A WFOE (Wholly Foreign-Owned Enterprise) is a limited liability company incorporated in mainland China whose shares are held entirely by one or more foreign investors. Unlike a representative office, a WFOE can hire staff directly, invoice customers, earn RMB revenue and repatriate profits. Unlike a joint venture, it requires no Chinese shareholder, so the foreign parent keeps full control of strategy, IP and cash.
Why it matters
For most foreign companies, the WFOE is the default way to operate on the ground in China. It lets you issue a fapiao to Chinese customers, employ people under Chinese labor contracts, hold local trademarks and licenses in your own name, and sign enforceable contracts as a domestic entity. Since the Foreign Investment Law took effect in 2020, a WFOE is legally just a Chinese company with foreign shareholders — but the setup decisions (business scope, registered capital, district of registration) still shape your tax position and what you may legally invoice for years.
How it works in practice
A German sensor maker selling through distributors decides to support Chinese customers directly. It forms a Shenzhen WFOE with its Hong Kong holding company as sole shareholder, drafts a business scope covering wholesale, technical services and import/export, subscribes RMB 1 million in registered capital, registers with SAMR, obtains its business license and company chop, and opens RMB and capital accounts. Eight weeks later it invoices its first Chinese customer in RMB.
Common mistakes
- Drafting the business scope too narrowly, then discovering you cannot legally invoice a new line of work
- Setting registered capital so low the company cannot fund operations before revenue arrives
- Skipping the negative list check for restricted sectors before committing to leases and hires
- Appointing a legal representative without understanding the personal authority that role carries
- Treating the WFOE as a branch instead of a separate company with its own compliance calendar