3 Key things to consider before setting up a WFOE in China

In this articles, we will outline some of the key factors that you will need to take into account, before committing to the WFOE strategy for your business.

As China is experiencing rapid development, Chinese authorities are also continually adopting new changes towards its policies and regulatory requirements. In recent years, many changes have been made towards the application process for setting up wholly foreign owned enterprises (WFOE) in China.

The relevant authorities in relation to the application to incorporate a WFOE in China are:

  • The Administration for Industry and Commerce (工商行政管理局)
  • The Ministry of Commerce (商务部)

1. Business place

If you intend to lease premises to conduct your operation, please be mindful that the application for incorporation requirements provide that the lease should be entered into before the application is lodged. In this case, it is usual to insert a condition precedent in the lease agreement that the lease will only take effect upon the WFOE being successfully incorporated.

2. WFOE’s name

An eligible enterprise/company name should include:

  • administrative region of incorporation
  • brand/trading name
  • industry/sector/business type
  • company type

As the region of incorporation is required to be included in the name, your business should carefully research and consider the region where you would like to conduct your business. Chinese culture and social norm can be varied across the country, Beijing, Shanghai and Shenzhen are considered to be the financial centres of the country, therefore depending on the services/products that you are offering, choosing the right place for incorporation could be important.

3. Initial investment – Registered Capital

It is unlikely that the Chinese authorities will process and grant approval for a WFOE as a $1 company. The registered capital should be sufficient to support the WFOE’s proposed business activities without the risk of insolvency for its operation in China for at least a period of one year. The satisfactorily “sufficient amount” will be subject to a number of factors such as the type of WFOE, the services/products it is proposed to sell.

WFOE is just one of the solution to conduct business in China, different types of corporate structure come with different advantages and limitations. We will provide a comparison of the potential options for structuring your investment/business in China in our next article. Please subscribe to our further updates.