TL;DR: A WFOE (Wholly Foreign-Owned Enterprise) is a limited liability company in China owned entirely by foreign investors. WFOEs offer advantages like profit repatriation and operational flexibility, however the process of setting one up involves navigating regulatory and logistical requirements. WFOEs can host websites in China, but this may not fully resolve China-specific performance issues that a lot of websites face. Chinafy helps optimize website performance in China, even for companies hosting offshore.
Disclaimer: This guide is informational and does not constitute legal advice. Chinafy is not a legal or corporate advisory entity, and, given that every business is different, we suggest consulting with your internal legal counsel if you would like advice on any legal or compliance-related concerns, or alternatively we can connect you with one of our partners.
A WFOE, or Wholly Foreign-Owned Enterprise, is a limited liability company in China that is 100% owned by foreign investors.
This structure allows foreign businesses to have full control over their operations in China, without needing a Chinese partner. For companies expanding into China, a WFOE is often the preferred business structure due to its operational autonomy and flexibility, which allows foreign firms to independently manage day-to-day operations, finances, and strategic decisions.
Unlike joint ventures, where decision-making is shared with a Chinese partner, a WFOE provides full authority to the parent company, making it an attractive option for global companies looking to expand into China.
China is the second-largest economy globally, and establishing a WFOE is one of the most effective ways for foreign companies to access this lucrative market.
A WFOE offers several significant advantages, including:
Complete ownership and control: Foreign investors can retain 100% ownership, which allows for greater control over operations, decision-making, and strategy.
Profit repatriation: WFOEs can remit profits back to the parent company abroad after paying relevant taxes.
Operational flexibility: Unlike joint ventures or representative offices, WFOEs can engage in a wide range of business activities, including manufacturing, consulting, retail, and more.
However, despite the benefits, setting up a WFOE in China comes with challenges, including navigating the country's regulatory environment and selecting the correct WFOE structure that aligns with your business goals.
Before setting up a WFOE, it's important to understand the various types of WFOEs available. The type you choose dictates the business activities you can legally perform.
Here are the 3 types of WFOE that can be established (plus a hybrid model):
1. Consulting WFOE
A Consulting WFOE is designed for service-based businesses, such as legal, financial, or management consulting firms. It typically involves fewer regulatory hurdles and is easier to set up than other types, making it ideal for businesses providing services rather than manufacturing or trade.
2. Trading WFOE (FICE)
A Trading WFOE, also called a Foreign-Invested Commercial Enterprise (FICE), allows businesses to import, export, and engage in wholesale or retail trade. This is an option for companies looking to distribute products within China or across borders.
3. Manufacturing WFOE
A Manufacturing WFOE enables companies to set up production facilities in China. These WFOEs handle the entire supply chain, from raw material sourcing to manufacturing and exporting finished goods. Manufacturing WFOEs must comply with more regulations, including environmental and safety standards.
4. Hybrid WFOE
For businesses engaged in multiple activities—such as a combination of manufacturing, trade, and services—a Hybrid WFOE is the best fit. However, the business must secure approval for each activity and comply with specific regulations.
Setting up a WFOE in China is a multi-step process that involves navigating Chinese regulations and ensuring compliance with various government authorities.
Chinafy is partnered with agencies like FDI China who help foreign companies enter and develop their business operations in China, so if you’re looking for a smoother way to set up your WFOE, get in touch.
Here is a detailed breakdown of the steps involved during the WFOE setup process:
1. Choose a business scope, name and location
The first step is to define your business scope, which specifies the types of activities your WFOE will engage in. This scope must align with China’s Catalogue of Industries for Guiding Foreign Investment, which categorizes industries as encouraged, restricted, or prohibited.
You also have to consider differences in culture and language when it comes to choosing a business name. This decision could greatly affect market perception and reach.
Once your business scope and name are defined, you will need to select a location, as a WFOE needs proof of a physical office or facility in China. Popular cities for WFOEs include Shanghai, Beijing, and Shenzhen, but choosing the right location depends on your business needs, such as proximity to customers, access to talent, and logistical considerations.
2. Prepare the required documents
To apply for a WFOE, you’ll need to gather several documents, including:
Articles of Association: A document that outlines the business structure, management, and operations of the WFOE.
Lease agreement: Proof that the business has a physical office or facility in China.
Feasibility study: A report that demonstrates the financial and operational feasibility of the WFOE.
Certificate of incorporation: From the parent company, translated into Chinese.
You’ll need to ensure that all documents are properly translated into Chinese and notarized by the relevant authorities.
3. Submit the application to MOFCOM
Once the documents are ready, they need to be submitted to the Ministry of Commerce (MOFCOM) or local commerce authorities. MOFCOM will review the application and approve the business scope, business name, and legal structure.
4. Obtain a business license
After MOFCOM approval, the next step is to obtain a business license from the State Administration for Market Regulation (SAMR). The business license legally allows the WFOE to operate in China.
5. Open a corporate bank account
After receiving your business license, you will need to open a corporate bank account in China for daily operations. You’ll also need a capital contribution account, where the registered capital from the parent company will be deposited.
6. Register for taxes
Register with the State Taxation Administration (STA) for applicable taxes, including Value-Added Tax (VAT) and Corporate Income Tax (CIT). Consult with a tax advisor to ensure compliance with China’s complex tax laws.
7. Obtain additional permits (if required)
Depending on your business activities, you may need to apply for additional permits or licenses. For example, businesses involved in food production, healthcare, or environmental activities may need sector-specific permits.
8. Hire employees and set up payroll
To hire employees, you must comply with Chinese labor laws, which mandate social insurance and housing funds. Establishing a compliant payroll system ensures accurate tax withholdings and benefits.
Yes, WFOEs can legally host websites in China, which may help deliver content more efficiently to end users in the country when combined with relevant website optimizations.
However, hosting a website in China comes with certain regulatory requirements that businesses must follow:
Obtain an ICP (Internet Content Provider) license: An ICP license is required for any business entity looking to host a website on servers located in China. This license must be obtained from the Chinese Ministry of Industry and Information Technology (MIIT).
Public Security Bureau (PSB) filing: In addition to the ICP license, businesses hosting websites in China must file their site with the PSB to ensure compliance with local regulations and internet security laws.
Use a China hosting provider: your website must be hosted with a China-approved hosting provider, such as Alibaba Cloud or Tencent Cloud.
Hosting your website locally can improve performance within China, reducing latency and page load times. However, even with China-friendly infrastructure and compliance in place, your website could still face performance issues due to code-based factors.
Most global websites face performance issues in China due to incompatibilities with infrastructure (such as the server or content delivery network you’re using) and code (such as third-party resources that are slow or blocked in China).
If you want your company’s website to deliver a seamless user experience both globally and for China, there’s a way to achieve onshore-like web performance while hosting offshore.
Chinafy can optimize almost any website for China without requiring an onshore hosting, which may be an attractive option if your WFOE also serves other areas of the world and you don’t want to manage two separate websites.
Here’s how it works:
Site generation: Chinafy generates a version of your site which will be used for China visitors – your existing site remains untouched.
Website scan: Chinafy scans your website to identify blocked or slow-loading third-party services (e.g., Google APIs, social media plug-ins and hundreds of lesser known resources).
Resource optimization: It then uses rule-based recommendations to treat the majority of slow or blocked resources, either replacing them with China-friendly equivalents or removing them if there isn’t an equal replacement.
Infrastructure optimization: Chinafy automatically adds near-China content delivery networks (CDNs), as well as load balancers for traffic fluctuations and domain compression to further accelerate loading times.
Content synchronization: Chinafy version of your site gets synchronized with your original site.
Geo-IP-base routing: geo-routing is implemented on the DNS or CDN level of your site so that users in China get sent to the Chinafy version of your site while everyone else will be sent to your original site.
Chinafy bolts onto your existing website infrastructure, allowing you to keep your global website while offering fast and full access to users in China.
Setting up a Wholly Foreign-Owned Enterprise (WFOE) in China allows foreign businesses to enter and operate in China with full control over their operations, management, and profits. However, navigating China’s regulatory environment and ensuring compliance requires careful planning and attention to detail.
Chinafy offers a bolt-on solution to make your website run fast and fully for users from China without changing your existing global site, whether it be hosted onshore or offshore.
Ready to set up your WFOE in China? Contact us to learn more about how we can assist you with the process.