As costs in China continue to rise, we are seeing many more companies struggling to find well-priced space that qualifies for a WFOE. Let me back up a bit and explain.
One of the requirements for forming a Wholly Foreign Owned Entity in China is that there be a lease in place for the WFOE-to-be. The WFOE cannot just lease any space; it must lease space deemed appropriate for a WFOE. What this really means, mostly, is that the space must be eligible for leasing by a foreign company and that the landlord of the space must be legitimate and willing to report the lease to authorities. In other words, the landlord must be willing to pay taxes on the lease.
When lease rates were lower in China and space was easy to find, this requirement was seldom an issue. Lately, however, we are seeing many more companies that are struggling to find appropriate space and getting frustrated.
We now explain the situation to our new WFOE formation clients as follows:
The factory space must be legally owned by the landlord, must have all proper documentation and the lease must be registered with the local government real estate office. While this sounds simple, we find that many clients are looking for cheap space. Cheap space exists, but it usually means that there are problems with the documentation that make its use in a WFOE impossible.
There are many other issues related to factory leases and we will discuss those in more detail with you once you have found an appropriate space you wish to consider leasing. Often additional work must be done on the factory space and provision must be made for installation of equipment. This can sometimes be quite complicated, requiring additional care in the lease process.
What are you seeing out there in terms of being able to find WFOE-appropriate space?