For Setting up a Wholly Foreign-Owned Enterprise in Mainland China

A wholly foreign-owned enterprise (“WFOE”):

• is a company established in Mainland China according to Chinese laws and entirely with foreign capital
• has become more feasible to set up for trading and servicing businesses
• is the most chosen form of operation by foreign companies nowadays

Many foreign investors:

• underestimate the intricacies in doing business in Mainland China
• underestimate the complex requirements in setting up a WFOE
• consequently failed to adopt an appropriate structure for their company
• have to submit applications for altering the initial structure almost immediately after their establishment

It is therefore paramount to have a thorough understanding and analysis of the regulatory requirements and local practices beforehand to avoid wasting time and effort in having to rectify the corporate structure.

Prior to the enactment of new rules in 2010, setting up a Representative Office (“RO”) was an inexpensive entry strategy for foreign companies. However, the new requirements imposed on RO, and the ensuing costs of maintenance, have made RO less attractive as its role is restricted to liaison only. More and more foreign investors therefore would opt for WFOE as their corporate structure.