WOFE stands for Wholly Owned Foreign Enterprise. As the name rightly indicates, WOFE is an organization set up in China, entirely owned by one or more foreign entities. WOFE, also known as WFOE, are among the most well-known corporate models for a foreign investor because of their flexibility and interesting points of interest.
A Wholly Foreign Owned Enterprise, otherwise called WFOE, is a corporate enterprise with its whole capital contributed by the foreign investor(s). A WFOE is a 100% autonomous, financial entity, bearing lawful obligation independently.
It is also worthy to note that any foreign enterprise in China that does not engage in direct business activities is not regarded as WFOE, with no exception to branches that carries out operational activities and representative offices.
A WFOE can only operate within its business scope as put forward in its business license. If it chooses to engage in a different exercise than the ones specified in its Scope of Business, it is imperative to gain approval from the local authorities.
Why Establishing a WFOE in China
The concept of WFOE was borne out of China’s will to encourage manufacturing activities that are either trade-oriented or presented cutting-edge technology. WFOE has mind-boggling potential in China as associations search for new markets; China is one of the world’s best investment destinations.
While building up a WFOE (WFOE) requires expansive overhead investment (in contrast with a representative office), it makes a free legal entity that can engage in;
- profit-oriented business
- address human resources independently
- expand to create subsidiaries
The span of WFOE is generally 30 years with opportunities for extension (albeit shorter or longer terms may be granted).
Investment to Establish a WOFE
The total investment is the amount of capital required to kick-start the business until it can break even and winds up independently from its investors. The total investment is made up of two components;
- the registered capital
- non-registered capital
Registered capital alludes to the measure of capital that would be sufficient to help a WFOE’s exercises for no less than one year after establishment. It is a fixed amount in the article of association of a WFOE, dependent on the type of intended business activity, scale of operation and location of the WOFE.
The non-registered capital is the amount of debt financing the WOFE is allowed to acquire. It is expedient to know that a company’s feasibility report will be reviewed by the local authorities if the investment is approved, then the registered capital may be reduced on negotiation.
Types of Wholly Foreign Owned Enterprise
The different kinds of a WFOE and their minimum registered capital guide are listed below:
- Consultancy WFOE – RMB 100,000 – RMB 500,000
- Manufacturing WFOE – RMB 1million
- Service WFOE – RMB 100,000 – RMB 500,000
- Hi-Tech WFOE – RMB 100,000 – RMB 500,000
- Food and Beverage WFOE – RMB500,000 – RMB 1million
- Trading WFOE/ FICE/ Retail – RMB500,000 – RMB 1million
Advantages of Wholly Owned Foreign Enterprise
- Autonomy and flexibility to execute the overall methodologies of its parent organization without considering the contribution of a Chinese partner.
- Capacity to do business as opposed to fundamentally work as representative office and being able to issue sales to clients in RMB and get wages in RMB.
- Profits made in RMB can be remitted to the parent company outside China, after converting to US Dollars.
- Protection of Intellectual property and technology.
- Complete autonomy over human resources.
- Greater efficiency in operations, management, and future development.
- Investment does not need to be built up for over 2 years, contrasted with a Representative Office’s parent organization that is required to have been set up for more than 2 years.
Disadvantages of Wholly Foreign Owned Enterprise
- Establishment is mind-boggling and tedious, with endorsements required by multiple authorities.
- Consolidation is costly, 15% of the investment is required within the first three months
- There are restrictions and prohibitions on certain industries, hence foreign investors are streamlined to only the encouraged industries.
WFOEs are required to designate no less than one individual (of any nationality and residency) as the manager of the WFOE (WOFE). The administrator’s essential part is to screen the undertakings of the WFOE and the executives of the WFOE and to report any inconsistencies to the governing body of the WFOE and to the investor(s.)
Consequently, an annual audit report is prepared by the WOFE, in addition to filling the annual taxes and submitted to the local Administration for Industry and Commerce (AIC).
Office Address of WOFE
During the establishment of a WFOE in China, the foreign investor must lease a plant (manufacturing WFOE) or an office in advance. The workplace of WFOE can’t be in a living arrangement building nor living arrangement and business (R&C) joined building.
A virtual address is not permitted to be enrolled as a WFOE in spite of the fact that it broadly exists for local companies. The registered address during establishment must match the specified operational location.
Choosing WFOE Company Name
The business name for a WOFE must be in the Chinese language, and the following are to be considered when choosing the name.
- The company name follows this rigid structure; the first word is the company name or product, the second word is the intended business activity or operation, the third word is the location of the establishment and the fourth word is the company structure (Co. or Ltd,)
- The company name must not be the same as some other company enlisted in your same sort of business.
- The State Administration of Industry and Commerce (SAIC) requires that the WOFE provide at least five proposed name during registration, the final name of the WOFE is decided only by the SAIC.
In Summary, compared to registering a business in most Western countries, registering a business in China is challenging work filled with paperwork.
WOFE finds it difficult and tasking to submit the application documents to local authorities, hence, making it practically impossible to complete registration procedure without a consulting company service.
WOFE only need to ensure that the company is capable, qualified, and has incredible affiliations; procedural knowledge and relationship with the local authorities, as this makes the application process easy and time-saving.
The WFOE registration process can be confusing and discouraging for foreign investors. However, thanks to the support of a local partner like NH Global Horizons the process will be smooth, time-saving, and cost-effective.
We will handle all the paperwork and bureaucracy requirements on your behalf. Thanks to our support your WOFE can be established within a short timeframe and your business will be quickly operative in China.
For more information about WFOE setting up in China, detailed requirements, and procedures, contact us today and we will provide the needed assistance.