China WFOE General Definition

This China WFOE Definition page was last updated on May 13, 2012

Basic Definition & Understanding of the China WFOE

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China WFOE: General Definition

A step by step introduction on

Setting up a Wholly Foreign Owned Enterprise (WFOE) in China

What is the definition of a Wholly Owned Foreign Enterprise?

As the name already suggest, it is a company setup in China, 100% owned by any foreign investor. WFOE are among the most popular corporate models for foreign investors due to their versatility and unique advantages.

China WFOE Minimum Key Features

  • A Wholly Foreign Owned Enterprise, also known as WFOE, is corporate venture with its entire capital contributed by the foreign investor(s).
  • A WFOE is a 100% independent, economic entity, bearing legal liability independently.
  • A WFOE can bear several models to cater for different Scopes of Businesses.

WFOE - A General Definition

A Wholly Foreign Owned Enterprise is commonly known as a WFOE. It is a common investment vehicle for establishing a foreign business based in Mainland China. The perhaps most distinguished and unique feature of a WFOE is that involvement of a Mainland Chinese investor is not required, unlike most other investment vehicles.

Note: Some regional bodies in China may use the term Wholly Owned Foreign Enterprise or WOFE. They are, however, exactly the same entity.

WFOE are limited-liability corporations organized by foreign nationals and capitalized with foreign funds. This leads to greater control over the business venture in Mainland China, and avoid a multitude of problematic issues that can potentially result from dealing with a domestic joint venture partner. Such problems often include:

  • Profit not being maximised.
  • Leakage of the foreign company's Intellectual Property.
  • Sometimes joint venture partners set up in competition against the foreign firm.
  • However, WFOE's often have difficulty building up the necessary personal relationships or "Guang Xi", which are considered of great importance in setting up a WFOE or conducting business in Mainland China. (more about common Guang-Xi abuse here)

Getting a WFOE to work as your perfect business model in China!

The duration of a WFOE can be up to 15 - 30 years, with possibilities of extension up to 50 years and occasionally even longer (Only for certain types of projects, and with express approval of the State Council).

A WFOE can only operate within the business scope as set forth in its business license. If it decides to pursue other activities than the ones mentioned in its Scope of Business, it will first have to gain approval from the relevant authorities.

While it used to be the case that certain criteria had to be fulfilled by a company before it would be allowed to establish a WFOE, like for example being conducive to the development of the Chinese national economy, or having most of its products focused on the export market; this no longer holds true. This is due to China’s entry into the World Trade Organization (WTO). In due course these conditions were gradually abolished, until now a WFOE is increasingly being used for service providers such as a variety of consulting and management services, software development and trading as well.

A WFOE does not include branches established in China by foreign enterprises and other foreign economic organisations. The Chinese Laws defining a WFOE do not have a clear definition of the term of "branches". The term may include both the branch companies engaged in operational activities and representative offices. These are generally not engaged in direct business activities. Therefore, branches and representative offices set up by foreign enterprises are not WFOE.

Main Features/Benefits for a WFOE in China

WFOE are the perfect company structure to produce a foreign firm’s products in Mainland China for later export. They do not automatically have right to distribute their products in Mainland China, though the WFOE variant: Foreign Invested Commercial Enterprise or also referred to as "FICE" has the ability and can acquire the rights to do so.

A WFOE is also a 100% wholly foreign-owned subsidiary doing business in China. The foreign (parent) company carries sole responsibility for its profits and losses.

The enterprise is able to implement strategies that effectively conform to the interests of the parent company abroad. Moreover, technology and know-how are given better protection.

One effective use of moving up to establish a WFOE in China is to replace the Foreign Representative Office (RO). While RO’a are a relatively inexpensive instrument to scouting the business environment and to manage administrative aspects of a foreign enterprise in China, setting up WFOE is almost always the next step after feeling comfortable with getting more serious in your China business activities.

Are their any other WOFE benefits/key points?

Yes, for instance:

  • China has (still) relative low labour costs, on one hand. Yet an increase of higher qualified and better trained workforce and still immeasurable business opportunities continue to attract overseas investors to setup a WFOE in China to expand their business.
  • A number of preferential polices issued by the Government in favor of Wholly Foreign Owned Enterprises enable foreign investors to increase control of marketing strategy and response speeds. It also provides greater security for their stakeholders to protect their (scientific) research confidentiality, maintain better control of their intellectual property rights and retain their global corporate strategy.
  • A Wholly Foreign-Owned Enterprise as being a limited liability company established within Mainland China through foreign investment only, WFOE’s are becoming increasingly more popular, mainly because of the fact that there is no involvement of any Chinese investor thus giving the foreign company complete control over their newly established business.

China WFOE Advantages in brief!

  • The ability to uphold a company’s global strategy free from interference by Chinese partners.
  • Total management control within the limitations of the laws of the PRC.
  • The ability to both receive and remit RMB to the parent company overseas.
  • Increased protection of trademarks and intellectual property, in accordance with International Laws.
  • Shareholder liability limited to sum of original investment.
  • We will discuss Advantages in greater detail in our next page

Types of Wholly Foreign Owned Enterprise:

Following is a short-list of most common types of a WFOE

  • Consultancy Service WFOE
  • Manufacture WFOE
  • Trading WFOE - Wholesale, Retail or Franchise in China
  • FICE (Foreign-Invested Commercial Enterprise) that can trade in China

To sum everything up. Compared to registering a business in most Western countries, registering a business in China is challenging work filled with paperwork (Normally in triplicate), and wrapped with bureaucratic red tape. It is practically impossible to properly complete the registration process without a qualified agency. Be sure that the agency is competent, qualified, and has good connections and relationships with the various local authorities. Ensure they possess comprehensive knowledge about the numerous important aspects involved with legally and properly registering a WFOE.

All these questions you can set aside as answered when you commission Chinbiz21 Business Consultants as you agency to register your WFOE in China! Contact us Now