WFOE vs JV in China: Differences between a WFOE and a Joint Venture

GEI > News > WFOE vs JV in China: Differences between a WFOE and a Joint Venture

Introduction

This article is going to help you by telling the differences between a WFOE vs JV in China.

When you’re about to open a company in China you’ve most likely heard of a JV (Joint venture), basically a company opened between a foreigner and a Chinese national, you’ve also probably heard of a WFOE, or a Wholly Owned Foreign Enterprise.

But seriously? Which one is the better one to open? Welcome to the classic question: WFOE VS JV.

Both of them are really common ways to start a business based in China. in this article, we’re going to discuss the topic in terms of the following aspects:

  1. The cost
  2. The process
  3. Safety aspects/protecting you 

So read on to find out more about a WFOE vs JV in China below.

Or simply shoot us a message and let us arrange a free consultation. 

Related articles

New JV laws

Opening up a WFOE 

Things about WFOE in China

What is a WFOE in China?

The term refers to a Wholly Foreign-Owned Enterprise. The type of business entity by full foreign investment in mainland China. AKA is commonly known as a WFOE or WOFE (the incorrect spelling). 

This is a type of enterprise fully owned by foreign investments, it does not require any local partnership. WFOEs can make their presence in several forms. They could be:

  1. limited liability companies
  2. partnership
  3. proprietorships.

A greater definition of a WFOE Found here

However, despite the various forms of WFOEs, they share one thing in common.

The owners or shareholders of the enterprises are from places or people without a mainland Chinese ID card. The shareholders can be either an enterprise and/or individual persons.

In other words, if you see local people or local enterprises on the shareholders’ list. Then, the business is not a WFOE. Because, well a WFOE is fully owned by non-Chinese citizens (it is kind of in the name). 

Related article

WFOE management structure

WFOE asset management

How much does it cost to set up a WFOE in China?

Generally, in 2020, you’ll need a budget from 15,000-30,000 CNY to open a WFOE in China. (we’re counting accounting expenses, renting a small office and all the hidden fees here). 

Compared to before 2014 this is dirt cheap! Before 2014 you were required to have a huge amount of upfront capital investment in order to open, thankfully nowadays it is much simpler! 

In fact, before 2014, you would have had to have100,000 CNY sitting in your bank doing nothing just to set up your WFOE in China. 

However, thankfully its a different ball game nowadays. Instead of injecting the capital into the business upfront, you simply claim the amount you are going to invest during the WFOE application. And then invest that amount within a specific time frame. In many cases, a period from 10-20 years.

In other words, you don’t have to pay the initial capital, simply make a claim on your application that you will.

You’ll of course still need an initial investment to get the company up and running, we personally recommend having a minimum of 30,000rmb (depending on your business type of course) upfront to cover all costs. 

For the rest of the capital injection you’ve claimed on your application, you have 10, perhaps 20 years to inject that money into the business, more than enough time. 

If you want to know more about these topics, follow our blogs. And find more on A Comprehensive Guide about Wholly Foreign-Owned Enterprise

Although you’ll need some necessary investment for a better operation of your business it is quite affordable to start a WFOE in China.

These newish (if you still consider 2014 not that long ago) regulations ease the stress of your cash flow, a concern for any business. 

How to set up a WFOE in China?

Generally, the process of setting up a WFOE in China consists of 2 parts

  1. Process for application
  2. Before operation preparation

First things first, you’ll need an application to open a WFOE in China.

The application is fairly simple to process long as you have a clean record, its just a bunch of documents you need to fill in and submit.

For example, the business name and making sure it’s original. It is simply a lot of different papers manually filling out which will take you time to do and ensure they are correct.

Shameless promotion here, but to save you time and to make sure your paperwork is 100% correct and no delays happen to ensure your business in China starts as fast as possible, in our opinion GEI would be your best bet.

Once the application is done and approved, your business gets the protection by the Chinese government, well so long as you are in compliance with the laws and regulation of China. After that, you’re almost ready to get started!

You’ll just have to make sure the following things are in order:

  • Getting the business license and the stamp for the company. You will need the stamp as an official signature for the documents. The contracts, invoice, and etc.

Related article: Company Seal

  • Having the tax-related files and documents from the regulator’s departments.

Related article: China WFOE Tax

  • Opening the bank account for your company.

Related Service: China mainland Accounting

Once you’re ready expect several visits to the regulators’ departments. Probably enough visits for taking a tour around the city from the CBD to the suburban areas. That’s a good experience if you would like to explore more about the city in this way.

Click here to more about the setup process of a WFOE in China.

Peace of mind, set up your WFOE in China with GEI

For ease of mind, work with a company which has helped set up 100s of companies in China.

We’re more than happy to help you with affordable solutions of your company set up in China.

Expect within 40 working days to have a fully operating company inside China ready for business!. 

If you’re interested in help contact us today!

Things about JV in China

What is a JV in China?

A JV stands for a joint venture in China. And that involves a minimum of 2 parties as shareholders.

Each party could be either a person or an enterprise. And at least one of them is from a foreign country/region outside mainland China.

Learn more about a JV/joint venture on Investopedia

Related Service: JV set up

How much does it cost to set up a JV in China?

In terms of initial capital, a JV/joint venture in China is not much different from a WFOE, we still recommend having around 20,000 to 30,000RMB to account for all expenses.

But the main difference between a JV/joint venture and a WFOE is the structure of the business.

Before we can dive into this in more detail we need to know about the types of JVs/joint ventures in China.

Related articles: 

WFOE Structure Dilation

WFOE management structure

How many types of JVs in China?

There are 2 types of JVs/joint ventures in China. They are separated by how they gain the initial capital.

  1. Equity joint ventures (EJVs)
  2. Cooperative joint ventures (CJVs).

Equity joint ventures (EJVs) remain the most common joint ventures in China. While Cooperative joint (CJVs) is only an option for a certain type of foreign investment. 

EJVs and CJVs share a lot of similar features such as the process for application, the format of documents, policies for tax, a similar structure for general management and so on.

However, they are different in 2 major aspects.

  1. The requirements for the structure of shareholders/partners.
  2. how they share the profit, control and risk of the joint venture business.

To know more about EJVs vs CJVs check our services on Sino Foreign Joint Venture in China and contact us for a free consultation

How to set up a JV in China?

in a direct comparison of a WFOE vs JV in China, it is harder to set up a JV than a WFOE. 

It requires a lot more preparation and communication due to working with a local Chinese person. 

Well, in fact, the first step of your joint venture in China, is the need to find a local Chinese partner.

This “person” can be either a reliable company or a person you can trust. We personally recommend writing out your business plan, print it out and have both of you sign it. Why? Well, the written text gives more guarantee than just words. It will safeguard both of your interests just in case of problems and conflicts between the shareholders.

We cannot stress this enough, take your time,  and for through each of your terms one by one with your partner before signing. Trust us it’s much less of a headache to do it before signing that after!

Want some ideas? Here’s some which should be listed in your document

  • How to acquire the initial capital to start your JV/joint venture in China?

  • How to share the profits?

  • Who have the rights to approve important decisions for the company?

  • Who owns the intellectual property, such as the designs, patents and etc.?

  • What are the solutions to possible issues and problems between the shareholders?

Related Services: Contractual help

If you need help with this section our team of lawyers can help you to make sure you get the best deal for you and your potential partner. 

Ease the setup of your JV/joint venture in China with GEI

After figuring out all these matters. Even if you trust your partner it’s always best to have a lawyer check out the contract before moving on to opening a JV business

At the point of registration, there will be a bunch of documents and papers to fill in and submit,  just like the WFOE business and of course, more visits to the regulators’ offices in various areas.

Just like the WFOE, the Joint Venture Enterprise will take around 40 workings days to complete the whole thing. 

If this seems like a lot of hassle to you, Contact us and ease your JV/joint venture business in China.

WFOE vs. JV in China: which is better?

The answer pretty much depends on what you’re looking for, and your budget. 

If you’re looking to start some business based in China with a small, to medium scale sized operation then a WFOE might be a more affordable option, especially when you have a small team.

The flexibility in the capital for registration also allows you to save more for business operation.

A JV/joint venture, on the other hand, requires a lot more money in the first place, however with the right local partner, with the right connections, it may help your business succeed to a far greater extent than you would by yourself. 

There is no simple/easy choice/ It is a case by a case study of which one to choose. If you’re still unsure of which one to choose, head over to our Contact us page and give us a ring and let us help advice you with a one hour free consultation.

Conclusion

Today, we’ve discussed several things about WFOE vs JV in China. The article covers the topics of:

  • The definitions of a WFOE and a JV in China. They are both legal business entities in China and both involve foreign investment. But a WFOE in China can take its form by one foreign shareholder. While a JV in China requires at least 2 parties. Only 1 of them must be foreign though.

  • The cost of opening a WFOE vs JV in China. A WFOE is a more affordable option to start. You’re likely to spend more to run a JV/joint venture in China.

  • The process required to start your business as a WFOE vs JV in China. It’s quite easy to open a WFOE in China within 40 working days in terms of process. While it’s possible for JV to be opened within 40 days you should expect a period longer than that for a JV/joint venture in China thanks to the with the more complex process

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