What Is A WFOE?
It is a type of company which allows foreign investors a gateway into China.
Commonly pronounced "Woof-y," the 'Wholly Foreign Owned Enterprise' which can also be abbreviated as WOFE, is a totally foreign owned limited company based in China.The foreign investors are limited to the investment that they put into the company when setting it up.
In more recent years following China entry into the World Trade organization in 2001, the ability for foreigners to set up their own company within Chinese borders has been made easier, and the WOFE is just one of these vehicles. Other methods are joint venture companies, and representative offices.
Where the wholly owned foreign enterprise differs is that it is invested into and controlled by foreigners, with no Chinese influence aside from regular government requirements such as tax, and corporate registration.
Unlike other options open to foreigners, such as a representative office (which is more like a China branch office), the WOFE can operate like a normal company, making profit and invoicing customers. Importantly, the company is able to operate using Chinese Yuan (RMB), meaning that any invoices and costs could be tax-deductible.
One other notable feature is that this type of company can, in theory, hire as many foreign staff as they like as long as they fulfill China's rules on foreign workers. Commonly the larger the initial investment into the company, the more foreign staff will be allowed to be hired.
Who Would Open A WFOE?
This type of company is perfect for:
Foreign companies who want a presence in China, but want complete autonomy
Those who don't have, or want to enter into, a joint venture with a local company
Companies who want to do business in China and be on the same level as Chinese companies
Organizations who need to place a number of foreign nationals in positions in China
Foreign manufacturers who want to produce products in China and export them
Trading companies
Consultancy companies
Management companies
Service companies
IT companies
Basically, the original purpose of a WOFE for China was to encourage more specialist industries and technology to come to China and enrich their workforce and economy. Today this is still the case, but rather than focussing on manufacturing, which used to be the case, China now welcomes all kinds of foreign business types as you can see.
