What are the critical questions for companies approaching the China market?

Understanding the business environment is critical to a successful entry into the China market. Critical questions include:

  • Whether there is a market in China for your products/services
  • Market size, growth potential and possible opportunities
  • Potential barriers (such as market competition, protection of intellectual property, regulatory constraints, etc.)
  • Type of legal entity to best address your business objectives
  • Optimal location for your business in China
  • Target customers, pricing, sales & distribution channels, marketing activities
  • Recruit and retention of key talents

Do I need a visa to visit China? How do I apply one for business purposes? What documents do I need for foreign employees?

Yes, most foreign citizens shall have to apply for a visa in advance. View guidance provided by the Chinese government on its visa application process here. Note that application must be made in person or through an authorised agent.

Your foreign employees will need to obtain the following documents in order to enter and work legally in China:

  • Alien Employment License
  • Work Visa Notification Letter
  • Work Visa
  • Proof of Temporary Residence
  • Health Check Report
  • Employment Permit
  • Residence Permit.
China's New Visa Laws Further Regulate Foreign Employment from 1 Sep 2013

The new law has confirmed three new categories of visas:

  • M visa - new business visa which will be issued to foreigners who enter the country for conducting business and commercial activities
  • R1 and R2 visa - new ‘talent visa’ which will be available to high-caliber foreign professionals whose expertise is in demand in China, although a list of eligible occupations is yet to be released
  • Q visa–new visa issued for family reunions and foreigners visiting Chinese citizens (Q1) & permanent residents (Q2) In addition, the new visa law requires applicants to submit more documentation for employment visas, extends the visa processing time, defines and clarifies unauthorized work, tracks down illegal foreign employees and strengthens enforcement of the visa law.

Under the newly released visa law, 'short-term' employment visas will be issued for a maximum of 180 days, while an employment type residence certificate may be issued for a period of 90 days to 5 years. Foreign nationals who overstay their working visa will now be subject to penalties ranging from RMB 5,000 to RMB 20,000. If foreign nationals are unable to afford the expenses and engaged in illegal employment, the employer will be liable for paying the penalties.

What is more, under serious circumstances, foreign nationals may be detained for up to 15 days or even deported without being allowed to return to China for up to 10 years.

The new law also extends the visa application processing time to 7 days and may take up to 15 days for a foreign national to obtain a resident permit in China.

As part of the visa application, the new law requires the applicant who is applying for a residence permit that is more than 1 year, to submit a health certificate and provide biometric information along with all the other application documents (i.e.valid passport or other international travel documents, a photo that meets regulatory requirements, and other documents relevant to the application’s purpose).

Furthermore, as of 1 July, 2013, Beijing joined other cities, such as Suzhou and Nanjing, requiring foreign nationals to procure a non-criminal record certificate as part of the documents included with the employment visa application. Non-criminal record certificates are normally issued in the applicant's home country, and may also need to be authenticated by the appropriate Chinese consular post.

The new law is still a work in progress and the state departments such as the Ministry of Public Security, Ministry of Foreign Affairs, and Ministry of Human Resources are expected to issue implementing rules with further details. However, we expect there to be significant rule variations among localities across China. It is advised that employers should pay heed to further developments of the new exit-entry law to ensure full legal compliance.

What are the investment vehicles commonly used in China according to the Foreign Investment Laws?

Investment vehicles commonly used in China are Sino-foreign equity joint ventures (EJV); co-operative (or contractual) joint ventures (CJV); wholly foreign-owned enterprises (WFOE); joint stock companies; holding companies; representative offices (RO); assembling and processing contracts (APC), and branches. Among these vehicles, RO’s, APCs and branches are not separate legal entities. Under China’s WTO and CEPA commitments, wholly foreign-owned enterprises are permitted in more and more industries.

How can I check the background of a Chinese company?

Undertaking a due diligence investigation prior to engaging in a trade transaction can minimize risk of encountering commercial disputes. The Cheltenham Mandarin provides a service to conduct a preliminary background check. We can also refer your company to other service providers in China.

How can I identify the best trade shows in China?

Each year hundreds of trade shows are held throughout China. Identify trade shows that are supported by the U.K. Department of Commerce in China Trade shows in China.

How do I protect my company's intellectual property rights in China?

In spite of progress towards improving its intellectual property legal and regulatory regime, China continues to be a challenging environment for IPR protection and enforcement. To learn more about how your company can protect its intellectual property in China, visit Stopfakes.gov, and see the summary of the programs available through the U.K. Department of Commerce to help U.K. firms develop and intellectual property strategy plan.

How do I set up a representative office in China?

Establishment of a representative office has become the most common means of establishing a long-term presence in China. Chinese law restricts the scope of activity undertaken by such offices to "indirect business activity." A representative office may act as a liaison with Chinese contacts, implement contracts signed outside China by the home office, and undertake market research. Such offices may not engage in trade, receive fees for service, sign contracts or directly generate income. Contact a us about the registration process.

What does the process of registering a business in China involve?

The registration process typically involves numerous Chinese governmental offices including the Ministry of Commerce, the Administrative Bureau for Industry and Commerce, State Administration of Foreign Currency, Taxation Bureau, the Customs Office, and the Statistics Bureau.

What's the minimum registered capital of Foreign Investment Enterprise under the CEPA?

The minimum registered capital for Foreign Investment Enterprise (FIE) is different from one industry to another. According to “the Administration Measure for Foreign Investment in Commercial Sector”, the minimum registered capital amounts are substantially reduced. For instance, the minimum registered capital requirement for a wholesaling enterprise is RMB 500,000 and for a retailing enterprise is RMB 300,000. (possible reduction subject to further legislation. 1 British Pound Sterling equals 9.24 Chinese Yuan based on 13 JUly 2013 data from www.xe.com)

Where do I find information locate the import tariff applied to a particular product?

A wealth of information related to China customs issues is available in the China Law & Regulations website.

What are the procedures to establish a Foreign Investment Enterprise (including EJV, CJV and WFOE) in Mainland?

  • 1. The following documents shall be provided to the Ministry of Commerce or provincial commerce departments.
  • 2.
    • (a) Application form for establishment of a Foreign Investment Enterprise;
    • (b) Feasibility research report compiled by all partie(s) to the Foreign Investment Enterprise;
    • (c) Contract, articles of association (for a foreign-funded commercial enterprise, only the articles of association should be submitted) and the attachment;
    • (d) Bank credit certificates of all investors, registration certificate, certificate of the legal representative, if the foreign investor is an individual, his/her identity certificate shall be provided;
    • (e) The audit report of all investors in the recent one year, which is audited by accountant firms;
    • (f) The evaluation report on state-owned assets invested into the sino- equity joint venture or contractual joint venture commercial enterprises by Chinese investors;
    • (g) Name list of the members of the board of directors of the planned foreign-funded enterprise and the power of attorney for directors of each investor;
    • (h) Notice of pre-approval of the enterprise name as issued by the administrative department for industry and commerce; and
    • (i) The certificate documents of the use right of the land used for the planned enterprise.
  • 3. Any examining and approving authority shall, within three months as of the date of receipt of all documents above, decide whether to approve an application or disapprove them. If it approves the establishment, the Certificate of Approval for Foreign-funded Enterprises shall be issued; if it does not approve it, the reasons thereof shall be explained.
  • 4. The investors shall, within one month after receiving the certificate of approval, go through the registration formalities at the administrative department for industry and commerce upon the Certificate of Approval for Foreign-funded Enterprises.
How are foreign companies taxed in China?

Foreign companies in China must register with the relevant tax authorities within 30 days after they receive their business license. Subsequently, they will be subjected to various forms of taxation, including corporate income tax, business tax, stamp tax, housing tax, vehicle & vessel tax and value-added tax. The tax rates vary with the type of establishments formed, the location of the company as well as the industry sector of the business. The companies will also need to file annual audits before the end of every March. Their profits can only be distributed and repatriated to their home country after the annual audit and the settlement of their relevant income tax liabilities.

How are foreign companies taxed in China?

There is no uniform application of individual income tax rates in China and significant differences exist between cities such as Beijing, Shanghai and Guangzhou. For Shanghai, local employees are liable to an individual income tax (IIT) based on 9 progressive rates ranging from 5% to 45% and includes a deductible equivalent to 1,600 RMB plus their contribution to social insurance. Foreigners, who do not contribute to social insurance, are subjected to the same 9 progressive tax rates, but are entitled to a deductible equivalent to 4,800RMB. Furthermore, not all foreign nationals' incomes are taxable, and a key factor that influences their tax liabilities is the duration of their stay in China.

Tax Exemptions for Small Enterprises Taking Effect on 1 August 2013

As part of the ' Mini Stimulus' initiated by the Chinese government to boost the private sector in the hope of improving GDP growth rate, the State Council has decided to waive value-added and business taxes for small enterprises with monthly sales turnover less than RMB 20,000 ( approx. $3,263).

Those small enterprises can claim tax returns from local tax bureaus by submitting VAT invoices ( including VAT invoices for transportation) and business tax invoices.

It is said that more than 6 millions of small enterprises will benefit from the tax exemptions.

What are the issues to consider when hiring local employees in China?

A company should first find out if it is legally authorized to hire local staff directly in China. Rep Offices, for example, are not allowed to hire local staff directly and must engage an authorized employment agency to dispatch talent for their HR needs. The compensation rules in China may be different than the company is accustomed to. Basic components of an employee's compensation include base pay, incentives/bonuses, allowances and benefits - both mandatory social security benefits and employer-determined supplemental benefits. The company (or its representing employment agency) and its employees must agree on an employment contract that satisfies the China Labor Law requirements. Should the employer terminate the employment without valid cause, it may be subjected to legal action and required to pay termination compensation to the employee.

How and Why to Trademark in China?

China does not have the best reputation when it comes to intellectual property protection. You need to have a well-thought trademark strategy to help you register your brand name and protect your trademark. The following article provides you with practical advice on how to register your trademark before anyone else does and what you should do to protect your brand name, logo and service marks in China by China Law Blog