How to Manufacture in AND Sell to China WITHOUT a WFOE

Home | China Law Blog | How to Manufacture in AND Sell to China WITHOUT a WFOE Many of our clients that went to China years ago to have their products made there are now interested in selling those same products within China. One way to do that is to form a WFOE for selling the products, but oftentimes the cost and the hassle of doing that is not worth it, especially since there are other ways. Foreign companies often ask our China lawyers how they can sell in China the products they are having made in China, without having to set up a WFOE. These foreign companies typically want to buy their own products from their Chinese manufacturer and then resell those products to a Chinese distributer or directly to Chinese end users. Two big issues arise from this. One, that VAT will need to be paid for both sales -- from the manufacturer to our client and then again from our client to the distributer or end user and, two, that a WFOE will almost certainly be required. The key in these situations is to avoid having the foreign entity deal directly with the distributor. Typically the best way to do this is to have the sale made from the Chinese manufacturer to the distributor. The goal is to set up a system where 1) the foreign company earns a profit, 2) tax is paid on that profit, 3) the product is transferred to the distributor in way that provides for proper payment of VAT and proper credit for value of the goods for the subsequent payment of VAT by the distributor, 4) title to the goods transfers properly and 5) the foreign company remains in control of the process. We usually handle these deals as follows: 1. The foreign company and the Chinese manufacturer enter into a manufacturing agreement that protects the foreign company's intellectual property and deals with all other related manufacturing issues. 2. The foreign company enters into a separate license agreement with the manufacturer that provides for the manufacturer to sell the product within China to entities (distributors) selected by the foreign company. The sale to the distributor is made at an agreed price that includes profit to the manufacturer and a payment to the foreign company. We have characterized the payment to the foreign entity in various ways. In some cases, we characterize it as a license royalty, in other cases we characterize it as a sales agency fee. The characterization can also influence whether the agreement must be filed with the Chinese government, and where. This method has worked well, but note the following: The exact method used depends on the location of the manufacturer and the distributor. Different localities have different rules. We make it a point to speak with the appropriate government officials before we draft anything. How to characterize the payment to the foreign company is critical and depends on the facts of the specific case. The manufacturing agreement can be simple or complex, depending on the nature of the product being produced. Check Out Our China Law Services Share Twitter Facebook LinkedIn E-mail Comment Dan Harris Dan Harris is a founding member of Harris Sliwoski, an international law firm where he mostly represents companies doing business in emerging market countries. Most of his time is spent helping American and European companies navigate foreign countries by working with the international lawyers at his firm in setting up companies overseas (WFOEs, Subsidiaries, Rep Offices and Joint Ventures), drafting international contracts, protecting IP, and overseeing M&A transactions. In addition, Dan writes and speaks extensively on international law, with a focus on protecting foreign businesses in their overseas operations. He is also a prolific and widely-followed blogger, writing as the co-author of the award-winning China Law Blog. Harris Sliwoski Attorney Read more posts [email protected] Read More International Manufacturing, Legal News Related Posts September 15, 2026 Your AI-Drafted China Contract Says It Needs a Lawyer. Listen to It. September 11, 2026 Forensic Accountants in China Business Litigation: How True Numbers Can Tell the Wrong Story September 4, 2026 China NNN Agreement or Trademark Registration? You Usually Need Both September 1, 2026 AI Didn't Replace Lawyers. It Gave Us the 48-Page Contract. August 27, 2026 Do I Need a China NNN Agreement or a China Manufacturing Agreement? Usually Both. August 26, 2026 China’s New Overseas Investment Rules: Can Your Chinese Investor Actually Get the Money Out? August 24, 2026 International IP Protection for Startups: What to Protect and Where August 19, 2026 The Documents Are the International Deal August 19, 2026 China Supplier Fraud in Yiwu: Why We Recommended the Police, Not a Lawsuit August 17, 2026 China Trademark Registration: Why U.S. Companies Need More Than a Filing Agent August 10, 2026 Buying Expensive Equipment from China: Seven Questions to Answer Before You Pay August 7, 2026 DDP Shipping Risks: What Boise Cascade’s Guilty Plea Means for U.S. Buyers August 6, 2026 Protecting Your Artwork Internationally: What Artists Need to Do Before the Work Travels August 5, 2026 Your China Employee Signed the Vacation Policy. You Can Still Lose. July 29, 2026 The RedNote Contract Lesson for Companies Doing Business in China Leave a comment Cancel reply