The Wholly Foreign Owned Enterprise (WFOE or WOFE) is a Limited liability company wholly 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, after China’s entered 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. With that, any enterprise in China which is 100% owned by a foreign company or companies can be called as WFOE.

WFOE has great potential in China as companies seek new markets, executives say that by 2014 China will be the world’s

top investment destination.

The registered capital of a 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.

How to form a WFOE in China?

New Company Registrations

1. Determine if the proposed WFOE will conduct a business approved for foreign investment by the Chinese government. For example, until recently, China prohibited private entities from engaging in export trade. All export trade was handled through certain large, state owned trading companies.

2. Determine if the foreign investor is an approved investor. Basically, any legally formed foreign business entity is authorized to invest in a WFOE in China. China especially welcomes investment that promotes the export of Chinese manufactured products. The investor must provide the official documentation from its home country.

To meet these requirements, the following documents are normally needed from the investing business entity, with a Chinese translation

a. Copy of Articles of Incorporation or equivalent

b. Copy of Business license, both national and local (if any)
c. Certificate of Status (U.S. and Canada) or a notarized copy of the Corporate Register for the investor or similar document (Civil Law jurisdictions)
d. Bank Letter attesting to sound banking relationship and account status of the company.
e. Description of the investor’s business activities, together with added materials such as an annual report, brochures, website, etc.

Many investors created special purpose companies to serve as the investor in China. The Chinese regulators have become accustomed to this process. However, the Chinese regulators will still seek to trace the ownership of the foreign investor back to a viable, operating business enterprise.

3. Chinese government approval for the project. In China, approval of the project by the relevant government authority is an integral part of the incorporation process.

The following documents must be prepared in Chinese for incorporation/project approval:

a. Articles of Association. This document will set out all of the details of management and capitalization of the company: directors, local management, local address, special rules on scope of authority of local managers, company address, and registered capital.

b. Feasibility Study: basic first year business plan and budget.
c. Leases: An agreement for all required leases must be provided. This includes office space lease and warehouse/factory space lease.
d. Proposed personnel salary and benefit budget.
e. Any other documentation required for the specific business proposed.

4. It usually takes two to five months for governmental approval, depending on the location of the project and its size and scope. Large cities like Shanghai tend to be slower than smaller cities. The investor must pay various incorporation fees (about 1% of the initial capital)

On large and/or complex projects, the approval process often involves extensive negotiations with various regulatory authorities whose approval is required. For example, a large factory may have serious land use or environmental issues.

How much does it cost?
Find here an approximate of the costs (in Chinese Yuan) required to open a WFOE.

* Applicable only for Service and Consulting companies. For WFOE with Imp.&Exp. License, there is an extra of 4,000Yuan for the Setup Fees, and we suggest 500,000Yuan as capital for it to be quickly approved by government.
In the case you want to setup a Consulting/Service WFOE first and later on you require the Imp.& Exp. license, the fees to do that change are 5,000Yuan.

How long do the Official Formalities take ?

1. Name checking: 5 working days
2. Certificate of Approval by Shanghai Foreign Economic Relation & Trade: 20 working days
3. Business License: 10 working days
4. Preparation of stamp: 1 working day
5. Certificate of Organizational Code: 2 working days
6. Certificate of Foreign Exchange Registration: 2 working days
7. Statistics Registration: 1 working day
8. Tax Registration: 15 working days
9. Opening of bank account (Foreign Exchange & Yuan, tax account): 7 working days

Totally, around 2 months will be necessary. The above time is for reference, subject to the time of examination and approval of government authorities. And the service fee charged by the agency and the other fee and cost charged by government will be around 13000 Yuan.

Extract from：

http://www.chinalawblog.com/2009/12/how_to_start_a_business_in_chi.html

http://missgoodygoody.hubpages.com/hub/How-to-Set-Up-an-Foreign-CompanyWFOE-in-China

http://sbeintl.com/index.php?option=com_content&view=article&id=63&Itemid=76&lang=en

– See more at: http://www.sbeintl.com/

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