Want to enter China? Think about using a “WFOE” – Register a WFOE in China –

By Richard Hoffmann, ECOVIS Beijing

A wholly foreign-owned enterprise (WFOE, commonly known as WOFE) is a limited liability company, that you can register in China, meaning that the liability of the shareholders is limited to the assets they brought into the business as registered capital. It is an attractive option to enter the Chinese market and the most common one among the existing options.

Registering a WFOE in China First Steps

Your Business Scope must be flexible enough when register a WFOE in China

The first stage in setting up any WFOE is to determine its scope of business. It is essential that it encompasses every envisaged scope of future activity since WFOEs may only legally conduct business within the approved business scope that appears on the business license. Therefore Investors should carefully plan their long and short term business and seek legal advice before submitting the establishment application. A Consulting WFOE, for instance, is only allowed to offer consulting services and is therefore not allowed to manufacture goods. Any contravention will be fined or, in the worst case, result in a shutdown of the company by the authorities. Moreover, any amendment or change to the business scope must be approved by the authorities, the process of which can be time- consuming and costly. Before you register a WFOE in China it’s suggested to carefully think of possible business activities in the future although they are currently not performed

Check if your industry is restricted

There are opportunities and restrictions for foreign investors in different industries in China. All business areas carried out by foreign invested projects must fall into one of the following four categories according to the periodically revised FIC (Foreign Investment Catalogue), as compiled by the National Development and Reform Commission (NDRC) and the Ministry of Commerce (MOFCOM):

• Encouraged
• Restricted
• Prohibited
• Permitted – any industry which is not listed in the above three categories

Areas where WFOEs are particularly encouraged are specifically the industries that are encouraged in the 12^th Five Year Plan.

Restricted industries include financial services, mining and media. Foreign investors can, for instance, only invest in up to two commercial banks in China and they cannot be more than 25% foreign owned. Such policies are designed to restrict foreign investment that will impair China’s sustainable development. Tighter restrictions can be placed on foreign investors on the approvals process and on the amount and nature of a company’s capital contributions. In order to access these industries, multinationals may be required to enter into a joint venture with a Chinese enterprise or other partnership with local shareholders. In the automotive industry, for instance, foreign car manufactures normally have to get into joint ventures with a Chinese partner.

Sectors that are prohibited from foreign investment are quite specific. They include cultural, sports and entertainment industries, certain types of scientific research, and education.

Industries that are not listed in these three categories are considered permitted. These industries are open to foreign investment.

Choose the correct type of WFOE

The WFOE was originally introduced with the aim of attracting foreign investors in manufacturing and advanced technology. Later China’s accession to the World Trade Organization (WTO) in 2001 made it necessary to open up the WFOEs to many other industries. As WFOEs in different sectors are sometimes subject to different requirements, it has become common practice to sub-classify them into the following three key categories:

• Manufacturing WFOE: manufacturing sector
• Trading WFOE or FICE: trading, wholesale, retail or franchise sector
• Consulting WFOE: consulting and service sector

The simplest WFOE and the fastest to open is the Consulting WFOE. It is not allowed to sell anything besides services. Compared to a Trading or Manufacturing WFOE no special certificates are necessary e.g. Import / Export License or environment safety certificates. This implicates a shorter registration process because less documentation is needed.

	Richard Hoffmann is a Partner at ECOVIS Beijing China. Richard obtained an honor’s degree in law and worked in Germany, America and China for various prestigious law firms prior to joining ECOVIS. He has published more than fifty articles in international magazines, frequently speaks at high profile events in China and abroad and is often invited as a legal expert by international TV. Contact: richard.hoffmann@ecovis.com
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