Because of this blog, our China lawyers get a fairly steady stream of China law questions from readers, mostly via emails but occasionally via blog comments as well. If we were to conduct research on all the questions we get asked and then comprehensively answer them, we would become overwhelmed. So what we usually do is provide a super fast general answer and, when it is easy to do so, a link or two to a blog post that may provide some additional guidance. We figure we might as well post some of these on here as well. On Fridays, like today.
One of the more common things our China lawyers do is form WFOEs. But before we do that, we first work with our clients to determine whether they really need a WFOE or not. As we are always saying, forming a WFOE is time consuming and expensive, both to form and once formed. I hate to say this (actually I don’t), but far too often China WFOEs get formed not because they are necessary, but because they can be so lucrative for those who form them. We are often asked when is a WFOE necessary?
What is the determining factor in deciding whether to form a WFOE in China? Two quick answers. If you legally need one to do the business you want to do in China, then you need a WFOE. If you need a WFOE to do well in China, then you need one.
Though many factors go into deciding whether a WFOE is necessary, there is often a shortcut to this determination. If you need to be able to get paid in RMB and issue Fapiao, you need a WFOE. If you have people working for you in China you need a WFOE See China’s Tax Authorities Want You for why it is such a bad idea not to have a WFOE if this applies to you). Beyond these two things, it gets complicated.
For more on China WFOE formation check out the following: