Change RO into WFOE
A representativeoffice (RO) is an office established by a company to conduct marketing andother non-transactional operations, generally in a foreign country where abranch office or subsidiary is not warranted. WFOE stands for wholly foreignowned enterprise. The Wholly Foreign Owned Enterprise (WFOE) is a Limitedliability company wholly owned by the foreign investors.
Since newregulations on representative offices came into effect in March 2011, citiessuch as Shanghai and Beijing have seen many such offices beingreplaced by wholly-owned subsidiaries in consultancy or trading.
Why to Change ROinto WFOE
This change is inpart a direct result of the tightening of the supervision on activities thatemployees of the representative office may engage in. Rep. Offices are onlypermitted to engage in non-
operationalactivities such as marketing and liaison only, with the penalties on operatingbeyond this approved business scope greater than ever.An even more importantconsideration has been the increased legal and practical disadvantages,administrative burden and fiscal cost of continuing to operate a rep. office.
At the same time,alternative structures are now establish to establish and simple to operate.Sourcing companies for example often only need their Chinese staff to engage inliaison and quality control - activities that are perfectly suitable for aconsultancy WFOE (wholly foreign-owned enterprise). Those businesses that aretrying to expand on the Chinese market could benefit from replacing their rep.office structure with a trading WFOE.
Comparisonsbetween RO and WFOE
1. Legalconsiderations
the legal benefitsof the WFOE are considerable. Perhaps most important is that the WFOE is alimited liability company, which means that the investor's liability is limitedto the amount of registered capital to be contributed. This contrasts to therep. office, where the investor remains fully responsible for the office'sdebts, a liability which could even impact the freedom of movement in
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