Are you planning to expand your business to China? It is one of the high-potential jurisdictions that no investor wants to miss because of a large market, supportive administration, and good infrastructure. One of the main requirements before entering the Chinese market is selecting the right business formation, and a wholly foreign-owned enterprise (WFOE) is the most popular. Here is everything that you need to know about WFOE in China.
What Is a Wholly Foreign-Owned Enterprise (WFOE)?
A WFOE is a limited liability company which is owned 100% by a foreign investor(s). Initially, China only encouraged foreign investors in manufacturing, but this changed when the country entered the World Trade Organization (WTO) in 2001. Now, it is possible to open a WFOE in almost all areas that are not restricted. WFOEs can be grouped into three categories.
- Manufacturing WFOE.
- Service WFOE.
- Trading WFOE or Foreign-Invested Commercial Enterprise (FICE).
Advantages of Using a WFOE in China
The main reason why WFOEs are very popular in China is that they provide an investor with full control over their business. Therefore, making decisions on different aspects, such as who to hire or product development, will be fast. Other benefits of using a WFOE include:
- If the company is part of another business at home, you are at liberty to implement its strategies.
- You can easily carry out business as opposed to being passive like a representative office.
- Total control over human resources.
- Greater efficiency in management and product development.
- There are no limitations on capital repatriation from your Chinese company.
Termination and De-registration
In China, the terms of WFOEs depends on their area of operations. Typically, a WFOE’s terms of contract in China is 15-35 years, but you are allowed to apply for an extension.
In most projects where the amount of invested capital is large, or the investment return is low, the Chinese government can extend the term to 50 years. Indeed, it is even possible to get an extension of over 50 years with the State Council’s approval.
It is also important to note that your WFOE term can be terminated under certain conditions. The two common conditions are running into heavy losses and the case of a force majeure.
When it comes to closing down a company or de-registration of a WFOE in China, we must indicate that it is pretty complicated than registering a new one. First, the investor is required to get approval from the local tax authority and then follow a lengthy process of preparing dozens of documents and procedures that can take years. It is long and expensive, especially if you decide to follow the process without the help of an expert.
Taking your business to China using a WFOE opens new doors that could easily catapult it to a big multinational in Asia and the entire globe. However, it is prudent to ensure you get it right during registration, following the relevant laws, and prudent management. This is why you should work with a professional agency with expertise in company registration in China, and to further hold your hand until you become successful.
