How to Set Up a WOFE in China in 2023: A Complete Guide

If you are plan­ning to expand your busi­ness into Chi­na, you may have heard of the term WOFE, which stands for Whol­ly Owned For­eign Enter­prise. A WOFE is a type of lim­it­ed lia­bil­i­ty com­pa­ny that is ful­ly owned by for­eign investors and allows them to oper­ate inde­pen­dent­ly in Chi­na. It is one of the most com­mon ways for for­eign com­pa­nies to enter the Chi­nese mar­ket and enjoy full con­trol over their oper­a­tions, man­age­ment, and profits.

How­ev­er, set­ting up a WOFE in Chi­na is not a sim­ple or straight­for­ward process. It involves a lot of legal pro­ce­dures, doc­u­men­ta­tion, and approvals from var­i­ous author­i­ties. It also requires a thor­ough under­stand­ing of the Chi­nese laws, reg­u­la­tions, and poli­cies that gov­ern for­eign invest­ment and busi­ness activ­i­ties. In this arti­cle, we will explain the process of set­ting up a WOFE in Chi­na in 2023, includ­ing the time and steps involved, the advan­tages and dis­ad­van­tages, and the alter­na­tives to consider.

What are the types of WOFE?

There are three main types of WOFE in Chi­na, depend­ing on the nature and scope of your busi­ness activ­i­ties. They are:

• Con­sult­ing WOFE: This type of WOFE is suit­able for pro­vid­ing con­sult­ing ser­vices, such as man­age­ment, mar­ket­ing, tech­nol­o­gy, or edu­ca­tion. It is the eas­i­est and fastest type of WOFE to set up, as it does not require any spe­cial licens­es or permits. 
• Trad­ing WOFE or For­eign-Invest­ed Com­mer­cial Enter­prise (FICE): This type of WOFE is suit­able for engag­ing in trad­ing activ­i­ties, such as import­ing, export­ing, whole­sal­ing, retail­ing, or fran­chis­ing. It allows you to buy and sell goods and ser­vices in Chi­na, as well as issue invoic­es and receive pay­ments in RMB. How­ev­er, it also requires more approvals and licens­es from dif­fer­ent author­i­ties, such as the Min­istry of Com­merce (MOF­COM), the Cus­toms, and the Tax Bureau.
• Man­u­fac­tur­ing WOFE: This type of WOFE is suit­able for set­ting up a man­u­fac­tur­ing facil­i­ty or a fac­to­ry in Chi­na. It allows you to pro­duce goods and prod­ucts in Chi­na, as well as enjoy pref­er­en­tial tax rates and incen­tives. How­ev­er, it also requires the most approvals and licens­es from var­i­ous author­i­ties, such as the MOF­COM, the Envi­ron­men­tal Pro­tec­tion Bureau, the Fire Depart­ment, and the Land Bureau. It also requires a larg­er amount of reg­is­tered cap­i­tal and investment.

How to set up a WOFE in China?

The process of set­ting up a WOFE in Chi­na can be divid­ed into two stages: pre-license stage and post-license stage. The pre-license stage involves apply­ing for the busi­ness license and oth­er nec­es­sary approvals from the rel­e­vant author­i­ties. The post-license stage involves com­plet­ing the reg­is­tra­tion for­mal­i­ties and obtain­ing oth­er required cer­tifi­cates and per­mits. The fol­low­ing are the main steps involved in each stage:

Pre-license stage

1. Select your Chi­nese busi­ness name: The first step is to choose an offi­cial Chi­nese name for your WOFE that fol­lows the fixed guide­lines and for­mat. The name should con­sist of four parts: admin­is­tra­tive divi­sion (e.g., Shang­hai), trade name (e.g., ABC), indus­try descrip­tion (e.g., Con­sult­ing), and com­pa­ny type (e.g., Co., Ltd.). The name should also be unique and not con­flict with any exist­ing reg­is­tered names.
2. Pre­pare your legal doc­u­ments: The next step is to pre­pare all the nec­es­sary legal doc­u­ments for your WOFE reg­is­tra­tion, includ­ing:
   • The Arti­cles of Asso­ci­a­tion (AOA), which is the main doc­u­ment that defines the struc­ture, rules, and reg­u­la­tions of your WOFE.
   • The Fea­si­bil­i­ty Study Report (FSR), which is a doc­u­ment that out­lines the pur­pose, scope, mar­ket analy­sis, finan­cial pro­jec­tions, and risk assess­ment of your WOFE.
   • The lease con­tract for your office space or fac­to­ry premis­es, which should be valid for at least one year.
   • The bank ref­er­ence let­ter from your home coun­try bank that proves your finan­cial credibility.
   • The pass­port copies and resume of the legal rep­re­sen­ta­tive, who is the per­son autho­rized to act on behalf of your WOFE.
   • The pass­port copies of the share­hold­ers or direc­tors of your WOFE.
3. Apply for your WOFE busi­ness license: The final step in the pre-license stage is to sub­mit the pre­pared doc­u­ments and apply for the busi­ness license to the local author­i­ties. These include the MOF­COM and the Admin­is­tra­tion for Indus­try and Com­merce (AIC). The busi­ness license is the main doc­u­ment that proves the exis­tence and legit­i­ma­cy of your WOFE. It also spec­i­fies the busi­ness scope, reg­is­tered cap­i­tal, and legal rep­re­sen­ta­tive of your WOFE.

Post-license stage

1. Obtain oth­er required cer­tifi­cates and per­mits: After obtain­ing the busi­ness license, you need to apply for oth­er required cer­tifi­cates and per­mits from var­i­ous author­i­ties, depend­ing on the type and scope of your WOFE. These include: 
   • The Orga­ni­za­tion Code Cer­tifi­cate from the Qual­i­ty and Tech­nol­o­gy Super­vi­sion Bureau, which is a unique iden­ti­fi­ca­tion num­ber for your WOFE.
   • The Tax Reg­is­tra­tion Cer­tifi­cate from the Tax Bureau, which is a doc­u­ment that reg­is­ters your WOFE as a tax­pay­er and assigns a tax number.
   • The For­eign Exchange Reg­is­tra­tion Cer­tifi­cate from the State Admin­is­tra­tion of For­eign Exchange (SAFE), which is a doc­u­ment that allows your WOFE to open for­eign cur­ren­cy accounts and con­duct for­eign exchange transactions.
   • The Finan­cial Reg­is­tra­tion Cer­tifi­cate from the Finance Bureau, which is a doc­u­ment that reg­is­ters your WOFE as a finan­cial enti­ty and assigns a finan­cial code.
   • The Cus­toms Reg­is­tra­tion Cer­tifi­cate from the Cus­toms, which is a doc­u­ment that allows your WOFE to import and export goods and products.
   • The Envi­ron­men­tal Impact Assess­ment Report from the Envi­ron­men­tal Pro­tec­tion Bureau, which is a doc­u­ment that eval­u­ates the envi­ron­men­tal impact of your WOFE’s activ­i­ties and pro­pos­es mit­i­ga­tion measures.
   • The Fire Safe­ty Cer­tifi­cate from the Fire Depart­ment, which is a doc­u­ment that cer­ti­fies that your WOFE’s premis­es meet the fire safe­ty stan­dards and regulations.
   • The Social Secu­ri­ty Reg­is­tra­tion Cer­tifi­cate from the Social Secu­ri­ty Bureau, which is a doc­u­ment that reg­is­ters your WOFE as a social secu­ri­ty con­trib­u­tor and assigns a social secu­ri­ty number.
2. Com­plete the reg­is­tra­tion for­mal­i­ties: The final step in the post-license stage is to com­plete the reg­is­tra­tion for­mal­i­ties with var­i­ous author­i­ties, such as: 
   • The Sta­tis­tics Bureau, which is an author­i­ty that col­lects and ana­lyzes sta­tis­ti­cal data on your WOFE’s activ­i­ties and performance.
   • The Admin­is­tra­tion of For­eign Experts Affairs, which is an author­i­ty that issues work per­mits and visas for your for­eign employees.
   • The Labor Bureau, which is an author­i­ty that over­sees labor rela­tions, con­tracts, dis­putes, and rights of your employees.

What are the advantages of setting up a WOFE in China?

Set­ting up a WOFE in Chi­na has sev­er­al advan­tages for for­eign investors, such as:

• Full auton­o­my and con­trol: A WOFE gives you full auton­o­my and con­trol over your busi­ness oper­a­tions, man­age­ment, and prof­its in Chi­na. You do not need to share own­er­ship or deci­sion-mak­ing pow­er with any Chi­nese part­ners or author­i­ties. You can also imple­ment your own strate­gies, poli­cies, and stan­dards accord­ing to your busi­ness goals and needs.
• Mar­ket access and expan­sion: A WOFE allows you to access and expand into the Chi­nese mar­ket, which is one of the largest and fastest-grow­ing mar­kets in the world. You can also ben­e­fit from the pref­er­en­tial poli­cies and incen­tives that Chi­na offers to for­eign investors, such as tax breaks, sub­si­dies, free trade zones, etc.
• Intel­lec­tu­al prop­er­ty pro­tec­tion: A WOFE enables you to pro­tect your intel­lec­tu­al prop­er­ty rights in Chi­na, such as trade­marks, patents, trade secrets, etc. You can also avoid tech­nol­o­gy trans­fer or leak­age that may occur when work­ing with Chi­nese part­ners or suppliers.
• Tal­ent acqui­si­tion and reten­tion: A WOFE allows you to hire and retain qual­i­fied and skilled tal­ent in Chi­na, both local and for­eign. You can also offer com­pet­i­tive salaries, ben­e­fits, and career devel­op­ment oppor­tu­ni­ties to your employees.

What are the disadvantages of setting up a WOFE in China?

Set­ting up a WOFE in Chi­na also has some dis­ad­van­tages for for­eign investors, such as:

• Com­plex and lengthy process: A WOFE requires a com­plex and lengthy process of reg­is­tra­tion, approval, and com­pli­ance with var­i­ous author­i­ties. It also involves a lot of legal pro­ce­dures, doc­u­men­ta­tion, and fees. The process may take sev­er­al months or even years to complete.
• High invest­ment and oper­a­tional costs: A WOFE requires a high amount of invest­ment and oper­a­tional costs in Chi­na. You need to pay for the reg­is­tered cap­i­tal, office space or 
• fac­to­ry premis­es, equip­ment, staff salaries, tax­es, social secu­ri­ty con­tri­bu­tions, etc. You also need to deal with cur­ren­cy exchange risks and fluctuations.
• Cul­tur­al and legal dif­fer­ences: A WOFE faces cul­tur­al and legal dif­fer­ences in Chi­na, such as lan­guage bar­ri­ers, busi­ness eti­quette, con­sumer pref­er­ences, etc. You also need to com­ply with the Chi­nese laws, reg­u­la­tions, and poli­cies that may change fre­quent­ly and dif­fer from region to region. You may also encounter chal­lenges in deal­ing with the gov­ern­ment offi­cials, sup­pli­ers, cus­tomers, or competitors.
• Lim­it­ed busi­ness scope and activ­i­ties: A WOFE can only con­duct busi­ness activ­i­ties that fall with­in its approved busi­ness scope. You can­not add or change your busi­ness scope with­out fur­ther appli­ca­tions and approvals. You also can­not engage in any busi­ness activ­i­ties that are restrict­ed or pro­hib­it­ed for for­eign investors in Chi­na, such as media, edu­ca­tion, telecom­mu­ni­ca­tions, etc.

Can you do business in China without setting up a WOFE?

If you are not ready or will­ing to set up a WOFE in Chi­na, you may con­sid­er some alter­na­tives to do busi­ness in Chi­na, such as:

• Rep­re­sen­ta­tive Office (RO): An RO is a liai­son office that rep­re­sents your for­eign par­ent com­pa­ny in Chi­na. It can per­form non-prof­it activ­i­ties, such as mar­ket research, pro­mo­tion, net­work­ing, etc. How­ev­er, it can­not engage in any direct busi­ness activ­i­ties, such as sign­ing con­tracts, issu­ing invoic­es, receiv­ing pay­ments, etc.
• Joint Ven­ture (JV): A JV is a part­ner­ship between a for­eign investor and a Chi­nese part­ner. It can share the own­er­ship, prof­its, risks, and man­age­ment of the busi­ness. It can also enjoy some advan­tages that a WOFE can­not, such as access to restrict­ed indus­tries or mar­kets, local knowl­edge and con­nec­tions, etc. How­ev­er, it also involves some dis­ad­van­tages, such as loss of con­trol and auton­o­my, poten­tial con­flicts and dis­putes, tech­nol­o­gy trans­fer or leak­age, etc.
• Glob­al Employ­er of Record (EOR): An EOR is a third-par­ty ser­vice provider that acts as the legal employ­er of your employ­ees in Chi­na. It can han­dle all the employ­ment-relat­ed tasks and respon­si­bil­i­ties for you, such as pay­roll, tax­es, social secu­ri­ty con­tri­bu­tions, visa spon­sor­ship, labor con­tracts, etc. It can also help you com­ply with the local laws and reg­u­la­tions. How­ev­er, it can­not per­form any busi­ness activ­i­ties on your behalf or rep­re­sent your com­pa­ny in China.

Frequently Asked Questions

Here are some com­mon ques­tions and answers relat­ed to set­ting up a WOFE in China:

Sources:

1. State Coun­cil of the Peo­ple’s Repub­lic of Chi­na | 2023 GOV­ERN­MENT WORK REPORT | 
2. Embassy of the Peo­ple’s Repub­lic of Chi­na in the Unit­ed States of Amer­i­ca | Require­ments and Pro­ce­dures for Chi­nese Visa Appli­ca­tion (Updat­ed in 2022)
3. Zhe­jiang Provin­cial Peo­ple’s Gov­ern­ment | 外商投资企业（WOFE）再投资的企业，是否会被认定为外商投资企业还是非外商投资企业（境内公司）？进而涉及到并购的商务部门审批问题