WFOE, Joint Venture or Representative Office: Choosing Your First Entity

China Field Notes · by Daona · 12 min read

Foreign companies usually arrive at this question in one of two moods. Some are cautious: "Let's just open a small office and test the market." Others are in a hurry: "We have a customer waiting — what's the fastest way to invoice in renminbi?" Both are reasonable. But the entity that suits a cautious test is not the one that suits a customer waiting for an invoice, and switching later costs time and money.

This issue explains the legal frame, compares the three common options, gives you five questions to decide, and walks through what setting up a wholly foreign-owned enterprise actually involves.

One law for foreign investment

Since 1 January 2020, the Foreign Investment Law (外商投资法) has been the basic law for foreign investment. Two principles matter most:

· National treatment, plus a negative list. Foreign investors are treated like domestic investors, except in sectors on the foreign investment negative list (外商投资准入负面清单).

· Same company law as everyone else. Foreign-invested companies are organised under the Company Law (公司法). The old separate joint venture and WFOE laws were repealed, and existing companies had until 31 December 2024 to bring their governance in line.

"WFOE" is no longer a legal category in its own right — in law it is simply a limited liability company wholly owned by foreign investors. The term remains in everyday use, and we use it here.

Three layers of permission

A trading company selling industrial parts usually passes all three easily. A company offering online platforms, healthcare, education or data services may pass the first layer and still need a licence that takes months — or that is reserved for Chinese-controlled companies.

Side by side

1. Will you invoice customers in China within 12 months? If yes, you need a WFOE or JV. An RO cannot.

2. Is your activity on the negative list or licensed? If foreign ownership is capped or prohibited, the answer is a JV or a different structure. If a licence is required, check that a foreign-invested company can obtain it before choosing.

3. Do you need something only a Chinese partner can provide? A licence, land, a factory, a state-owned customer base. If not, a WFOE keeps control simple.

4. How many people will you employ, and will any be foreigners? An RO is capped at four representatives. If you plan to grow or sponsor foreign hires, a WFOE is easier.

5. How long is your horizon, and how will you leave? Closing a company with employees, tax history and assets takes longer than opening one.

A European equipment maker wants a small Shanghai presence: two staff, an office, travel and marketing. Annual expenses ¥1,200,000. No China sales in year one.

Illustrative. Does not refer to any real company.

The RO pays tax on money it never earned, and when the first Chinese customer arrives, the company must set up a WFOE anyway. ROs are still right for pure sourcing offices, quality control for a parent that buys in China, or sectors where a WFOE is not feasible — but rarely as a "cheap test".

Most WFOEs take 4–8 weeks to the business licence and another 2–4 weeks to a working bank account. Document preparation abroad is often the longest part.

Registered capital

There is no statutory minimum for an ordinary company. But under the 2024 Company Law, subscribed capital must be paid in within five years, and paid-in amounts are publicly disclosed. Choose an amount that covers realistic needs until the company is cash-positive — not a large round number for appearance. More in Issue 13.

The people the law requires

· Legal representative (法定代表人): a director or manager who conducts the company's affairs. The name is on the business licence, and the person can be restricted — from leaving China or from high consumption — if the company becomes a judgement debtor. Choose someone actually in charge who understands that risk.

· Directors: small companies may have a single director instead of a board.

· Supervisor: small companies may have one, or none if all shareholders agree, or an audit committee instead.

· Finance manager: not a legal role, but the bank and tax bureau need a named contact.

"A representative office is the low-cost way to start." It is taxed on expenses, cannot invoice and caps your headcount. A small WFOE often costs about the same and does far more.

"We'll use the director's flat as the registered address." Most cities require commercial premises. A mismatch between registered and actual address can land the company on the abnormal operations list.

"A bigger registered capital looks more credible." It also creates an obligation to pay it in within five years, and shareholders can be liable to creditors for unpaid capital.

"Our JV partner will handle the government side." Possibly. But the legal representative, the seals and the bank mandate decide who controls the company. Agree on them in writing.

"The English name is fine on contracts." The registered Chinese name is the legal identity. Use it exactly on every contract, invoice and bank record.

Rules as of October 2026. This column provides general information, not legal or tax advice. Company registration is handled by the market regulation authorities; legal and tax matters should be confirmed with licensed professionals. Government fees and licensed firms' fees are settled by the client at cost.

China Field Notes · by Daona