To secure Chinese government approval of a Wholly Foreign Owned Enterprise (WFOE or WOFE), the WFOE must first lease appropriate space. But how can a yet to exist entity do anything, much less lease space?
In my email box this morning was an e-mail from one of our China company formation lawyers to a client (in both Spanish and in English!) describing the process of forming a China WFOE and had just sent us a copy of its proposed lease:
This is a set of standard lease documents for leasing to a Chinese entity or to an already existing WFOE. The lease document makes no provision for dealing with the situation of leasing to an entity in preparation for formation of a WFOE. In fact, the lease document requires you provide a business license before you execute the lease. You cannot do that since your WFOE does not yet exist.
You should contact the landlord to ensure they understand your exact situation — if you want us to do that, we will. If the landlord is good with your situation we can then add the language necessary for the lease to be acceptable for WFOE formation purposes. The landlord should be aware that the lease will initially be in the name of the WFOE’s shareholder (your company in Spain) and then it will be transferred to the WFOE upon its successful formation. The landlord must agree to that transfer in advance and it must agree to cooperate fully in the WFOE formation process. In addition, the landlord must warrant that the premises can be approved for the use to which you intend to make of the premises and that the lease will be registered with the applicable government real estate administration in Shenzhen. Of course, this means the landlord will need to make all tax payments and provide tax receipts to you as the tenant.
I like this explanation.