What is a WFOE? How to create a WFOE to establish itself in China? What are the advantages of this type of business?
Definition: A WFO (Wholly Owned Foreign Enterprise) is an independent company established in China, owned by one or more foreign investors.
It is therefore an entirely foreign-owned enterprise, to do business in China.
This legal status was created by the Chinese government in order to encourage direct investment in China.
Unlike the representative office, creating a WFOE allows you to sign contracts, pay salaries and perform commercial acts freely.
Creating a WFOE in China: how does it work?
This entity is created for a renewable period of 30 years . Note that there is no seniority criterion for the parent company (s) based abroad.
According to Chinese law, there are different types of WFOE, with a minimum capital of between 100,000 and 1 million yuan (approximately € 13,000 to € 130,000). You can thus open a company specializing in:
- Food and drink trade
Note: each type of WFOE has its own regulations, which may also vary depending on the location.
What are the advantages of the WFOE?
The main advantage is that this legal structure enjoys full legal personality. It is therefore independent and autonomous.
Therefore, creating a WFOE allows you to:
- Carry out trade and service operations
- Recruit and pay wages in yuan
- Sign contracts
- Develop and create subsidiaries or branches
On the other hand, the profits made can be passed on to the parent company outside of China, after having been converted into dollars.
Finally, the WFOE makes it possible to do without a Chinese partner or associate.
What are the disadvantages of WFOE?
The legal and administrative framework remains particularly complex (choice of company name, annual audit report, various obligations, etc.) and the initial investment is high.
On the other hand, the place of the head office must correspond to a professional building provided for this purpose. It is therefore impossible to domicile a WFOE at the domicile of an individual or abroad.
In the end, it is essential to be properly accompanied to complete the formalities of creating a WFOE.
Note: The cabinet New Horizons Global Partners is the leader in China creating WFOE and portage.
Where to start ?
The first step before settling in China is to carry out market research.
The next step is to prepare the feasibility file for setting up in China. Installation conditions should be negotiated with the provincial or municipal authorities in advance.
Finally, the registration file will have to be put together, which will include the final version of the feasibility file.