What’s a WFOE in China and Does a Foreigner need it do business?
A Wholly Foreign-Owned Enterprise or WFOE (also called Wholly-Owned Foreign Company or WOFE) is a mainland China-based limited liability company capitalized solely by foreign investors. The Investors can be both foreign companies (such as a Hong Kong company) and foreign nationals. A WFOE is the only wholly foreign owned entity that is registered as alegal entity under Chinese law and it’s responsible for its profits and losses.
So once I have a WFOE in China, what powers does that give me?
Since WFOEs posses the status of legal entity in China, they can:
*Independently carry out their investors global strategy
*Receive revenue in RMB, and issue RMB official invoices (fapiaos) to customers
*Convert the net income from RMB to other currencies and transfer it to their overseas investors
*Directly hire Chinese labor
*Acquire land use rights (in order to build establishments) in the form of land use right certificates
Also it’s important to keep in mind that:
*There is a minimum capital contribution required, known as minimum registered capital, which varies according to the industry and the business scope of the WFOE; the term of operation varies according to the nature of the enterprise, any extension is subject to the approval of the relevant government authority; the establishment of high-tech WFOEs is encouraged by law and WFOEs can protect their intellectual property and technology know-how.
Does the Chinese Government have any ownership of my WFOE in China?
WFOEs have the advantage of being completely owned by foreign investors; this grant full protection of the intellectual capital and know-how.
What are the risks in doing a joint venture with an already established Chinese business?
Let’s say that you decided that it is easier just to join forces with an already established Chinese / local partner that has a Chinese company. This can pose some significant intellectual property risks because Chinese copyright and intellectual property laws are not as stringent as those in most developed countries. In short, your local partner could continue to use your intellectual property regardless what you wrote in your partnership agreement and you would have little legal recourse.