What does vie architecture mean?

VIE (VariableInterestEntity) is a common corporate structure, which is mainly used by foreign investors who want to invest or do business in Chinese mainland, but it is restricted by some industries in China. Due to Chinese mainland's restrictions on foreign investment in certain industries, VIE framework has become a flexible method, enabling foreign investors to indirectly participate in investment in these industries.

The following is a brief description of VIE architecture:

1. Establishment of overseas holding companies: First, foreign investors set up holding companies outside China, usually in tax havens such as Cayman Islands and British Virgin Islands.

2. Establish a wholly foreign-owned enterprise (WFOE) in China: then establish a wholly foreign-owned enterprise (WFOE) in China, which is wholly owned by an overseas holding company. WFOE is usually used to sign technical service, consulting and other service contracts to avoid China's restrictions on foreign investment.

3. Establishment of domestic operating entity (OPCO): At the same time, domestic operating companies (usually limited liability companies) have signed a series of control agreements with WFOE, such as equity pledge, exclusive consulting and service agreement and business operation agreement. This enables WFOE to control the business and finance of OPCO to a great extent.

4. Profit transfer: Through agreement control, OPCO transfers its profits to WFOE in the form of service fees and royalties, and then to overseas holding companies through WFOE, thus realizing the foreign exchange outflow of profits.

Although VIE structure avoids the restrictions on foreign investment in China to a certain extent, it also has certain risks, such as policy risks and agreement control risks. Therefore, when adopting VIE architecture, we need to fully understand and weigh the related risks.