By: Matthew Dresden
This post was written by Matthew Dresden. Matthew handles China matters out of our U.S. office. Matthew speaks and reads Mandarin and has lived in both Beijing and in Shanghai (but is too politic to tell us which he prefers).
Here’s Matthew’s post:
If you’re in a creative industry like graphic design or filmmaking or advertising, you want a suitable space for your China WFOE (Wholly Foreign Owned Entity). A sea of cubicles in a nondescript office park isn’t going to impress your clients, and isn’t going to inspire your employees either. You want a building with character and style – a grand old mansion, a funky warehouse with exposed beams, maybe even a classic Chinese courtyard. The problem is, most of these places are not suitable locations for a WFOE.
We have written before about the leasing requirements for a WFOE-to-be (see here, here and here). Among other things, the proposed leasing space in China for a WFOE must be owned by the landlord and approved by the government for the use intended by the WFOE. All too often, leasing agents in China will elide these requirements with a sophisticated bait-and-switch. They show a beautiful space to the client, and then, just when the client is ready to sign a lease, they present two documents. One is a lease for the beautiful space. The second is a lease for another space, often in a completely different part of town, which will be the official address of the WFOE.
If this sounds fishy, it should. When forming a WFOE, the official address should be the location where the WFOE will actually operate. In most cities, and especially in big cities like Shanghai and Beijing, the authorities will check the official address as part of the approval process. Even if they don’t check, the WFOE’s official address will be critical throughout the life of the WFOE. Why would you have the official address be some random address across town? It is of course possible to have two full-fledged offices, but that is usually not what the leasing agent is proposing (the proposed “registered” space is often only one room) and even if it was, that would mean double the expenses for the WFOE.
The underlying message of the two-lease proposal is this: the beautiful space cannot be leased for the formation of a WFOE. You will need to move on and find a new space that will work. There is no other alternative. If you’re going to form a WFOE, do it right.