The 3 Types Of WFOE You Have To Know

This article aims to provide first hand know-how for SME with the ultimate goal to establish a Wholly Foreign-Owned Enterprise (WFOE) in the People’s Republic of China. Here it is worthwhile to mention that the Chinese government distinguishes between three different models of WFOE: Consulting WFOE, Manufacturing WFOE and Trading WFOE.

THE WFOE IN CHINA

The most common investment vehicle for foreigners to enter the Chinese market is the Wholly Foreign-Owned Enterprise (WFOE). The WFOE is a limited liability company in accordance with Chinese laws. Moreover, it is wholly owned by one or more foreign investors and is capitalised with foreign funds. The Chinese government distinguishes between three different models of WFOE: Consulting WFOE, Manufacturing WFOE and Trading WFOE (FICE). While all three structures share the same legal identity, they differ significantly in setup procedures and costs.

Additionally, the Chinese government particularly encourages WFOEs when the industries it operates in are encouraged in the Five Year Guideline. The Five Year Guidline is a general plan at the national level highlighting a series of social and economic development initiatives.

If you consider carrying out foreign investments entailing the industry of financial services, mining, media, real estate, scientific research or education you should take into account that the government might put restrictions on certain secotrs of these industries. Nevertheless, once having encountered a trusted local partner foreign investments can be carried out in form of a Joint Venture.

WFOE

THE MANUFACTURING WFOE

Manufacturing WFOEs take about 8+ months to be fully operational. This is mainly because of a variety of certificates demanded by the Chinese government. These certificates include among others the Environment Safety Certificates, Energy Impact Assessment Approval and Fire Protection Approval.

In 2014, the minimum registered capital has been abolished. The registered capital is a contribution in form of money, intellectual property, landuse rights or assets.

THE TRADING WFOE

Trading WFOEs are also known as Foreign Invested Commercial Enterprises (FICE). These terminologies can be used interchangeably. A Trading WFOE is allowed to importprodcuts into China and allowed to export Chinese products from China into the USA, Europe etc. Furthermore, a Trading WFOE is allowed to trade its products within China in means of shops, vending machines or postage.

A comprehensive table of the Trading WFOE Pre-license and Post-license application procedures can be found below:

WFOE

THE CONSULTING WFOE

Unlike the Manufacturing and Trading WFOE, the Consulting WFOE does not require special certificates. This implicates a much shorter registration process (2-4 months), as less documentation is needed. Nevertheless, one should take into account that its not allowed to sell anything besides services when setting up a Consulting WFOE.

If you have further questions regarding WFOE setups in China, please do not hesitate to give our experienced team a call +86 10-65616609 (ext.811/806) or contact us viabeijing@ecovis.com

 

Richard Hoffmann

Richard Hoffmann is a partner at ECOVIS Beijing China. Richard obtained an honors degree in law and worked in Germany, the United States, and China for various prestigious law firms prior to joining ECOVIS. In addition to being a member of the board of ECOVIS International, he is Supervisor for the China business of a respected German company and shares his extensive knowledge to students by teaching commercial law in China at SRH Hochschule Heidelberg. 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 stations. Contact: richard.hoffmann@ecovis-beijing.com

Ecovis Beijing

Ecovis Beijing is the trusted tax and legal advisor to several embassies and official institutions in China. It specializes in mid-sized international companies and is focused on tax & legal advisory, accounting and auditing. If you’re interested in finding out more about tax and legal, don’t hesitate to sign up for our Newsletter, give us a call +86 10-65616609 or contact us directly via service@ecovis-beijing.com.