In our globalized world, individuals and businesses are taking more and more advantage of international opportunities. A WFOE in China (Wholly Foreign-Owned Enterprise) is the easiest, quickest, and most popular option for foreign businesses to enter the Chinese market. Other options are a Rep Office and a Joint Venture.
In this article by Tenba Group, your Cyprus digital marketing agency, read up on the benefits of relocating your business abroad and doing business in China. Besides, we present the three options to enter the Chinese market in detail: a Wholly Foreign Owned Enterprise, a Representative Office, and a Joint Venture.
Why Relocate in the First Place?
First of all, moving abroad is a chance to acquire new markets and take advantage of more favorable economic opportunities. In the face of income tax, privacy controls, and digital regulations, businesses may choose to relocate their companies for better business conditions.
So, planning for the future is a critical step in ensuring the legacy of a business. For small-to-medium size business and digital nomads, relocating abroad can provide a favorable environment in terms of taxes, workforce, quality of life, and more. In fact, there are many possibilities in other business locations that offer more freedom and entrepreneurial safety.
In particular, for digital nomads, setting up a residence base provides many benefits. One of the major components is choosing a location that yields the best tax residency programs for international businesses. In fact, some countries even offer tax benefits and incentives for foreign business investment. Therefore, relocating abroad can help you secure your remote business.
Real Advantages of Relocating Your Business
Are you a small-to-medium business or digital nomad contemplating how to grow your business and provide legal safety measures? Relocating abroad can have serious benefits!
- Tax Benefits & Wealth Protection
- Affordable Workforce
- Staying Ahead of Trends
- Legislation & Crisis Protection
Let’s take a more detailed look at these benefits.
1. Tax Benefits & Wealth Protection
The biggest advantage of relocating abroad is the ability to choose which country best suits your business needs. Companies and digital nomads can restructure their operations to get the most out of tax and workplace benefits.
Businesses and digital nomads, starting their entrepreneurial journeys, can find opportunities in other countries with favorable tax, business, and social security regulations. At the same time, relocating abroad offers freedom in discovering new global locations and markets. Further, it grants possibilities in seeking added protection for your rights and business assets.
For example, Cyprus offers a quick and simple procedure to relocate or set up a company in the EU. Besides, the Corporate Income Tax (CIT) is 12.5% for companies – the lowest in the European Union.
2. Affordable Workforce
Starting a business overseas can provide the advantage of finding a well-educated yet affordable workforce at the new location.
Although the price of labor is steadily increasing, China’s labor costs are still about 4% cheaper compared to the US.
3. Staying Ahead of Trends
With its high level of innovation, digitalization, booming ecommerce economy, and the revival of the Silk Road, China is certainly on its way to becoming a global leader.
Moreover, the Middle Kingdom is a global investor, and driver of AI technology, including its implementation, for example, with autonomous driving.
Besides, China is preparing to launch (current stage: large-scale testing) a digital version of the Yuan (DCEP). Once implemented, it will be the first government-backed digital currency in the world and legal tender.
Finally, the Chinese government provides tax incentives for companies founded in lower-tier regions of China, in order to develop them. These lower tiers are called Xiachen in Chinese, meaning to sink to (into the lower cities). Refer to the taxation point below at WFOE in China to find out more. Xiachen also refers to the marketing/lifting of the potential of these lower-tier areas. Click here to read up on Xiachen in more detail.
To sum it up, China is well on its way to becoming the largest world economy and an or the most influential global player. As such, doing business in and with China, holds great opportunities. In particular, having a foreign-invested enterprise in China can be highly beneficial, depending on the niche and goals.
4. Legislation & Crisis Protection
Finally, regional conflicts and changing regulations affect the way of business. For some, relocating abroad is a way to find a more neutral and secure place of business and living.
While for others, relocating abroad eases business restrictions and strict regulation policies that might hinder business efforts.
So, relocating abroad is a way of assessing the particular needs of a business and seeking the best location for that business to thrive.
Advantages of Relocating Your Business to China
Foreign companies aspiring to enter the Chinese market have many advantages to successfully conduct business and target the largest ecommerce economy in the world. In fact, many Chinese even go abroad and then work through a foreign company in China to have a better business set-up.
- favorable government policies for (international) businesses
- an entrepreneurial environment
- skilled and affordable workforce
- digitalization and growth opportunities
Reach the Chinese market with
- rising incomes, especially in the middle class
- changing demographics with increased consumer spending
- a large demand for Western goods and services, especially in the luxury sector (clothes, cosmetics, foods), and products for babies
While CBEC (cross-border ecommerce) is certainly a great option for businesses that sell online, having a physical presence in China may be important and beneficial for specific businesses. With the shift of China’s economy and demographics to an uprising middle-class with increased domestic spendings, there are more and more advantages of having a Chinese business.
Conquer the Chinese Market
Besides, as China is changing from a manufacturing and export country to increased domestic spendings, the ability to sell and invoice in China becomes a larger success factor.
Businesses which benefit from a physical presence in mainland China are:
- CBEC brands that want to sell their products in physical stores or use the local version of China’s largest commerce platforms jd.com and tmall. com
- Immigration agencies that want to build trust in the country
- Companies that want to do business locally
So, to start a business in China, foreigners have three basic options
- Wholly Foreign-Owned Enterprise (WFOE)
- Representative Office (Rep Office, RO)
- Joint Venture (JV)
Now, WFOE and RO are the most common options, but let’s look at all business setups in detail.
1. WFOE in China
A WFOE is an investment vehicle for a mainland China-based business. It works so that foreign parties (individuals or corporate entities) can start and own an LLC. What’s unique about a WFOE is that the involvement of a mainland Chinese investor is not required.
Remember that a Wholly Foreign-Owned Enterprise is the easiest way to start a foreign business in China. Besides, a WFOE in China is also the best option to protect intellectual property in the Middle Kingdom. Licensing is possible long-term, meaning 15 to 30 years.