Direct Marketing Plan Outline

What is a foreign owned company in its entirety (WFOE)?

A company Wholly Foreign Owned (WFOE) refers to the Chinese companies that are 100% foreign ownership, as opposed to joint ventures that involve at least one national (Mainland China) associated.

WFOEs previously subject to strict restrictions, such as capital requirements that were set at levels within the resources only large multinationals and medium enterprises. However, the positive effects of foreign direct investments in China have led the Government to facilitate requirements WFOEs to encourage the influx of foreign capital. For example, the requirement for companies seeking capital to start a consulting business came to the U.S. $ 140,000, but previously has been reduced now to RMB 100,000 (U.S. $ 15,000). In addition, foreigners can now issue an import / Export license, while they were not authorized to do so before.

Advantages of WFOE

The first advantage of establishing a WFOE in China is the independence of the operations that the company is entitled. As the participation of a Chinese investors are not required, the WFOE model allows the company to operate in accordance with the interests of parents and company, without negotiation processes longer than otherwise would be implemented in a joint venture.

The WFOE has the advantage over the existing business in China as a legal entity autonomously, the operational functions of a registered company. Has the operational flexibility to execute sales and marketing plans, recruitment, issuing invoices, receive income in RMB, and applied for trading licenses, which are not authorized in the functions of a purely administrative representative office.

The WFOE will also recognize the legal personality conferred a higher level of protection of intellectual property, as their rights laws are enforceable within the national jurisdiction of China. A WFOE is also eligible for tax exemptions if operated within a free trade zone, export-Zone Processing or provinces designated for the implementation of foreign investment firms.

Disadvantages of WFOE

Foreign companies that do not have adequate knowledge and understanding of business practices in China is difficult to establish a business relationship (Guanche) with customers or suppliers. This could have negative consequences for long-term operations of the WFOE, especially if it is unable to create a supply chain it more profitable and efficient than its competitors.

Creating a WFOE can also be a long and tedious process, especially if barriers language complicates the process even more complex licensing and government bureaucracy. The establishment of the WFOE could take four to six months, depending on the nature of its operations and licensing requirements, it is subject.

The incorporation of a WFOE may not be an option economically feasible for small operations with limited resources, such as the creation process can be costly. A WFOE must pay at least 20% of the capital in a corporate bank account within the first three months of the corporation, and the remaining 80% in two years. The sum of the committed capital must be invested in business operations in China, and must be shown that the performance of this capital contributes to the Chinese economy (eg through employment or contribute to the development of regional infrastructure).

While a WFOE is able to expand in terms of the size of their operations is limited within their commercial concerns. When registering a WFOE, the employer is obliged to provide a specific scope of your company and the nature of its operations, the business area is subject to the approval of the authorities, and then it delimits the scope of the company that the company is entitled.

Procedures for setting up a WFOE

Below is a summary of the fundamental steps to be taken in establishing a WFOE:

1. Name of pre-registration: This reserves the name of the company with the local office of the Department of Administration for Industry and Commerce.

2. Proposal Approval of Projects: A detailed proposal has been submitted to the authorities, providing developing

(A) The purpose and objectives of the WFOE

(B) plan and forecast production and sales

(C) Source of financing, risks and financial forecasts

(D) Land area and locations of business operations

(E) Personnel required, wage calculation and distribution

(F) the water use planning of public services and facilities (eg gas and electricity)

3. Submission Document the Authority: these include the establishment of WFOE scripts proposal, a proposed list of directors and a feasibility study report to the viability of the new company. The authorities tend to give a decision within 5-15 days after receiving all required documentation from the issuing seeds a certificate of approval to the company.

4. Business registration license. After obtain the certificate of approval, the company must register and apply for a business license for the WFOE within 30 days. The commercial license usually performed within 50-10 days after all required documentation has been received.

5. Registration bodies and governmental authorities, such as the State and the Tax office.

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