The Chinese SaaS market presents a huge market opportunity to foreign Saas providers. Foreign SaaS providers trying to enter the Chinese market without sufficient planning can quickly find themselves faced with deal-breaking challenges that must be addressed head-on if they are serious about competing in the Chinese SaaS market long term.
Chinese companies ultimately want to buy SaaS locally, they want RMB invoices that come with fapiaos, service level agreements under Chinese law, and often Chinese-speaking customer support.
Foreign SaaS providers often turn to local Chinese SaaS distributors to sell their SaaS services to the Chinese market, this method can seem attractive to begin with but can potentially lead to further challenges, such as being unable to control your intellectual property, unable to control pricing, and limited access to your own customer data. From a client’s perspective, it adds an extra layer, adds friction, and raises red flags about reliability.
SaaS can be a significant business expense, and Chinese companies cannot claim SaaS as an expense unless they have a fapiao (official Chinese tax receipt). This alone is enough to be a deal breaker for many companies in China.
China has strict compliance laws for Chinese data security. Foreign SaaS providers who are unable to comply with Chinese regulators can find their SaaS services blocked and inaccessible in China. SaaS providers operating in China are required to have an ICP (Internet Content Provider) license to host data on Chinese servers or serve content and platforms in China. ICP licenses can only be issued to legally registered entities in China.
China WFOE as a Solution for SaaS Providers.
Foreign SaaS providers can set up a consulting WFOE (Wholly Foreign-Owned Enterprise), which can be structured specifically for SaaS and other service-based and software companies, enabling foreign SaaS providers to operate legally and smoothly in China.
With a WFOE, SaaS providers can legally sign contracts under Chinese law with their clients, issue invoices in RMB and official fapiao tax receipts. A WFOE can also hire staff locally, host data on Chinese servers, and protect its intellectual property under Chinese law.
A WFOE structure enables foreign Saas providers to retain full control over their operations in China without having to rely on third-party distributors and, more importantly demonstrates a long-term commitment to serving customers in China, building trust and significantly increasing competitiveness.
China’s regulatory framework for online services, especially those that process data of Chinese companies and Chinese citizens, evolves rapidly with strict compliance requirements. A WFOE can comply with Chinese regulations to stay compliant with Chinese laws and also provide peace of mind to its customers in China.
