Wholly Foreign-Owned Enterprise

A Wholly Foreign-Owned Enterprise (WFOE), also known as Wholly Owned Foreign Enterprise, is a limited liability company established within the territory of China through foreign investment only. WFOEs are becoming increasingly more popular, mainly because of the fact that there is no involvement of any Chinese investor thus giving the foreign company complete control over the newly established business.

Even though this complete control might sound rather tempting to foreign investors, one should take into consideration that the lack of a Chinese partner often puts a serious strain on the development of good personal relationships, something of which the importance in China should not be underestimated. The duration of a WFOE is usually between 15 and 30 years, with possibilities of extension to 50 years or longer (Only for certain types of projects and with special approval from the State Council).

The registered capital requirement for the establishment of a WFOE varies depending on the type of industry and the area where the company will be located. The minimum amount, however, is RMB 1.000.000, roughly US$ 100.000. Another important aspect of a WFOE is its business scope.

A WFOE can only operate within the business scope as set forth in its business license. If it decides to pursue other activities than the ones mentioned in its scope of business, it will first have to gain approval from the relevant authorities. While it used to be the case that certain criteria had to be fulfilled by a company before it would be allowed to establish a WFOE, like for example being conducive to the development of the Chinese national economy or having most of its products focused on the export market, this no longer holds true. This is due to China's entry into the WTO, which forced it to abolish these requirements.

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