WFOE – China’s new step in the free markets
What is WFOE (sometimes known as WOFE)? WFOE stands for Wholly Foreign Owned Enterprise and is the best type of Limited Liability Company for foreigners who want to do business in the Chinese mainland. WFOE is a fast-growing market that allows foreigners (individuals or legal entities) to have 100% shareholding of a Chinese Company and the process of the business registration does not differ from that followed by local citizens.
There are no restrictions on the nationality of the shareholders or those who hold the key positions in the corporate structure of a WFOE. Therefore, the legal representative (known as Executive Director) and supervisor (known as Senior Secretary), can be foreigners.
WFOE was originally intended for manufacturing and export-oriented companies but nowadays they are increasingly used for other sectors such as consulting and trading including areas related to software development, service providers and the financial services. WFOE provides a significant opportunity with many advantages for foreign-invested commercial enterprises in China, however the complex landscape of business ownership in China requires strict compliance through licensing.
Having a WFOE gives several advantages such as the independence and freedom to implement the strategies of its parent company without considering the involvement of a Chinese partner, and the ability to conduct business formally and issue invoices and receive payments in RMB rather just function as a representative office. A WFOE enjoys the protection of its trademarks and patents, a more efficient operation and management and can convert its profits from RMB to US Dollars and remit its parent company outside China.
WFOE and Financial Services
The China Securities Regulatory Commission (CSRC) announced in March 2020 that, following its commitment for further opening up of China’s capital markets, they will no longer impose a restriction on the foreign shareholding ratio of securities companies and fund management companies, starting from 1 April 2020. It is therefore possible for qualified foreign investors to apply for the establishment of Wholly Owned Securities Companies or change the actual controllers in their existing joint ventures according to Chinese Laws.
It is now possible to setup a WFOE, which after obtaining the necessary license to be compliant with the local legislation, will operate in the Chinese mainland either as a Securities Company or a Fund Management Company. As it is mentioned in the CSRC’s announcement “CSRC welcomes and will review applications from foreign investors in a law and rule-based and efficient manner”.
The FAI team of experts can assist WFOE companies interested in obtaining a securities license, taking advantage of the new market condition in the Chinese mainland.
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Written by Constantinos Constantinides, Director of FAI Comply