1. Independence and freedom to implement the worldwide strategies of its parent company free from interference by Chinese partners
2. Ability to formally carry out business rather than just function as a representative office and being able to issue invoices to their customers in RMB and receive revenues in RMB
3. Capability of converting RMB profits to US dollars for remittance to its parent company outside of China
4. Protection of intellectual know-how and technology, in accordance with international law
5. Shareholder liability limited to original investment
6. Full control of human resources and recruitment strategies
7. Greater efficiency in operations, management and future development
8. Investor's parent company does not have to be established for more than 2 years while for Representative Office, its parent company is required to have been established for more than 2 years

Business Scope

One of the most important issues covered in the project documentation is the business scope of the WFOE.  Business scope is narrowly defined for all businesses in China and the WFOE can only conduct business within its approved business scope, which ultimately appears on the business license.  Any amendments to the business scope require further application and approval.  Inevitably, there is a negotiation with the approval authorities to approve as broad a business scope as is permitted.  General business scope usually includes, investment consulting, international economic consulting, trade information consulting, marketing and promotion consulting, corporate management consulting, technology consulting, manufacturing, etc.

WFOE Types

1. Consultancy Service WFOE
2. Manufacture WFOE
3. Trading WFOE - Wholesale, Retail or Franchise in China
4. FICE (Foreign-Invested Commercial Enterprise) FICERegistration

Registered Capital

Registered capital is the initial investment into a company that is required to fund its business operations until it is self-sustainable.  The absolute minimum capital requirements of a WFOE under Chinese law are RMB30,000 for multiple shareholder companies and RMB100,000 for single shareholder companies.  In practice, however, the official requirements for registered capital vary by industry and region and can be far greater than the above figures.

Workflow of setting up WFOE

1. Preparation of registration documents
2. Name registration (Certain guidelines to be followed)
3. Submission of a lease contract of an office rented and other documents
4. Approval letter and Certificate of Approval
5. Application for Business License
6. Company chop, financial chop and representative chop
7. National and local tax registration
8. Registration with different authorities
9. Open foreign currency and RMB bank account
10. Inject capital from investor’s overseas bank account