Foreign companies looking to establish a commercial presence on Mainland China have a couple of options available to them when it comes to their company formation: Representative Offices (RO) and Wholly Foreign Owned Enterprises (WFOE/FICE). Each option presents distinct advantages and disadvantages for the enterprising entrepreneur looking to expand into China.
Companies looking for an uncomplicated entrée into the Chinese market prefer to establish ROs for their company formation. As its name suggests, an RO serves as a liaison between foreign enterprises like yours and local businesses and customers in the Chinese market. By far, an RO is the easiest and cost effective ways for foreign companies to establish a legal presence in China.
Advantages of Opening an RO in China
Limiting Factors of an RO in China
Unlike an RO, the legal status afforded WFOEs, as a limited liability company, grants you a great deal more hands-on autonomy. This legal construct allows you the ability to manage the day-to-day operation of your business, which allows for a full range of benefits ranging from the ability to buy and purchase property to hiring directly from the local labor pool. Additionally, a WFOE provides you the capability of converting your profits into US dollars.
As might be expected, starting and operating a WFOE is both more expensive and complicated than the RO option. Specifically, WFOEs require higher capital registration and suffer from higher operating costs owing to the associated costs of paying all applicable Chinese business taxes.
If you need help in choosing the correct company format for your Chinese endeavor, ICCorp offers professional consulting services designed to pinpoint your individual business needs, and help you navigate all aspects of the application process regardless of which business model you select. Contact us now!