Offices in Beijing, Shenzhen, Amsterdam, Bucharest, Ottawa and Chicago.
Offices in Beijing, PRD, Amsterdam, Bucharest, Ottawa and Chicago.
Reading Time: 1 minute

WFOE: Necessary Evil or Vibrant Opportunity?

May 2, 2018

WFOE: Necessary Evil or Vibrant Opportunity?

May 2, 2018

WFOE, or Wholly Foreign Owned Enterprise, is the most used entity in China by foreigners. If large foreign companies do not collaborate with a local company, they have this structure for their business in China. However, is a WFOE interesting for SME entrepreneurs? Is it the only way to enter the Chinese market? Answering this question will require some of your time.

 

What is a WFOE?

A Wholly Foreign Owned Entity is one of the main company structures in China. Next to a representative office, it is the only structure in which a foreigner has full ownership and control. However, a WFOE is an actual company that can invoice locally for work done. A representative office can only employ people and represent the organization abroad. Therefore a WFOE is the sole structure in which a foreigner can employ staff, send invoices and run a business on their own.

 

Vibrant Opportunity?

The registration of a WFOE is an elaborate process. Depending on the structure a company has in their country of origin, the registration can take up to 9 months. It requires 15 stamps and over 40 signatures. Not being completely compliant with the provided rules and regulations could mean serious delay to the process. Something as simple as signing the documents with a blue ink pen can set the timeline back. For more information about the registration, have a look at our WFOE registration White Paper:

 

Besides being complicated, registering a WFOE can also be costly. Many international law firms ask 100.000 RMB or more for the registration process. The fee at 1421 for a consulting WFOE without import/export license is 39.500 RMB. A WFOE also requires registered capital. Registered capital is the money you bring into the company to start up your business. The amount of this fee depends entirely up to your business plan, but it can be used to rent an office, pay your staff etc.

Furthermore registering a WFOE is a substantial responsibility. The legal representative could be held responsible for incompliant behaviour within the company. Therefore, it is important to make sure everything is arranged perfectly and adheres to local rules and regulations.

 

Necessary Evil?

The necessity of registering a Wholly Foreign Owned Entity depends entirely on your plan in China. Sometimes, it is the only viable structure for your business plan. In that case, the benefits of a WFOE truly make it a vibrant opportunity.

It is important to never register a WFOE without fully understanding the implications. However when you do, the structure can provide you with many benefits. You have full control over the business in China and you will have all the benefits connected to a local company. Furthermore it will gain you respect in the eyes of your potential clients and/or relations in China.

In the end, a WFOE is a great tool to use when you need it. Determining your needs and strategy is crucial to determining if you need a WFOE. 1421 always advises organizations and people, with an interest in setting up a structure in China, to figure out what they need first. Besides reading our white paper, a free consultation about your idea might help to figure out if a WFOE is a vibrant opportunity, a necessary evil or redundant all together!

What happened in the year 1421?

From 1421 to 1423, during the Ming Dynasty of China under Emperor Zhu Di (朱棣) the fleets of Admiral Zheng He (鄭和), commanded by the Chinese captains, discovered Australia, New Zealand, the Americas, Antarctica, the Northeast Passage; and circumnavigated Greenland.

Due to this endeavour we can conclude that “1421 is the year that the Chinese discover the world”.