Setting Up a WFOE in China: A Step-by-Step Guide

A Wholly Foreign-Owned Enterprise (WFOE) is the most common structure for foreign companies establishing operations in China. This guide walks you through everything you need to know about setting one up.

What is a WFOE?

A WFOE (外商独资企业) is a limited liability company in China that is 100% owned by foreign investors. Unlike joint ventures, you don't need a Chinese partner. WFOEs can:

• Conduct business activities within their approved scope
• Issue invoices (fapiao) to Chinese customers
• Hire employees directly
• Open RMB and foreign currency bank accounts
• Repatriate profits to the parent company

Types of WFOEs

WFOEs are categorized by their business activities:

• Trading WFOE: Import/export and domestic trading
• Service/Consulting WFOE: Professional services, consulting, IT services
• Manufacturing WFOE: Production and manufacturing

The type affects your registered capital requirements and approval process.

Requirements

1. Foreign Investor

The investor can be:

• A foreign company (most common)
• A foreign individual (allowed in most industries)

You'll need to provide documents proving the investor's legal existence and good standing.

2. Registered Capital

China no longer has minimum registered capital requirements for most industries. However, you should register enough capital to:

• Cover initial operating expenses
• Meet any industry-specific requirements
• Demonstrate credibility to partners and customers

3. Registered Address

You need a physical address in China. This can be:

• Leased office space
• Serviced office/co-working space (in some cities)
• Virtual office (limited acceptance)

Requirements vary by city and district.

4. Business Scope

You must define what activities your WFOE will conduct. This is important because:

• You can only operate within your approved scope
• Some activities require special licenses
• Changing scope later requires amendments

The Setup Process

Step 1: Name Pre-Approval (1-3 days)

Reserve your company name with the local Administration for Market Regulation (AMR). You'll need several backup names.

Step 2: Document Preparation (1-2 weeks)

Prepare and notarize/legalize required documents:

• Investor's certificate of incorporation
• Bank reference letter
• Legal representative's passport
• Articles of association
• Lease agreement for registered address

Step 3: Business License Application (5-10 days)

Submit application to AMR. Upon approval, you receive your business license with Unified Social Credit Code.

Step 4: Post-Registration Procedures (2-4 weeks)

• Company chop (seal) carving
• Bank account opening
• Tax registration
• Foreign exchange registration
• Social insurance registration

Timeline and Costs

Total timeline: Typically 4-8 weeks from start to operational

Costs include:

• Government fees (relatively low)
• Notarization and legalization fees
• Professional service fees (lawyer/agent)
• Office rental deposit
• Initial capital contribution

Common Mistakes to Avoid

1. Wrong business scope: Too narrow limits your activities; too broad may trigger scrutiny
2. Insufficient capital: Under-capitalizing can cause operational problems
3. Poor location choice: Some zones offer incentives; others have restrictions
4. Ignoring compliance: Annual reporting, tax filing, and other ongoing requirements
5. DIY approach: Mistakes in setup can be costly to fix later

Restricted and Prohibited Industries

Not all industries are open to foreign investment. Check the "Negative List" for:

• Prohibited industries: Foreign investment not allowed
• Restricted industries: Special requirements or Chinese partner needed

Most service and manufacturing industries are now open to 100% foreign ownership.

Conclusion

Setting up a WFOE is the gateway to doing business in China. While the process has become more streamlined, getting it right from the start saves time and money. Professional guidance helps ensure your China entity is properly structured for your business objectives.