Open a WFOE/WOFE in today’s China: Step-by-step
The structure of a WFOE/WOFE (Wholly foreign owned enterprise) is still a popular yet complicated business vehicle many foreign companies choose to enter the Chinese market. They prefer this legal form because it allows them to act independently and there is no need to collaborate with a Chinese partner. Although this structure is a common way to enter the Chinese market, it also has some special restrictions and you should be aware that it takes a lot of commitment and patience.
One of the most common ways to establish a WFOE is the creation of a Limited Liability Company (LLC). In general, WFOE’s can be set up as production, service or commercial corporations. However, companies can only work in the business area that is laid down in their business license. Furthermore, investments carried out exclusively with foreign assets are restricted with specific laws and additional restrictions.
The following steps can be considered as a compendium for setting up a WFOE in China.
Is your business activity approved?
You have to be certain that the Chinese government approves your industry’s activities. In order to get this information, the Catalogue for the Guidance of Industries for Foreign Investment is a trustworthy and extensive source of information.
Once the examination is done a Preliminary Report can be submitted to the local authorities.
Application for Pre-Registration
After the successful aptitude test of the investor, the company is required to submit an application for pre-registration at the Administration of Industry and Commerce (AIC). The company name must consist of Chinese characters and is required to include the legal form (commonly Ltd.). Usually this takes 3-6 months.
Submission of feasibility study
It is necessary to submit a feasibility study to the “State Development and Reform Commission” or a similar local authority. The document will state the capital authorities, the business area, the organizational structure and the assessment of your business strategy and project for development. Feedback from the authorities can be expected within 20 days.
Approval of statutes
Once the authorities approve the feasibility study, the statutes are to be submitted to the local authorities for validation. For large investments, the Ministry of Commerce decides on the authorization. The estimated duration is 90 days.
After receiving the authorization and in order to get your Business License, you are obligated to register the company at the AIC and Commerce within 30 days. Once the Business License issued, the company can legally hire employees and start business activities.
Once the WFOE is officially registered, further registration and administrative procedure will be needed: registration to the tax authorities, opening a bank account, etc…
As the enumeration shows, the procedure of setting up a WFOE is quite complicated in terms of laws and restrictions. It is advisable to get all required information and help before starting the process and to be aware that this structure is accompanied by a lot of administrative work.
If you want to know more about opening a WFOE, click here.