Wholly Foreign Owned Enterprise (WFOE)
Introduction of WFOE
The Wholly Foreign Owned Enterprise (WFOE) is a limited liability company wholly owned by the foreign investor(s). In China, WFOEs were originally conceived for encouraged manufacturing activities that were either export orientated or introduced advanced technology. However, with China’s entry into the WTO, these conditions were gradually abolished and the WFOE is increasingly being used for service providers such as a variety of consulting and management services, software development and trading as well.
The registered capital of a Wholly Foreign Owned Enterprise (WFOE) should be subscribed and contributed solely by the foreign investor(s). A WFOE does not include branches established in China by foreign enterprises and other foreign economic organizations. The Chinese Laws on WFOE do not have a clear definition of the term of “branches”. The term of “branches” should include both the branch companies engaged in operational activities and representative offices, which are generally not engaged in direct business activities. Therefore, branches and representative offices set up by foreign enterprises are not WFOE.
Different types of WFOE
There are many businesses for WFOEs. The following are frequently chosen by our clients:
- If the WFOE manufacture here, we call it a it’s Manufacturing WFOE.
- If the WFOE is allowed to do Consultancy or Service, we call it Consultancy (or Service)WFOE.
- If the WFOE is allowed to do trading, wholesale, retail or franchising in China, we call it a Trading WFOE or Foreign-Invested Commercial Enterprise (FICE). (You can check “FICE Registration” on the right menu for more information and details about the FICE)
Advantages of WFOE
The advantages of establishing a WFOE include, but are not limited to:
- Independence and freedom to implement the worldwide strategies of its parent company without having to consider the involvement of the Chinese partner;
- Ability to formally carry out business rather than just function as a representative office and being able to issue invoices to customers in RMB and receive revenues in RMB;
- Capability of converting RMB profits to US dollars for remittance to its parent company outside of China;
- Protection of intellectual know-how and technology;
- Full control of human resources
- Greater efficiency in operations, management and future development.
- Investor’s parent company does not have to be established for more than 2 years while for WFOE. (Representative Office’s parent company is required to have been established for more than 2 years)
One of the most important issues in WFOE application is business scope. Business scope needs to be defined and the WFOE can only conduct business within its approved business scope, which ultimately appears on the business license. Any amendments to the business scope require further application and approval. Inevitably, there is a negotiation with the approval authorities to approve as broad a business scope as is permitted. Generally business scope includes investment consulting, international economic consulting, trade information consulting, marketing and promotion consulting, corporate management consulting, technology consulting, manufacturing, etc. With China’s entry intoWTO, more and more business is open to WFOE especially in Trading, Wholesale and Retail business.
Registered and paid up capital
Registered Capital: USD$140,000 is a decent investment capital for many types of WFOE. (with USD$ 140,000 investment it’s easy to get approved). RMB 100,000 ~ RMB 500,000 (Approx. USD$15,000- 75,000) is the advisable as minimum investment capital to be approved for Consulting WFOE, ServiceWFOE, Hi-Tech WFOE registration in China. After the approval, initial paid-up capital should be injected within 3 months which could be 20% of the registered capital, the balance should be remitted within 2 years.
Registered capital is the amount that its required to run the business until it can break even – the ‘minimum registered capital’ is a guideline only. If you do looking for a minimum registered capital, for instance RMB 30,000 (which is impossible to run a WFOE in China) this means you will run out of money pretty soon, which leads to increased costs in reapplying for permission to increase capital, additional licensing fees and renewals of business licenses and so on. The WFOE needs funding via it’s registered capital until it’s able to support itself from its own cash flow.
However the amount of registered capital needed is also dependent upon factors like scope of business and location. In reality, local authorities will review the feasibility study report (and check the lease contract) approve the investment on a case-by-case basis; reduced registered capital can be negotiated in some cases.
The minimum registered capital guides for various industries according to our practice in China, for instance Beijing, Shanghai, Guangzhou, Shenzhen, Ningbo & Hangzhou are given below:
|Consulting WFOE*||RMB 100,000 ~ RMB 300,000 (Approx. USD$ 15,000- 50,000)|
|Service WFOE||RMB 100,000 ~ RMB 300,000 (Approx. USD$ 15,000- 50,000)|
|Hi-Tech WFOE||RMB 100,000 ~ RMB 300,000 (Approx. USD$ 15,000- 50,000)|
|Trading WFOE / FICE||RMB 300,000 ~ RMB 1 million (Approx. USD$ 75,000- 140,000)|
|Food & Beverage WFOE||RMB 500,000 ~ RMB 1 million (Approx. USD$ 75,000- 140,000)|
|Manufacturing WFOE||RMB 500,000+ (Approx. USD$ 75,000+)|
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