In deleting old emails over the weekend, I came across one from co-blogger Steve Dickinson to a client looking to lease a factory in China and use those operations as the basis for forming a Wholly Foreign Owned Entity (WFOE or WOFE). I am reproducing Steve’s email below because this is obviously not an uncommon desire and the tie-in between leasing space and forming a WFOE is frequently either misunderstood or just plain ignored. The bottom line is that to form any sort of WFOE in China, one must have an appropriate space (be it an office, warehouse, factory, or whatever) that can qualify for WFOE formation.
Here’s Steve’s email:
The only way a foreign company can rent and operate a factory in China is to create a Wholly Foreign Owned Entity (WFOE or WOFE). Creation of a WFOE is a standard process. The factory lease is a separate matter from WFOE formation and it can range from easy (typically the case if you are renting from an industrial zone with substantial experience renting space to foreigners) to difficult.
The main problem our clients encounter is that they often try to rent factory space that cannot be used for a WFOE. For factory space to work for a potential WFOE, it must be legally owned by the landlord, it must have all proper documentation and the landlord must be willing to register your lease with the local government real estate office. Though this sounds simple, it is not uncommon, especially with cheap space, for there to be problems with the documentation that make use of a particular space not possible for a WFOE.
What do you think?
