A Wholly Foreign-Owned Enterprise (WFOE) is a common investment vehicle for mainland China-based business wherein foreign parties (individuals or corporate entities) can incorporate a foreign-owned limited liability company. The unique feature of a WFOE is that involvement of a mainland Chinese investor is not required, unlike most other investment vehicles.
WFOEs are limited-liability corporations organized by foreign nationals and capitalized with foreign funds. This can give greater control over the business venture in mainland China and avoid a multitude of problematic issues which can potentially result from dealing with a domestic joint venture partner.
WFOEs are among the most popular corporate models for non-PRC investors due to their versatility and structural advantages of a Representative Office or Joint Venture. Such advantages include:
- A new, independent legal personality
- Total management control within the limitations of the laws of the PRC
- The ability to both receive and remit RMB to the investor company overseas
- Increased protection of trademarks, patents and other intellectual property
- Shareholder liability is limited
- Easier to terminate than an Equity Joint Venture
- Easier establishment than a Joint Venture
The registered capital of a Wholly Foreign Owned Enterprise (WFOE) should be subscribed and contributed solely by the foreign investor(s). A WFOE does not include branches established in China by foreign enterprises and other foreign economic organizations. The Chinese Laws on WFOE do not have a clear definition of the term of "branches". The term of "branches" should include both the branch companies engaged in operational activities and representative offices, which are generally not engaged in direct business activities. Therefore, branches and representative offices set up by foreign enterprises are not WFOE.
For more information, please contact NOVA for further assistance.