A Wholly Foreign-Owned Enterprise (WFOE) is an increasingly popular investment vehicle used by foreign entities that would like to form a company in China. This is often a preferred option for having a presence in China as a WFOE does not have the same limitations as a representative office. A representative office is mostly used for marketing purposes but cannot make a profit for itself, issue invoices or enter into business contracts. WFOEs are commonly limited liability companies and do not require the participation of a Chinese shareholder.
WFOEs are frequently used by foreign companies to manufacture their products in China and then export them to foreign countries. This is often achieved through the use of Special Economic Zones such as in Shenzhen and other locations in Guangdong province. The use of these Special Economic Zones allows to import duty-free materials for the manufacturing of the products in question. These materials are used together with Chinese materials to produce the final products which will then be exported abroad and can also be sold within China through wholesale and retail channels. When products are exported, VAT can be claimed back in relation to the Chinese components of the products.
TYPES OF WFOEs
1. Companies that manufacture their products in China in order to export these products.
2. WFOEs who offer consulting services.
3. WFOESs who are allowed to trade, buy and sell in China.
ADVANTAGES
A. No need for involvement of Chinese partners. This allows the foreign owners of the WFOE to control the company and formulate their strategic planning unobstructed.
B. A WFOE doe not face the same restrictions as a representative office. The company can conduct business, issue invoices and generate income.
C. Increased protection of intellectual property according to international law.
D. Shareholder liability limited to initial investment.
E. No need to obtain a license to export products manufactured in China.
PROCEDURE
- Registering the name of the company with the State Administration of Industry and Commerce.
- Obtaining Certificate of Approval by Ministry of Commerce or Foreign Economical Cooperation Bureau.
- Applying for Business License with the State Administration of Industry and Commerce.
- Reviews made by Public Security Bureau.
- Organisation Code License by Technical Supervision Bureau.
- Obtaining Tax Certificate by Taxation Bureau.
- Registration and approval with State Administration of Foreign Exchange.
- Opening foreign currency and local currency bank account.
- Transferring capital from investor's overseas bank account.
- Obtaining a Capital Verification Report by a Certified Public Accountant.
- Obtaining Financial certificate registration.
- Statistics license registration.
- Obtaining license to import and export.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.