WFOE in a Nutshell

Last updated: Oct 2020
Regulations Guide to WFOE Establishment, Registration & Liquidation

The WFOE is an effective business solution for most foreign companies operating in China. Therefore, it is important to understand what a WFOE is and understand the risks that come with WFOE ownership and management.

PTL Group specializes in company registration in China. We make sure that China company registration is done right, because doing so will help us focus on the real goal: long-term WFOE management. To help our clients, we provide extensive operational support for registered entities. This is where our knowledge and expertise really make a difference.

We hope you find the following information useful.

WFOE in a Nutshell

WFOE – Wholly Foreign-Owned Enterprise

WFOE is the most common business entity for international companies in China. Any company that is fully owned by a foreign investor or investors in China is in fact a limited liability – or WFOE in short. It is important to note that branches and representative offices set up by foreign enterprises are not WFOEs.

The three main WFOE types

  • Manufacturing WFOE: Expected to set up manufacturing in China.
  • Service WFOE: Allowed only to provide consulting services in China.
  • Trading WFOE or FICE (Foreign-Invested Commercial Enterprise): Allowed to trade, wholesale, retail or franchise in China.

Risk and liabilities

Setting up a WFOE in China can come with certain risks and liabilities:

  • HR: Direct liability for any dispute with the WFOE’s employees. Direct liability for paying all social benefits and income tax for the WFOE’s employees, under the Chinese labor law.
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  • Finance: Direct risk and liability for paying any WFOE tax liability, including: VAT, profit tax, dividend tax, import VAT, etc.
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  • Trade: Direct liability for any business activity performed by the WFOE’s employees with or without acknowledgment of the parent company.
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  • Operations: Broad exposure for the company’s reputation, assets and business activity, which can be compromised by employees, business partners and competitors.

Regulations in China change relatively frequently. For the most up-to-date regulations, please check in with us.