The Wholly Foreign Owned Enterprise or \’WFOE\’ is like a regular Limited Company; it is an investment vehicle for mainland China. The special characteristic of a WFOE is that association with a Chinese investor is not necessary. This can give better control over your company in China. Avoid numerals of the difficult problem which can result from dealing with a domestic joint venture partner.
Such difficulties can consist of income not being maximized, loss of the intellectual knowhow and the joint venture partners may setup some structure in competition against your interests.
Wholly Foreign Owned Enterprises are 100% foreign owned companies, originally introduced to encourage foreign investment exclusively in the export-orientated manufacturing industry of Special Economic Zones (SEZs) in China. First, they were prohibited from selling their products to the Chinese domestic market. Since a change in regulations WFOEs can trade and sell their goods within China. The capital requirements for such companies have also been dramatically reduced.
Benefits and Disadvantages
100% foreign ownership means total independence from a Chinese partner, complete control over the business and its direction.
Full trading rights within China, including retailing or wholesaling wholly foreign manufactured goods.
RMB profits can be converted into USD and remitted to the foreign parent.
Intellectual Property Rights are protected.
Greater efficiency in operations and management.
A foreigner with no experience in China may lack the knowledge and contacts a Joint Venture or partner would bring. In order to be successful with your enterprise, strong relationships with the local authorities are essential, and the cultural and administrative difficulties experienced in dealing with these authorities may be quite significant.
Business scope of a WFOE
The most outstanding difference of a WFOE is consequenceof it\’s business scope. The scope of your business needs to be clear defined. A WFOE can only carry out business within its permitted business scope, as printed on the business license. Any modification needs approval. For example a business scope can be defined international economic consulting, investment consulting, trade information consulting, marketing – promotion consulting, , technology consulting, corporate management consulting manufacturing, etc. As a result of China\’s joining the WTO, more business scope is accessible for foreign investment.
Registered Capital can be as little as USD$14,000 to USD$250,000 or even more. If companies have a high investment approval is essayer and quicker to get approved. Payment of the investment capital can be in a one initial or in a time frame of two years. Typically a quarter has to be paid in the first three moths.
Registered investment is defined as the total required capital until the company can run on its own. So a WFOE needs funding via it\’s registered capital until it can run on it’s own cash-flow.
The total sum of registered investment will be decided on factors like Business scope and chosen location. The local government authority will evaluate the probability of your feasibility study. Check the lease contract. Grant approval case-by-case.
What\’s involved in setting up a WFOE
It’s a very laborious procedure that can take from only 6 weeks up to six months. City-Trust has the experience necessary to overcome these hurdles and save you time.
City-Trust also has experience and the right contacts to help you and your business with the following endeavors:
•Selecting a location that best suits your needs and offers the best tax incentives.
•Finding the right premises.
•Introducing you to the local authorities.
•Preparing preliminary application.
•Advising on business name regulations.
•Preparing your business plan.
•Preparing project proposals.
•Preparing feasibility study.
•Preparing formal applications.
•Establishing management, production, financial, HR and sales structures.
Wholly Foreign Owned Enterprises are the most versatile business structure available to foreigners wishing to do business in China. Currently it represents an ideal structure for the outsourcing of manufacturing to this low cost environment. There are considerable bureaucratic hurdles in setting up a WFOE but Cityscope bears the know how to overcome these problems.”,