Foreign invested enterprises are businesses that are partially or wholly funded by foreign investors, most commonly in Asia. When looking to invest in a foreign enterprise, businesses need to consider and comply with the legal processes involved in doing so.
Compliance and research are of the utmost importance. We’ve put together a guide to what a foreign invested enterprise is and when it could benefit your business.
What Is a Foreign Invested Enterprise (FIE)?
A foreign invested enterprise (FIE) is a legal structure that allows companies to participate in foreign economies, most commonly in China or other Asian countries.
As China has strict rules on everything from business law to social credit, businesses looking to invest in or build enterprises in the country need to be diligent about their compliance.
Types of Foreign Invested Enterprises in China
Most FIEs operate in China. The main types of FIEs in the country are joint ventures and wholly-owned enterprises, with the main difference being the amount of control you will have over your business.
Equity Joint Ventures (EJV)
Equity Joint Ventures (EJV) are enterprises that are co-founded or co-operated by a foreign enterprise and a Chinese enterprise. These ventures are subject to foreign investment laws and company laws in China, and also must be approved by the Chinese government.
Cooperative Joint Ventures (CJV)
A Cooperative Joint Venture (CJV) is another type of FIE in which the entity is co-created and operated by a Chinese company and a foreign investor. In this model, however, investors share all profits, losses, and risks.
Wholly-Owned Foreign Enterprises (WOFE)
A Wholly-Owned Foreign Enterprise (WOFE) is a business in China that is completely owned and operated by foreign investors. It’s important to note that foreign entities may establish and fund WFOEs, but they must comply with Chinese business law, as they operate in the country.
WFOEs are the most popular FIE model for foreign business owners since it allows them the most control over their business.
When Should a Business Use an FIE?
Establishing an FIE in China makes sense when you want to establish a legal presence in the country. An FIE can allow you to develop an enterprise or invest in an existing business in China. You can also use an FIE to acquire shares in a Chinese company.
There are a few times when it may make sense to establish an FIE in China:
- You find a business in China that you believe is growing and would like to invest in
- You start a project in China that will require interaction with local businesses
- You want to move your own enterprise into China to grow your customer base or partner with local businesses
When Is An FIE Not Needed?
An FIE isn’t always required to do business in China. You only need to establish a foreign invested enterprise if you want to establish or invest in a profit-making venture that is based in China.
For example, if you plan to hire Chinese employees for your company that isn’t based in China, you won’t need to establish a foreign invested enterprise. You also won’t need one if you set up an office to conduct market research that does not make any profit.
Stay Compliant Everywhere
Compliance is key when it comes to global business, whether creating a foreign invested enterprise or hiring globally. You don’t want to find yourself violating the rules—especially in China, where rules are strict. That’s where an Employer of Record (EoR) can step in to help.
An EoR like Velocity Global can help tick off your compliance checklist and make sure everything operates correctly.
Contact us to see how we can help grow your business.