I have always had trouble getting my head around the fact that to secure approval of a Wholly Foreign Owned Enterprise (WFOE or WOFE) in China, the WFOE must first lease appropriate space. But how can a yet to exist entity do anything, much less lease space?
In my email box this morning was an e-mail from co-blogger Steve Dickinson to a client in the process of forming a China WFOE that explains how. To set the scene a bit more, Steve was responding to a client who had just sent Steve a copy of its proposed lease:
This is a set of standard lease documents for leasing to a Chinese entity or to an already existing WFOE. The lease document makes no provision for dealing with the situation of leasing to an entity in preparation for formation of a WFOE. In fact, the lease document requires you to provide a business license before you execute the lease. Obviously, you cannot do that since your WFOE does not yet even exist.
You should contact the landlord and ensure that the landlord understands your exact situation. If the landlord understands and agrees that it understands and will cooperate, then we can add the language necessary for the lease to be acceptable for WFOE formation purposes. The landlord should be aware that the lease will initially be in the name of the WFOE shareholder and then will be transferred to the WFOE upon successful formation of the WFOE. The landlord must agree to that transfer in advance and must agree to cooperate fully in the WFOE formation process. In addition, the landlord must warrant that the premises can be approved for the use to which you intend to make of the premises and that the lease will be registered with the applicable government real estate administration in _______. Of course, this means that the landlord will need to make all tax payments and provide tax receipts to you as the tenant. Note that the lease cannot be entered into until you know the identity of the shareholder of the WFOE.
Please discuss this with the landlord and then advise on how you wish to proceed.
I like this explanation.