The wholly foreign-owned enterprise has become the investment vehicle of choice for the international investor wanting to manufacture, service or trade in China. In addition to the WFOE’s expansive business scope, its unrivaled popularity arises from multiple other factors:
- 100 percent foreign ownership and control
- Security of technology and intellectual property rights
- Self-developed internal structure
- Insertion of existing company culture
- Profit repatriation
- Domestic sales
Your organization has decided to invest in China. Deciding which entity to establish based on your short and long-term plans is the next step.
You need to ensure your business scope is accurate and genuine. The requisite administrative government offices will quickly pass your proposed business scope, but that does not mean you are finished. Your proposal will then make its way to the state and local tax bureaus, and they will also thoroughly check your application. Any attempts to fool the tax bureau into thinking you are producing one thing when you are actually producing another will inevitably fail.
WFOEs can only operate within the business scope approved by the authorities. The scope of business article within your articles of association will define exactly what your company is going to do. If you are going to be selling your product domestically, be sure to mention China’s required compliance with the WTO treaty. This will allow easier access to the domestic marketplace. Also, your business focus must be clearly indicated or problems with the tax bureau and customs will arise when seeking due tax refunds. This does not mean your WFOE must be one-dimensional, but that you must be honest and prescient when planning your operation. Beyond being a complicated approval process, it is also a lengthy one due to the requisite translations and multiple bureaucratic departments.
For help establishing WFOEs, or other investment vehicles in China, please contact Dezan Shira & Associates, www.dezshira.com. Dezan Shira & Associates have been doing business in China for over 20 years, helping companies set up and thrive.
This article was written for China-Briefing.com, a China business news source written by Dezan Shira & Associates. The firm also contributes to the India business news website India-Briefing.com and the Vietnam business news website, Vietnam-Briefing.com.