Wholly Foreign Owned Enterprise ("WFOE")

INTRODUCTION TO WFOE

The Wholly Foreign Owned Enterprise (WFOE) is a Limited liability companywholly 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 registeredcapital of a Wholly Foreign Owned Enterprise (WFOE) should be subscribed and contributed solely by 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 businessactivities. Therefore, branches and representative offices set up by foreign enterprises are not WFOE.

DIFFERENT TYPES OF WFOE

Following are different types of WFOE. Commonly,
(1)if the WFOE only be allowed to manufacture here. we can say it's manufacture WFOE.
(2)If the WFOE is allowed to do Consultancy & Service, we call them Consultancy Service WFOE.
(3)If the WFOE is allowed to do Trading, Wholesale, Retail or Franchise in China, we call them Trading WFOE or FICE (Foreign-Invested Commercial Enterprise), you can check "FICE Registration" on the right menu for more information and details about FICE.

ADVANTAGES OF WFOE

The advantages of establishing a WFOE, compared with other types of enterprises, include, but not limited to:
(1)Independence and freedom to implement the worldwide strategies of its parent companywithout having to consider the involvement of the Chinese partner;
(2)Ability to formally carry out businessrather than just function as a representative officeand being able to issue invoices to their customers in RMB and receive revenues in RMB;
(3)Capability of converting RMB profits to US dollars for remittance to its parent companyoutside of China;
(4)Protection of intellectual know-how and technology;
(5)No requirement for Import / Export license for its own products;
(6)Full control of human resources
(7)Greater efficiency in operations, management and future development.


BUSINESS SCOPE

one of the most important issues in WFOE application is businessscope. Business scope needs to be defined and the WFOE can only conduct businesswithin its approved businessscope, which ultimately appears on the businesslicense. Any amendments to the businessscope require further application and approval. Inevitably, there is a negotiation with the approval authorities to approve as broad a businessscope 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 into WTO, more and more business is open to WFOE especially in Trading, Wholesale and Retail business.

REGISTERED AND PAID UP CAPITAL

Investment Capital: USD$250,000 is a good idea for all kind of WFOE, it's easy to get approved.

GENERAL TAX INFORMATION

The corporate tax rates range from15% to 31%, depending on the places where the companyis registered. All enterprises are requiredto report to the Tax Administration Department monthly. You are welcome to contact us for more information.

ANNUAL RETURN

Any limited companies in Guangzhou should summit annual return to the relevant authorities. Any company will be subject be to a fine if the Annual Return is not submitted in a timely manner.

TERMS AND TERMINATION

In China, terms of 15 to 30 years are typical for a manufacturing WFOE (although some may have a longer term). It is also possible to obtain extensions of the WFOE's duration. For projects in which the amount of investment is large, or the construction period is long and the return on investment low, projects producing sophisticated products using advanced or key technology provided by the foreign partner, or for projects producing internationally competitive products, the term of WFOE may be extended to 50 years. With special approval from the State Council, the term may be even longer than 50 years.

The WFOE may be terminated under certain conditions. For example, the inability of the WFOE to operate due to heavy losses or in the occurrence of an event of force majored, etc.