If you don’t understand the exact rules of China’s WFOE policy, creating a WFOE in China can be tricky. From site selection, determination of business scope and registered capital, tax planning, to intellectual property strategy, every step should be carefully considered. Here are 3 common aspects that you should pay special attention to.
Business scope
The WFOE should accurately and appropriately describe its business scope in one sentence. The process is long, involves many departments, and is easy to make mistakes. If some companies do not read the policy carefully, they may include prohibited foreign investment activities into their business scope, which may lead to application failure. In some cases, some companies want to change the scope of their business, which will also be very challenging and time-consuming, lasting for several months.
Registered capital
There is no fixed requirement for the minimum registered capital. However, a small injection of registered capital will lead to serious cash flow challenges, and too much injection will result in idle capital and missed opportunities. Therefore, it is very important to correctly estimate your capital requirements for the WFOE.
Intellectual property
China follows a “priority” policy with regard to intellectual property rights (IPR), and some investors may have already submitted intellectual property rights. Therefore, the first step to enter the Chinese market is to check and register your trademarks and intellectual property rights with the relevant authorities. Otherwise, your business will be endangered.
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