A Comprehensive Guide about Wholly Foreign Owned Enterprise

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Introduction

Have you ever considered to set up a company in China?

A wholly foreign owned enterprise (WFOE) can be a good option.

Among the other forms like a joint venture (JV) and a representative office (RO). When you want more control of the company in particular.

In this article, we are going to talk about a wholly foreign-owned enterprise (WFOE) in this article we are going to talk about:

  • The meaning of a wholly foreign owned enterprise (WFOE)

  • Types of WFOEs

  • Advantages and benefits of WFOEs

  • The detail process and documents needed for setup

Related Articles:

WFOE Taxes

Foreign Companies in China

WFOE Requirements

What is a wholly foreign-owned enterprise (WFOE) in China?

A wholly foreign-owned enterprise WFOE is an enterprise in China.  Owners of a WFOE are in simple terms from places outside of mainland China.

For example, a person owns a company in China. And the nationality on his/her passport is not mainland China, then the company is a wholly foreign-owned enterprise (WFOE) in China.

While both individuals or enterprises can be owners/shareholders of a WFOE a single foreign person can also own a WFOE in China.

That’s why many foreigners set up a WFOE in China as a starter to develop the Chinese market. 

If you, yourself are interested then check out our service page of WFOE establishment

We will talk about the WFOE setup process and cost later in this article.

Types of wholly foreign owned enterprises (WFOEs) in China

While most people are only aware of the word “WFOE: there are in fact several types of WFOEs in China.

In terms of how they organise, they can be companies with limited liability, corporations, partnerships, or proprietorships.

When it comes to business scopes, WFOEs in China involve various industries. A range from consulting, manufacturing, trading and etc. Sometimes, you might hear the term FICE (foreign-invested commercial enterprise). And it refers to a WFOE with trading as its main business.

Now, let’s take a closer look at the wholly foreign-owned enterprises in China by industries.

 

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Consulting wholly foreign owned enterprises in China

A consulting WFOE is the basic one among the 3 major types.

And it remains the easiest type of WFOE to set up as there is far fewer equipment and consumer goods involved. The application for a consulting WFOE in China does not require as much as the other types.

However, there are still some requirements along with the ease.

A consulting WFOE will need to make its profits and income only from the services they state. That is to say, no permission for business activities except for those approved by the regulators.

Although it’s not hard to apply for more permissions. The major type of your business determines how much tax you’re going to pay.

So, it’s of importance to figure out your business model at the beginning. If the profit of your business mainly comes from your service. A consulting WFOE can fit your needs.

Related Article:

WFOE Structure

Manufacturing wholly foreign-owned enterprises in China

Some wholly foreign-owned enterprises produce their goods in China. And resell them in other places.

It’s common to see, especially in the globally leading brands.

Typically, the multi-national group sends a foreign manager to China then, the foreign manager sets up a wholly foreign-owned enterprise in China. He/she takes care of the factories and plants based in China. And export the products to the target markets throughout the world.

Thanks to the lower cost for labour and lands in China. As well as the refundable VAT (Value-added tax). The Chinese government allows companies to claim back their VAT for the exported goods with specific categories. Such as electronics, high-tech products and etc.

More specifically, you can claim back your VAT by export through your manufacturing WFOE in China. An amount of up to 13% of the sales value.

If You’re interest in tax, then check out our Tax services or calculator 

Trading wholly foreign-owned enterprises in China

A trading WFOE is a wholly foreign-owned enterprise making its business by trading.

Including wholesale and retail.

As we mentioned earlier a FICE (foreign-invested commercial enterprise) is the same thing, it’s just another name that’s all. 

The trading WFOEs are probably the most common WFOEs you’ve heard.

Many foreigners started their private own company in China. As a single owner of the company they select and purchase the goods from local Chinese suppliers, then resell the goods abroad. 

Many wholesalers and retailers earn their profits by the difference in prices, most trading WFOEs in China do that with the same logic.

A result of the lower cost in China. In terms of prices for the goods, taxes for the country, and wages for the staff.

As well as the manufacturing wholly foreign enterprises, a trading WFOE/FICE can claim back the VAT.

As long as they export the Chinese-made products to other places. And the goods they sell fall into the categories available for a tax refund.

If trading is your favourite in the business world. Continue the game with the resources in the Chinese market.

Start your trading wholly foreign own enterprise in China and make more money with your business.

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A gentle reminder of the types of WFOEs

The 3 types of foreign-owned enterprises we talked about are not exclusive from one to another, its real life after all some manufacturers are also trading. Some trading companies are also consulting. You can set up a WFOE doing manufacturing, trading and consulting at the same time, so don’t worry about that too much.

Despite that,  you will still need to fit that one that fits your business model best. 

If you’ve got your business models developed, but are still lost about which type of WFOE to choose from then Contact us anytime, we’ll figure out the WFOE setup solutions catering to your needs.

Advantages and benefits of wholly foreign-owned enterprises (WFOEs) in China

Full control of your business in China

The control of the business is one of the things making a WFOE stand out among the different options. 

Unlike sino-foreign joint ventures which involve local investment in the shares, you are in complete control. 

Many businesses ended up with bankruptcy, not because of low sales. Nor bad reputations from the clients or customers. But an unhealthy operation and conflicts among shareholders are often the main reason.

Sometimes, cultural differences can result in even greater conflict. Which is why a WFOE is sometimes the best option for control.

It allows you to have full control with your company without much interference on important decisions.

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WFOE vs Joint Venture

Better protection for your intellectual property

More shareholders of a company lead to a higher risk of the resources, such as leakage of business secrets by the local partners. Especially when you have a weak contract or agreement with the other one, especially if you can’t find a reliable local partner in China.

In this case, a WFOE will help you out. From the time you have your WFOE registered in China. Your business is under protection by Chinese Law. And of course, your intellectual property as well.

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WFOE Law

Capable and flexible with money

A WFOE in China is an independent legal business entity, that means a WFOE has the rights to receive money with its own account and other rights such as issuing invoices and signing contracts. These rights make WFOEs distinct over the foreign representative offices.

A WFOE can transfer the money to companies outside China. Typically, to the overseas mother company.

As a wholly foreign-owned company, you also have the right to convert the RMB to other currencies such as US Dollars and the Euro.

Lower cost for operation

Preferable Taxes.

The tax for enterprises in China is much lower than that in many developed countries. Especially compared with countries in North America and Europe.

And in most cases, a WFOE in China enjoy the same tax policy with other local enterprises.

Moreover, if your WFOE involves export business, you are likely to have a tax refund. A refund of VAT up to 13% of the product amount, as we discussed earlier.

Check out our China Tax Calculator 

Lower wages to hire Chinese local staff.

Chinese workers are famous for their diligence and affordable wages. For the same quality of work, you will probably save 50% to hire a local Chinese. Compared with the wages required by workers in many developed countries.

Less cost for the land and space.

Also, thanks to the favourable price of CNY/RMB. You pay less for the rent and enjoy more space for your factories or offices. With more space to support, you can expand the business of your WFOE more easily in China.

How much does it cost to set up a wholly foreign owned enterprise (WFOE) in China?

Generally, you would need around 20-30,000RMB to launch your WFOE (that’s including all the hidden costs for you). 

In most cases, there’s no need to pay for an initial capital upfront. So, it’s a good time to start your WFOE in China now. Although regulators still require a minimum amount for the registered capital according to your business scope, however unlike the past you don’t have to pay out before opening the company instead, you can claim a specific period for the payment. Typically, 10-20 years.

In other words, you have 10-20 years to prepare for the money for the registered capital now. Before 2014, you will need at least 100,000 RMB for registered capital before opening a WFOE.

All in all, a WFOE is an affordable option to start with.

See our WFOE Package here

How to set up a wholly foreign-owned enterprise in China?

To open a wholly foreign-owned enterprise in China, you’ll need the approval by the local government. Just like many other countries in the world.

And the process to launch a WFOE require some work beforehand.

Don’t forget about taxesCheck out our tax calculator

Make a report and send for approval

To apply for opening a WFOE in China. You will need to make a report to the Chinese local government at or above the county level. And you should tell the government about your business in the report.

Generally, answer the following questions:

  1. How big is your business? And what is your business scope?

  1. What products are you going to sell?

  1. What equipment and technology are you going to adopt for your business?

  1. How much land do you need?

  1. What energy are you going to use? Water, electricity, coal, gas and etc. And the amount of them.

  1. What and how much do you require for infrastructure?

When the report is ready, send it to the government for approval. And you will get a written reply within 30 days.

Note: If your business involves import and export. You must get permission from the Departments of Foreign Trade and Economic Cooperation. Before you make the report.

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Prepare the files for the application

After you get the approval by the Chinese local government. Prepare the files for the application, including:

  1. An application for establishing a foreign-invested enterprise.

  1. A feasibility study report.

  1. The articles of association for your WFOE.

  1. A list of legal representatives (or candidates for the board of directors) for your WFOE.

  1. Legal documents and credit certificates of foreign investors.

  1. The written reply by the local government at or above the county level. The place where to establish your WFOE.

  1. The list of materials, if you need to import from other places to mainland China.

  1. Other documents required by the regulators.

Among the 8 items, no. 1 and no. 3 are required written in Chinese. While the rest are free for other languages but required for Chinese translation as well.

Have trouble in writing all this stuff in Chinese? Get some help from GEI.

If you are going to invite other foreigners as shareholders, do remember to sign a contract. Since the regulators will ask for a copy for archive purpose. On the other hand, it’s a written guarantee for the operation of your business as well.

When you have all the above documents, send them to the government again. And this time, you have the result within 90 days. If you pass the approval, you will get a certificate.

Things to cover on the application for establishing a foreign-invested enterprise

  1. Names and residence of the foreign investors, place of registration. And the name, nationality, and title of the legal representative.

  1. The name and residence of the WFOE you’re going to be established.

  1. Business scope, product categories and production scale.

  1. The total investment, registered capital, source of funds, funding method and duration of the WFOE.

  1. The form and structure, and legal representative of the WFOE.

  1. The equipment to adopt for your production and its age, production technology, process level, and its source.

  1. The sales directions, regions, sales channels and sales method.

  1. Arrangement of income and expenditure of foreign exchange funds.

  1. Arrangements related to establishment and staffing, recruitment, training, wages, benefits, insurance, labour protection of employees and etc.

  1. The degree of possible environmental pollution and solutions.

  1. Site selection and land area.

  1. Capital, energy, raw materials and solutions required for construction and operations.

  1. The schedule of project implementation.

  1. The operating period of the WFOE to be established.

Things to cover on the articles of association of your WFOE

  1. Name and residence of your WFOE.

  1. Purpose and business scope.

  1. Total investment, registered capital, investment period.

  1. The form of organization.

  1. Internal structure and its rights and rules of procedure. Duties and rights of legal representatives, general managers, chief engineers, and chief accountants, etc.

  1. Principles and systems of finance, accounting and auditing.

  1. Labour management.

  1. Operating period, termination and liquidation.

  1. Procedures for regulation amendment.

Register your wholly foreign owned enterprise and get the business license

After all, register your business at the Administration for Industry and Commerce.

Remember to bring the approved certificate with you for the registration. Because if you cannot register within 30 days from the approval date, the approval will then expire.

After completing the registration process, you will get your business license.

And the issuing date of the business license is the establish date of your enterprise.

A business license of a wholly foreign owned enterprise (WFOE) in China

Tax registration with tax authorities

Yep. The process is not complete yet.

Register at tax authorities in 30 days from the issuing date of your business license. So that you can issue invoices later for your business. And keep a clean record to avoid law related troubles.

Check out our tax and accounting Services

Ease your wholly foreign enterprise setup with GEI

You will expect a bunch of visits to the local Chinese government departments. And not all of them speak English indeed.

Fortunately, GEI can figure out all this stuff for you.

Affordable price and ease all the process for setting up your WFOE in China.

A comprehensive solution from the report to the launch of your business. Also, work with our lawyers to better protect your rights in case of disputes.

Moreover, we have packages for secretary address and accounting service as well.

Do you need help with finding an office? We can help with that as well

Conclusion

A quick overview of the things we talked about in this article, including:

The types of wholly foreign-owned enterprises in China.

By organisation, there are limited liability companies, corporations, partnerships and proprietorships.

By business scopes, there are consulting, manufacturing and trading wholly foreign-owned enterprises. And the business scope of a WFOE can be a mixture of the 3.

The advantages and benefits of wholly foreign-owned enterprises.

Full control, better protection for intellectual properties, capable and flexible with money and lower cost for operation.

And the cost for a wholly foreign owned enterprise setup.

A budget of 10,000-30,0000 CNY.

Also, we talked about the setup process in detail.

So that you can have a comprehensive understanding of how to wholly foreign-owned enterprises in China.

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