The revised Company Law mandates that shareholders of limited liability companies (LLCs) must fulfill their capital subscription obligations within five years from the date of the company’s formation. This law is scheduled to be enacted on July 1, 2024. Consequently, any LLCs founded after this date will be obliged to adhere to the new subscribed capital regulations. For LLCs established prior to the implementation of the revised Company Law and whose capital contribution schedules extend beyond the stipulated five-year limit, a transitional phase will be implemented. This phase is designed to allow these pre-existing companies to incrementally adjust their capital payment schedules to comply with the new mandate.

 

Adjustment Measures for the Contribution Period of Existing Companies：

 

• Companies established before July 1, 2024, can, during a three-year transition period (from July 1, 2024, to June 30, 2027), change their subscription period to within five years, with the capital contribution to be completed by June 30, 2032, at the latest;

• For limited liability companies, if the remaining subscribed contribution period is less than five years by July 1, 2027, there is no need to adjust the contribution period further;

• Joint-stock companies can fulfill the payment of their subscribed shares before June 30, 2027.

 

Therefore, existing company shareholders need to review the company’s registered capital thoroughly：

 

• If it cannot be fully paid within five years, they should timely initiate a capital reduction procedure to decrease the registered capital;

• If it is confirmed that the registered capital cannot be paid by the due date and another company is interested in the acquisition, consider transferring ownership through a change in equity;

• If the company has no actual business operations, it can proceed with its dissolution.

 

Should you have any questions about company registration, registered capital, company deregistration, etc. Please contact our expert team for further discussion.

 

Integra Group is a fully licensed asia-focused accounting, taxation, and business advisory firm – with dedicated offices in Shanghai, Beijing, Singapore and Taipei. We’ve helped companies ranging from Fortune 500 companies to small to medium sized businesses establish and grow their presence in Asia.

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According to the official news, the changes were intended to promote responsible shareholder behavior and contribute to a more robust business environment. Below are some key highlights of these amendments:

Full Payment of Registered Capital within Five Years

 

A notable amendment in the law is the obligation for shareholders of a limited liability company (LLC) to fully contribute to the company’s registered capital within five years from the date of the LLC’s establishment, as per their subscription agreement. Moreover, the board of directors can issue notices of deprivation to shareholders who still need to fulfill their capital contribution obligations within the prescribed time frame. Shareholders who disagree with the deprivation notice have 30 days from the receipt of the notice to file a lawsuit with the People’s Court.

Shareholders of Chinese companies need to review these changes and begin meticulous preparations for their implementation. Investors planning to establish a company in China should consider the revised regulations regarding capital contributions.

The scope of the application includes not only newly established companies but also existing companies. Therefore, existing company shareholders need to review the company’s registered capital thoroughly：

• If it cannot be fully paid within five years, they should timely initiate a capital reduction procedure to decrease the registered capital.
• If it is confirmed that the registered capital cannot be paid by the due date and another company is interested in the acquisition, consider transferring ownership through a change in equity.
• If the company has no actual business operations, it can proceed with its dissolution.

 

No Mandatory Supervisor Required

 

The revised Company Law permits companies to establish only a board of directors without a board of supervisors. Companies that only set up a board of directors should establish an audit committee under the board to exercise the powers of the board of supervisors.

The Company Law further simplifies the organizational structure of companies. For companies that are smaller in scale or have fewer shareholders, it is possible to appoint a single director, and instead of setting up a board of supervisors, appoint a single supervisor. It is permissible not to appoint a supervisor for smaller LLC or those with fewer shareholders, with the unanimous consent of all shareholders.

 

Optimize the Company Registration and Deregistration Regulations

 

A new chapter on company registration is added, specifying the matters and procedures for company registration, change registration, and deregistration.

• Clarify the legal validity of electronic business licenses, announcements made through the national enterprise credit information publicity system, and resolutions passed via electronic communication methods in meetings.
• The scope of capital contribution has been expanded to include two types of non-monetary assets: equity and debt.
• Relaxes the restrictions on establishing single-shareholder LLC and permits forming single-shareholder joint-stock companies.
• Improves the company liquidation system, reinforcing the obligations and responsibilities of the liquidators and liquidation committee members.
• If a company has not incurred any debts during its existence or has settled all its debts, it can cancel its company registration through a simplified procedure with the commitment of all shareholders.

 

The latest updates to the Company Law introduce a variety of new regulations designed to streamline the company investments and finance, while also improving corporate governance. These updates will be discussed in more detail in our upcoming articles.

Should you have any questions about company registration, registered capital, company deregistration, etc. Please contact our expert team for further discussion.

 

Integra Group is a fully licensed asia-focused accounting, taxation, and business advisory firm – with dedicated offices in Shanghai, Beijing, Singapore and Taipei. We’ve helped companies ranging from Fortune 500 companies to small to medium sized businesses establish and grow their presence in Asia.

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The main components of China’s data security legal framework include laws such as the Cybersecurity Law, Data Security Law, and Personal Information Protection Law. Addressing cross-border data flow, China has also introduced regulatory documents such as the Measures for Security Assessment of Cross-Border Data Transfer, Provisions on Standard Contracts for Cross-Border Transfer of Personal Information, and relevant guidelines. These collectively establish a regulatory mechanism for overseeing data outbound from China.

 

Data Compliance Challenges for Foreign Companies in China

 

Navigating data compliance consistently presents a major legal challenge for foreign-backed businesses in China. These challenges have become even more pronounced in today’s complex global socio-political and economic environment.

 

Many foreign entities encounter compliance complexities due to the distinct landscape of China’s data regulations and oversight. This includes：

 

• Inability to ascertain compliance with data regulations；

• Lack of understanding regarding the types of data being collected and processed, particularly the concept of “important data”；

• Uncertainty about regulatory agencies, requirements, methods, and standards for data governance；

• Absence of documentation, systems, and procedures for data management；

• Confusion regarding cross-border data processing；

• Uncertainty about efficiently and cost-effectively conducting compliance management, particularly for small and medium-sized enterprises.

 

Prior to engaging our services, the client lacked a foundation in data compliance, impeding their ability to accurately gauge potential risks. Their concerns extended to discerning data categories processed by the company, verifying the presence of critical data, formulating internal data protection frameworks, and ensuring the lawfulness and compliance of ongoing data processing activities.

 

Integra Provides Data Compliance Solutions

 

Upon receiving the client’s commission, Integra’s compliance task force swiftly acclimated to the client’s requirements, leveraging internationally recognized data governance methodologies. Key tasks include:

 

• Comprehensive due diligence to comprehend the company’s operations and requisites

• Systematic data categorization and inventory management, facilitating structured data lists

• Cultivating employee compliance awareness through training sessions and addressing pertinent queries

• Development and implementation of robust data compliance systems and protocols

• Preparation of detailed data compliance reports

• Provision of recommendations for corrective measures and continued guidance

 

This successful case marks a new step for Integra Group in the field of data compliance, enabling the provision of more comprehensive services and protection for foreign-funded enterprises in China as well as Chinese clients.

 

Introduction to Integra Data Protection Officer (DPO) Services

 

As a response to client demands, Integra will act as the Data Compliance Officer (DPO), offering ongoing compliance services and aiding clients in adapting to the intricate and ever-evolving regulatory landscape. Our services include:

 

• Serving as the designated data protection officer in alignment with the Personal Information Protection Act and other relevant regulations

• Development, implementation, and periodic revision of privacy policies, procedures, and frameworks

• Holistic data security management encompassing internal and external domains

• Coordination and execution of data protection impact assessments

• Handling complaints and appeals related to personal information

• Assisting in the management of data security incidents

• Conducting awareness training sessions for internal staff

• Facilitating communication channels with regulatory bodies

成功案例 | 协曈集团助力德资客户在中国市场实现数据合规

近日，协曈集团（“协曈”）协助一家德资企业成功完成中国数据合规项目。该项目有效化解了客户在中国市场的合规风险，增强了员工的合规意识，并为公司持续稳定的运营奠定了坚实基础，获得了客户的好评。

 

中国的数据安全法律体系，主要由《网络安全法》、《数据安全法》和《个人信息保护法》等组成。针对数据的跨境流动，中国还陆续出台了《数据出境安全评估办法》、《个人信息出境标准合同规定》及相关指南等规范性文件，搭建起了中国数据出境监管的机制。

 

外资企业在华面临的数据合规痛点

 

解决数据合规风险，一直是在华外资企业面临的主要法律挑战之一。在当前特殊的国际政治经济环境下，外资企业对数据合规的担忧显得更加突出。由于中国数据立法及监管的特殊性，不少外资企业正在普遍面临合规方面的困扰，包括：

 

• 无法判断自身是否满足数据合规要求；

• 不了解正在收集及处理的数据类型，对“重要数据”难以理解；

• 不清楚数据监管的机构、要求、方式及尺度；

• 缺乏数据管理的文件、制度及流程；

• 对跨境数据处理感到迷茫；

• 不知如何开展高效的、成本可控的合规管理，特别是对中小型企业而言。

 

在服务前，客户对数据合规没有基础，无法准确评估自身的风险。客户对于公司处理了哪些类别的数据，是否包含重要数据，内部数据保护制度的制订以及当前数据处理活动是否合法合规等问题感到十分担忧。

 

协曈集团提供数据合规解决方案

 

接受客户委托后，协曈的合规项目小组，迅速了解并理解客户需求，采用了国际通行的数据治理方法，重点开展了以下几项工作：

 

• 尽职调查，了解公司业务及需求

• 数据梳理及盘点，制作数据清单

• 员工合规意识培训，答疑解惑

• 订立数据合规制度及流程

• 形成数据合规报告

• 提供整改建议和后续指导

这一成功案例，标志着协曈在数据合规领域迈出了新的一步，能够为在华外资企业以及中国客户提供更全面的服务和保障。

 

数据合规官（DPO）服务介绍

 

为了满足客户在数据合规方面更多需求，协曈将作为数据合规官（DPO），提供日常合规服务，协助客户适应复杂的、不断变化的监管环境。我们的DPO服务内容包括：

 

• 按照《个人信息保护法》等要求，担任公司指定的数据保护负责人

• 制定、实施和定期更新隐私政策、流程和程序

• 监控组织内外的数据安全管理

• 组织和开展数据保护影响评估

• 处理与个人信息相关的投诉和申诉

• 协助管理数据安全事件

• 为内部员工提供意识培训

• 与监管机构进行沟通

本文作者

Kelvin Lou

Director，One Compliance Consulting

Integra Group is a fully licensed asia-focused accounting, taxation, and business advisory firm – with dedicated offices in Shanghai, Beijing, Singapore and Taipei. We’ve helped companies ranging from Fortune 500 companies to small to medium sized businesses establish and grow their presence in Asia.

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With the reopening of the Chinese market in the post-pandemic era, we saw a growing trend of expatriates seeking to obtain visas to work and reside in China. A thorough understanding of getting a work permit and work visa is essential for any expat planning to work in China. This guide provides an up-to-date overview of the application process, eligibility criteria, and necessary documentation for 2024.

 

An Introduction of China Work Permit

 

Basic Eligibility for Work Permits

 

To qualify for a Chinese work permit, both employer and employee (foreigner) must satisfy several criteria.

 

The employers must legally comply, offer roles of special necessity where domestic candidates are unavailable, ensure wages meet or exceed local standards, and secure any necessary industry-specific regulatory approvals for foreign employees.

The employees must be at least 18 years old and in good health, have no criminal record, and possess the required skills and a confirmed employer in China for their specific role.

Categories of Work Permits

The State Administration of Foreign Experts Affairs (SAFEA) implemented a nationwide unified work permit system to assess foreign talents. This system uses market and international peer evaluations to emphasize abilities, achievements, and contributions. It integrates policy tools like points-based systems and guidance catalogs, dividing foreigners working in China into three groups: foreign high-end talents (Category A), foreign professionals (Category B), and ordinary foreign personnel (Category C).

 

• Category A: Foreign High-end Talents

Category A refers to individuals such as scientists, technology leaders, international entrepreneurs, and specialized talents. This category also includes those who qualify as foreign high-end talents based on a points system – with 85 or more points. There is no age, educational, or professional experience restrictions for these talents.

 

• Category B: Foreign Professionals

This category is for talents meeting specific educational, professional, or work criteria in China’s regulations. Typically, individuals with a bachelor’s degree and over two years of relevant work experience are eligible to apply for it. Foreign talents who have scored 60 or more in the scoring system also qualified.

 

• Category C: Ordinary Foreigners

Ordinary foreigners are classified as Category C when they align with the domestic labour market needs, are employed in temporary (no more than 90 days), seasonal, non-technical, or service positions that adhere to China’s policies and regulations.

 

Please visit the this link to view all the classification standards.

The Point-based Scoring System for China Work Permit

 

Following is the criterias for the point scoring system of the work permit:

积分要素计分赋值表（暂行版）

Integral Element Scoring Assignment Table (Provisional Version)

Source: Integra Group

 

Basic Handling Process

 

Online Application: Employers must log in to the designated system, submit information electronically, and provide necessary digital documents.

 

Online Preliminary Review: Within 5 working days, the acceptance authority reviews the submitted materials online. Incomplete or non-compliant applications will receive a one-time online notification for correction; otherwise, an online confirmation or an appointment for on-site material submission will be made.

 

Acceptance: The authority decides on the acceptance of the application. If the application is complete and falls under the agency’s jurisdiction, an acceptance receipt is issued immediately. 

 

Review: The decision-making authority reviews the verified materials and makes a decision within 10 working days. Verification includes checking the original employment contract, work qualification certificate, no criminal record certificate, physical examination certificate, and highest degree certificate.

 

Decision:  Where the requirements and criteria are met, the decision-making authority will decide to grant administrative permission, generate a Work Permit Notification online,  and issue the Foreigner Work Permit within 10 days of the decision.

 

Below is a flowchart outlining the application process for a Work Permit: 

Source: Ministry of Science and Technology

In practical, for a new application, if all required documents are in order, it generally takes 15-20 working days from the submission of the application to receiving the work permit notice. Additionally, the actual situation can vary from city to city, so it is advisable to consult professional firms or the relevant authorities to obtain the most up-to-date information.

Obtaining a Work Visa （Z-Visa）for China

 

The Work Visa (Z-Visa) is granted to individuals who are employed, assume a professional post, or participate in commercial performances in China. After obtaining the Foreigner Work Permit Notification letter, applicants can proceed to apply for the China Work Visa at their local visa center or the nearest Chinese embassy.

 

The general process for obtaining a Chinese work permit and work visa involves:

 

• Job Offer: Secure a job offer from an employer in China.

• Work Permit Notification: The employer applies for a Work Permit Notification at the local labor bureau in China.

• Visa Application: Apply for a Z Visa at the nearest Chinese embassy or consulate with the Work Permit Notification.

• Entry into China: Enter China with the Z Visa.

• Work Permit: Applicants must apply for the Work Permit within 15 days of entering China.

• Residence Permit: If the duration of the work visa is more than 30 days, the holders of Z-Visa must apply for a residence permit from the immigration department of the local public security authority.

 

The standard documents required include:

 

• Passport with at least six months of validity.

• Completed visa application form with a passport-sized photo.

• Official job offer from a Chinese employer.

• Work Permit Notification.

• Health certificate (if applicable).

• No criminal record certificate.

 

For the most up-to-date information and specific guidelines, it’s advisable to consult the official websites.

Integra Group is a fully licensed asia-focused accounting, taxation, and business advisory firm – with dedicated offices in Shanghai, Beijing, Singapore and Taipei. We’ve helped companies ranging from Fortune 500 companies to small to medium sized businesses establish and grow their presence in Asia.

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On March 8, 2023, China acceded to the “Convention Abolishing the Requirement of Legalisation for Foreign Public Documents” (hereinafter referred to as the “Convention”). The Convention will come into effect in China on November 7, 2023.

 

Integra Group has previously provided a detailed introduction  to the content of the Convention and the positive impacts following its accession in an article. You can read it here: China Joins the Apostille Convention: Boosting Collaboration

Starting from November 7, public documents from China intended for use in other contracting states will only require the Apostille, as stipulated by the Convention, eliminating the need for consular legalization by both the Chinese diplomatic or consular missions and those of the receiving state in China. Similarly, public documents from other contracting states intended for use in China will only require an Apostille from the issuing state, without the need for consular legalization by both the diplomatic or consular missions of the issuing state and China in the respective country.

Ministry of Foreign Affairs (MOFA) of China is the authority designated by the Convention to issue Apostilles and is responsible for issuing Apostilles for public documents originating within the country. The Foreign Affairs Offices (FAOs) of provinces, autonomous regions, and municipal governments, as well as some city-level FAOs, are authorized to issue Apostilles for documents originating within their respective administrative areas.

List of Local Foreign Affairs Offices Issuing Apostilles （as of 23th Oct 2023）

 

Provincial Foreign Affairs Offices (25)

Anhui, Chongqing, Fujian, Guangdong, Guangxi, Guizhou,         Henan, Heilongjiang, Hubei, Hunan, Hainan, Jilin, Jiangsu, Jiangxi, Liaoning, Sichuan, Shandong, Shanghai, Shaanxi, Yunnan, Zhejiang, Gansu, Hebei, Shanxi, Inner Mongolia

 

Municipal Foreign Affairs Offices (6):

Changchun, Harbin, Ningbo, Jinan, Qingdao, Shenzhen

The Chinese Apostille will be in the form of a sticker, affixed with a silver national emblem seal. Apostilles issued by the MOFA and respective local foreign affairs offices support online verification, which can be accessed at http://cs.mfa.gov.cn/.

For a complete list of countries and territories that are party to the Convention, please check it here. 

Please be aware that documents originating from mainland China intended for use in either Hong Kong SAR or Macao SAR, and vice versa, are exempt from requiring an apostille. The legalization process for documents exchanged between them will persist in adhering to existing protocols, such as attestation by an attesting officer appointed by China.

Integra Group is a fully licensed asia-focused accounting, taxation, and business advisory firm – with dedicated offices in Shanghai, Beijing, Singapore and Taipei. We’ve helped companies ranging from Fortune 500 companies to small to medium sized businesses establish and grow their presence in Asia.

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Registering a Foreign Invested Enterprise (FIE) is the first step in your journey of doing business in China. During the setup process, foreign investors must make some important decisions that will determine their allowed business activity and impact the taxes they pay.

 

Entity Type

Three main types of FIE exist in China, each with their own characteristics and intended purpose.

 

Wholly Foreign-Owned Enterprise (WFOE) – is the most common legal entity type for foreign investment in China and is suitable for most forms of business ventures. WFOEs can hire local and expatriate employees and engage in commercial business activities in accordance with their business scope.

 

Joint Ventures (JVs) – are legal entities with shared ownership between two or more parties. Equity Joint Ventures (EJV) share risk and return equal to an investor’s share of ownership. Co-operative Joint Ventures (CJV) share risk and reward according to the terms of a contract – allowing for more structural flexibility over an equity joint venture. EJVs can sometimes provide foreign investors access to industries restricted for foreign investment.

 

Representative Office (RO) – are not considered legal entities in China but instead as an extension of oversea entities. Their intended purpose is to liaise with local parties and coordinate promotional activities in China on behalf of their overseas head offices and therefore cannot engage in commercial businesses in China. They can hire employees using a third-party HR agent and are taxed based on their costs – as opposed to revenue.

 

Business Scope

 

The business scope is defined by the business and submitted for approval by the State Administration for  Market Regulation (SAMR) . The business scope plays an important role in China as it determines the types of business activity the business can legally engage in and the items for which  the business can provide an official VAT invoice (fapiao).

 

When determining the desired business scope, foreign investors should create an exhaustive list of the products and services that they wish to offer and align their descriptions with the official Industry Classifications.

 

Business activities in China are classified as either “Prohibited”, “Restricted” or “Encouraged” according to the “FI Encouraged List”, “FI Negative List”, and the “MA Negative List”.

 

Encouraged industries are often eligible for preferential treatment and tax incentives whereas restricted industries are subject to special conditions such as shareholding limits as well as special approvals by the government. Prohibited industries are entirely off-limits for foreign investment. Industries that do not appear on any of these lists grant equal market access to foreign investment as domestic investment.

 

FI Encouraged List – Catalogue of Encouraged Industries for Foreign Investment (2022 edition) 

FI Negative List – Special Administrative Measures on Access to Foreign Investment (2021 edition)

MA Negative List – The Negative List for Market Access (2022 updated)

Industry Classification – The Industrial Classification for National Economic Activities(Online Version)

Legal Persons

When registering a business in China, there are mandatory legal positions that must be filled and verified through real-name authentication. There are no restrictions – such as nationality – or qualification for who can hold these positions.

 

Legal Representative – is the most important role in the company as they are the default authorized signatory. Typically, this is the sole investor themselves, or a person designated by the executive director or board of directors of the China company.

 

Executive Director – is appointed by the shareholder to manage the company. Investors can also appoint a board of directors which must consist of 3 or more persons. For small businesses, the executive director is typically the same person as the legal representative.

 

Financial Responsible Person – is a mandatory position and cannot be the same person as the Legal Representative or Executive Director. Typically, this is the company’s internal finance manager or a third-party financial services provider.

 

Supervisor – is also a mandatory role and cannot simultaneously hold any other legal roles within the company. The supervisor should be independent of the daily operations of the company. This role is normally fulfilled by the CFO or a legal counsel to the investor company. You can view the supervisor is like an auditor who may examine the books and records of the China company to ensure full compliance of (both external and internal) rules and regulations.

 

Registered Capital

 

The amount of registered capital – together with the total investment – is defined on the Articles of Association submitted by the investors during the business license application process. It is the primary source of funding for the company to meet its financial obligations before it is self-sustaining.

For most business types, there are no minimum required capital requirements, unless otherwise specifically set out in laws, regulations, or State Council decisions currently in effect. Investors are not required to inject the full amount of registered capital upon registering the company – nor is the registered capital required to stay in the bank account. It can be spent on capital assets like machinery and equipment or operating expenses like inventory, salaries, rent, etc.

 

The period for which capital can be injected normally is dictated by the company’s articles of association – up to the life span of the company’s operating period. Thus, the registered capital can be injected over time in order to meet a business’s financial obligations. For SMEs, we recommend as a ‘rule of thumb’ to estimate 6 months’ worth of operating expenses and asset purchases as the declared registered capital.

 

Foreign Debt Quota – is the difference between total investment and registered capital and is capped by the SAIC. Foreign debt allows investors to provide short-term or long-term funding to the business to help it meet its financial obligations.

 

Foreign Debt Quota = Total Investment – Registered Capital

 

Other Issues

There are several other issues that investors should be aware of when registering their business.

 

Company (Chinese) Name

The name needs to contain four elements: the unique business name, industry description, location, and legal form. The industry description, location, and legal form are determined by the nature of the company and cannot be freely decided upon. The unique business name is up to the discretion of investors. It’s important to remember that the business name is printed on official VAT invoices and engraved on the company’s seal, so it’s generally a good idea to choose something which is simple.

 

Bank Accounts

All businesses in China are required to have at least two bank accounts; the capital account, for depositing the registered capital, and the RMB basic account for day-to-day business operations. Foreign businesses might also require foreign currency accounts which are separate accounts.

 

Registered Address

In order to complete the company registration process, businesses must have a valid rental contract to which their business is registered. Some districts allow multiple addresses business to a single address, so make sure to check whether the district you wish to register in allows this before deciding to rent shared office space.

 

Common Mistakes

One of the common mistakes investors make when registering their FIE in China is selecting a business scope that is not suitable for their planned business activities. For some industries, a business scope that is too broad may prevent the FIE from obtaining preferential policies or tax incentives. On the other hand, a scope which is too narrow can prevent the business from issuing VAT invoices for specific product or service categories.

 

Another common mistake by investors is allocating too little registered capital. FIEs in China may find it difficult to apply for a bank loan as they lack credit history and assets to secure a loan. The registered capital becomes the primary source of funding for the business until it is cash flow positive. Allocating too little registered capital can prevent investors from providing additional funding in the form of capital injection and financing in order to meet their financial obligations.

 

These issues can be addressed by making changes to the business license, though this takes time and a cumbersome process to complete. Investors are advised to carefully consider the details of their registration application – and seek the help of a professional if needed.

 

Integra Group is a fully licensed asia-focused accounting, taxation, and business advisory firm – with dedicated offices in Shanghai, Beijing, Singapore and Taipei. We’ve helped companies ranging from Fortune 500 companies to small to medium sized businesses establish and grow their presence in Asia.

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China Further Raised the Bar on Data Exporting in 2023

 

With the effectiveness of the Measures on the Standard Contract for the Cross-Border Transfer of Personal Information on 1 June 2023, China’s legislature on data export from China further raises the bar. Together with 2017 Cybersecurity Law, 2022 cross border Data Transfer Guidelines and 2021 Personal Information Protection Law and 2021 Data Security Law constitutes current China data export legislature (the “China Data Export Laws”).

 

According to China Data Export Laws, unlike GDPR enacts adequacy principle adopted between country or region with the EU, the data export mechanism of China will be authority which is local Cybersecurity Administration of China (the “CAC) on a case-by-case basis cybersecurity assessment or standard contract filing in accordance with China Data Export Laws. No matter which approvals categories your entity subject to, China’s methodology toward data export mechanism means that the burden of getting the respective approval from CAC will be assumed by the entity individually.

 

When Will Your Entity Require CAC Cybersecurity Assessment Approval

 

According to China Data Export Laws, a CAC security assessment is required for cross-border data transfers in any of the following circumstances:

 

• Cross-border transfers of “important data”
• Cross-border transfers of personal data by critical information infrastructure (CII) operators
• Cross-border transfers by data exporter processing the personal data of 1 million or more individuals
• Any transfer (in aggregate) of the personal data of more than 100,000 individuals or the sensitive personal data of more than 10,000 individuals that has occurred since 1 January of the preceding year
• Other situations requiring security assessment in accordance with PRC laws and regulations

When Will Your Entity Require CAC Standard Contract Filing Approval

 

According to China Data Export Laws, if your entity needs transfer personal information cross border and not reach the cybersecurity assessment bar, is required to get the standard contract filing approval.For example:

• Non-CII operator
• Annually processed personal information no more than 1 million individuals
• From 1 January last year to date, cross border transfer personal information out of China no more than 100,000 individuals
• From 1 January last year to date, cross border transfer personal sensitive information out of China no more than 10,000 individuals

 

The data exporter shall not split the cross border transfer measures avoiding get the prior standard contract filing approval.

 

However, what highlights in this approval is the entity is required to take data privacy impact assessment first as this assessment will be one of important documents supporting your entity to apply this approval.

Legal Consequences if Not Complying with Data Export Laws

 

Before we move to legal consequences toward either of cybersecurity assessment approval or standard contract filing approval, two points should make clear.

 

1. The approvals not regulate foreign invested companies in China but also Chinese local business owners which has overseas data flow requirements; and

 

2. CAC has the right to reject your application for approval until your entity meets the CAC requirements case by case

 

To date, we only see no more than 10 approval cases for either approval category.

 

However, your entity will face the severe legal consequences if not meeting Data Export Laws of China. For example:

• Ban your system/App from using
• Fine no more than 5% of your entity annual revenue or no more than 50 million RMB
• Ban your entity’s operation or deregister your entity from business registration

Essential Actions for Your Business Regardless of CAC Approval

 

Even your entity not required to achieve the approvals from CAC, you are still required to meet the basics regulated in accordance with Data Export Laws of China when you need cross border flow for your financial or HR information in managing your business in China.

 

Some basics you need to know when planning your export data out of China:

 

1. Data inventory check

 

The purpose is to know the current data inventory whether there is “important data” in the business operation or volumes of data cross border flow reaching the approval bar.

 

2. Building up internal data processing guidelines

 

The purpose of doing this is to draw the “red line” for your Chinese employees when handling financial or HR data flow. It is the specific procedures to define and urge your Chinese employees to follow when dealing with HR data or business data cross border transfer.

 

3. Add China chapter to your privacy policy or cookie policy for your website or system

 

Although there are some similarity between Data Export Laws of China and GDPR, there are significant differences between two legislature system. To avoid any conflict, we suggest your website or APP has special sector when regulating export data from China mainland.

 

4. IT Risk Assessments for Wechat platform or Your Chinese website

 

If your entity using Wechat platform to promote the business or Chinese website, we suggest you do the regular IT risks assessment to protect your client data and your company data in secure.

 

5. Considering outsourcing data protection officer services

 

Hire a local data expert to deal with daily China data utilization issues will be time and cost saving in the context that China is strengthening data export control.

 

6. Considering data localization and segregate your Chinese system/platform strategy

 

We understand that deploy a separate system, server or Chinese version platform will be a burden and costly to your entity.

 

However, in the long run, if your entity has a vision to treat its Chinese subsidiary as an isolated external entity for the system wise, it may finally contribute the data you collect within China mainland territory. One Compliance can assist client to deploy data localization and system segregate strategy to prepare and balance the challenges of cross border data transfer concerns. Our team delivers only the best professional services in data security and privacy protection.

(Author: Grace Chen, Director, One Compliance Consulting)

Integra Group utilizes a wide array of resources, in-depth knowledge, and a strong, established network of partners to guide clients effectively in China. Contact us today if you need any help in data compliance in China.

Intellectual Property Protection Introduction

 

Intellectual Property (IP) protection in China refers to the legal rights and protections granted to individuals or companies for their inventions, designs, brands, and artistic works. These rights are typically categorized into several types: patents, trademarks, copyrights, trade secrets, etc.

 

Patents: Patents in China are granted by the China National Intellectual Property Administration (CNIPA). They give the patent holder the exclusive right to prevent others from making, using, or selling the patented invention in China. Patents are divided into three types: invention patents, utility model patents, and design patents.

 

Trademarks: Trademarks are registered with the China Trademark Office (CTMO) and protect brand names, logos, and other identifiers of business origin. China operates on a “first-to-file” system, which means the first person to register a trademark has the right to use it.

 

Copyrights: Copyrights in China protect original works of authorship, including literary, artistic, and musical works. The National Copyright Administration of China (NCAC) is responsible for copyright registration, although registration is not necessary for protection.

 

Trade Secrets: According to Article 9 of the Anti-Unfair Competition Law, a trade secret refers to any technical information or business operation information, which is unknown to the public, has commercial values, and about which the owner has taken secret-keeping measures.

 

China’s continuous opening up allows foreign investors to do more business. As Integra Group assists clients to invest in China, the most frequently asked questions are IP-related, such as what innovations can be protected under Chinese law and how.

 

China’s Evolving IP Protection Landscape

 

Over the years, China has made considerable progress in strengthening its IP protection framework. This progress is marked by stricter enforcement of IP laws, heightened penalties for infringements, and the establishment of specialized IP courts. China has placed particular emphasis on safeguarding the IP of foreign-funded companies, creating a suitable environment for foreign capital investment and new businesses.

 

In 2020, a new set of regulations, known as “The Foreign Investment Law,” was implemented, serving as the fundamental law governing foreign investment in China. The state, in accordance with the law, safeguards the intellectual property rights of foreign investors and foreign-invested enterprises. Furthermore, it encourages technical cooperation based on the principles of voluntariness and commercial rules.

 

China has emerged as an IP-rich country, as demonstrated by the significant year-on-year increases in patent and trademark applications. As of 2022, data indicates that China held over 4.2 million patents, making it the first country to surpass the threshold of 3 million. This has made the protection of IP not only important to foreign companies but also to Chinese investors.

 

However, navigating IP protection in China can still pose difficulties, especially for foreign enterprises. Therefore, it is advisable for businesses to adopt a proactive approach in safeguarding their IP rights within the Chinese market.

 

Intellectual Property Registration in China: General Procedure

Patent Registration

It’s important to note that China operates on a first-to-file system, meaning that the first person to file a patent application will generally have priority over others. Therefore, it’s recommended to file as soon as possible. The entire process can take from months to years, depending on the complexity of the patent and the backlog at the CNIPA. Here’s a general overview of the process:

 

• Patent preliminarily search
• Prepare & File the Patent Application
• Acceptance of application & Application fee payment
• Preliminary & Substantive Examination
• Grant and Publication
• Annual Fees
• Issuance of Patent certificate

 

Copyright Registration

In China, copyright is automatically granted upon the creation of a work and does not require registration. However, registering your copyright can provide additional legal protection and is highly recommended, especially in cases of infringement. Here’s a general procedure:

 

• Prepare the necessary documents
• Submit the application
• Acceptance of application & Application fee payment
• Examination
• Certificate issuance & Announcements on the website

 

Trademark Registration

Registering a trademark in China involves several steps. Here’s a general overview of the process:

 

• Trademark availability pre-checking
• Prepare the necessary documents
• Submit the application
• Preliminary Examination
• Issuance of Acceptance notice
• Substantive Examination
• Publication for Opposition
• Issuance of registration certificate

 

It’s recommended to seek legal advice or use an IP agent, especially for foreign applicants unfamiliar with China’s patent laws and processes. Integra Group provides Intellectual Property Rights advisory services and will assist foreign investors in navigating through the complexities of China’s IP landscape.

 

Contact us to ensure your inventions, trademarks, and copyrights are adequately protected and compliant with local laws.

The China Market Entry Handbook (2023 Edition) was compiled by the professionals in Integra Group. This comprehensive guide provides a detailed roadmap for businesses planning to invest in the vibrant Chinese market.

The handbook covers crucial areas of interest for investors, including:

• How to Properly Set Up a Company in China
• An Overview of the PRC Tax System and Administration
• Accounting & Tax Compliance in China
• Hiring Employees in China
• The Cost of Hiring in China
• Tax Planning Strategies: Methods and Preferential Policies
• Profit Repatriation Strategies
• ICP Filing and ICP License in China

As you embark on your journey of doing business in China, we hope this publication serves as a valuable guide, equipping you with the knowledge and tools necessary to thrive in this dynamic market.

DOWNLOAD THE PUBLICATION

About Integra Group

Integra Group is an established provider of company incorporation, accounting, tax, HR, and outsourced corporate services in Asia. We help multinational businesses tap into the rapidly expanding Asian markets through our cost effective and reliable corporate services. With our wide range of value-added services and personalized approach, Integra helps businesses unlock new efficiencies and easily navigate the unique regulatory, business, and cultural environment in which they do business.

We have helped companies ranging from Fortune 500 companies to small and medium sized enterprises across a wide range of industries grow their business in Asia. With dedicated offices in Hongkong, Shanghai, Beijing, Taipei, and Singapore, Integra Group is uniquely prepared to help businesses reach their potential in an increasingly global business environment.

Contact Us for Free Consultations

In this article, we have summarized the key takeaways from the webinar. If you are interested in obtaining a copy of the webinar slides, please reach out to us at info@integra-group.cn.

Examining Key Consumer Trends In China

As you consider your next steps in investing in China, be aware of the following trends in China:

• A Shift to Online Consumption

With the maturity of online buying habits due to the effects of COVID-19, the ability to sell products online is crucial.

 

• Selling to Lower-tier cities – major growth

Consider expanding your market beyond the saturated markets of top-tier cities like Shanghai, Beijing, Guangzhou, and Shenzhen. The less crowded second, third, and even fourth-tier cities can offer new opportunities.

 

• Selling on Digital platforms (live streaming)

With the increasing popularity of live streaming, digital platforms, such as Douyin、Taobao, are a critical route to reach customers.

 

• Growing C2M (Customer to Manufacturer) model

The Customer-to-Manufacturer model, which directly responds to customer demands, is on the rise.

 

• Generation Z’s Market Influence

Although Generation Z makes up 25% of the population, they drive 60% of the sales growth. Also, the rise of the middle class and Generation Z has led to a preference for individualistic, tailor-made products. These consumers prefer products that stand out and are not mass-produced.

 

• Sharp increase of spending on health and wellness products

A sharp increase in spending on health and wellness products shows a growing consumer focus on maintaining good health.

 

Lastly, Industries such as IoT, cloud computing, blockchain technologies, AI, 5G technology, and 3D printing are favored by the Chinese government. Investing in these sectors and those outlined in the 2022 edition of the Catalog of Industries Encouraging Foreign Investment could provide an advantage.

Common Pitfalls When Entering the Chinese Market:

 

The unique challenges of entering the Chinese market often stem from a cultural disconnect. It is insufficient to replicate business models that have worked elsewhere; they need to be tailored specifically for the Chinese landscape. Equally important is recognizing the significance of Chinese shopping culture and digital platforms like WeChat, Douyin, and Xiaohongshu. Ignoring these elements can limit your business’s reach and growth.

 

Appropriate allocation of financial resources and time is critical for successful market entry. Inadequate investment can leave companies struggling in this highly competitive market.

 

Over-reliance on local partners presents another potential pitfall. While collaboration is beneficial, excessive dependence without a deep understanding of the market can lead to setbacks.

 

Moreover, compliance with local regulations – such as advertising, data control, and privacy protection – is crucial. Insufficient understanding of local laws and lack of engagement with the government can lead to bureaucratic hurdles, becoming significant roadblocks to success. It’s also necessary to stay updated with policy changes to ensure long-term viability in the Chinese market.

 

At Integra Group, we are committed to working closely with foreign companies, guiding them through these challenges and helping them succeed in the Chinese market.

 

Doing Business Without a Company in China

 

When entering China, you may want to test the waters to ensure that your product is marketable before committing to a legal entity. One option is to engage a local partner or distributor. This, however, poses control issues. How do you maintain oversight when you’re hours away? If your product performs well and becomes popular in China, the local partner might desire a larger share of the profits. Your bargaining power can be significantly limited in such a situation. To safeguard your interests, having a robust distributor agreement is paramount. This agreement will outline each party’s responsibilities, protection of interests, and an exit plan. There’s always a risk that your local partner may take your product, imitate it, and become a competitor. Thus, it’s crucial to consider these potential challenges.

 

Another approach is to find local Chinese individuals to assist with promotion and lobbying. Payments to these individuals are typically made from overseas, meaning you don’t have to pay any taxes for these individuals in China. However, this strategy comes with tax risks and doesn’t entirely facilitate selling products since you still don’t have a company in China. This person only supports you in marketing your business, and there might be a lack of loyalty and a sense of belonging without a real company in China.

 

A growing trend is to use an Employer of Record (EOR) – a local HR agency that can help hire the individuals you need. This agency takes care of all the salary payments and social benefits that are required in China, ensuring the employee’s rights are protected. This solution is usually temporary, used while waiting for your own company to be established.

 

Setup A company in China

 

If you decide to set up a company in China, there are three primary business structures available to foreign investors: the Representative Office (RO), the Wholly Foreign-Owned Enterprise (WFOE), and the Joint Venture (JV). Each of these types comes with its own set of benefits, limitations, and best-use cases.

The choice between these types of entities largely depends on the business’s nature, the strategic goals, and the extent of control the foreign company wishes to maintain over its Chinese operations. It is highly recommended to seek legal and professional advice when making this decision.

 

To set up a company in China, you need a unique Chinese company name, business scope, registered capital, and a unique registered address for commercial purposes. Lastly, identifying key personnel within your organization is critical. These individuals include the 1) Legal representative; 2) Executive director; 3) finance responsible person, often a CFO, internal finance manager, or service provider. 4) Supervisor.

 

Some of the critical positions to consider in your company include the legal representative (or director), who is held most liable for the company, the financially responsible person who takes care of your books and tax filings, and a supervisor who oversees the activities of the management. 

 

These considerations provide a fundamental framework for setting up a company in China.

 

Overview of the China Tax System

Value Added Tax (VAT)

 

China employs a comprehensive Value-Added Tax (VAT) system that applies to both domestic and imported goods and services. The general VAT rates for trading and service companies typically stand at 13% and 6%, respectively. However, companies not operating on a large scale can choose to apply for a small-scale VAT status, which comes with a reduced rate of 3%. This option is available irrespective of whether you’re involved in the trading or service industry.

 

For small businesses that aren’t making a lot of sales throughout the year, opting for the small-scale VAT status can be beneficial. Despite the inability to offset with credits, from an administrative perspective, this status can reduce the burden of tax compliance. Small-scale VAT taxpayers are required to file VAT returns only on a quarterly basis, in contrast to general VAT taxpayers who must file more frequently.

 

Corporate Income Tax (CIT)

 

Corporate tax for companies is 25%. However, there are certain enterprises that can avail of lower rates, provided they meet four criteria:

If you’re engaged in high technology industries such as research and development or creating new products, you can apply for a reduced income tax rate of 15% instead of 25%.

 

Individual Income Tax (IIT)

 

China’s Individual Income Tax (IIT) regime employs a progressive scale, with tax rates ranging from 5% to 45% based on income brackets. While it’s common to calculate this tax monthly, a cumulative annual calculation method can also be applied under specific circumstances. This means if you’re earning above a certain threshold annually (in this case, 200,000), your tax rate may increase. However, you may be entitled to subtract the taxes paid in previous months from your current tax liability.

 

Addition to the IIT, it’s worth noting that participation in China’s Social Insurance System is generally obligatory for all employees. This system comprises five different insurance types: pension, medical, unemployment, work-related injury, and maternity insurance. Additionally, employees typically contribute to a Housing Provident Fund. The rates vary depending on the province or city your company is registered in.

Related Reading: An overview of the PRC Tax System and Administration

Profit Repatriation Strategies

 

Repatriating profits from China to your home country can be facilitated via several methods including dividends, service fees, royalties, and interest payments on foreign loans. Here are some specifics to consider:

 

Dividends: Companies can distribute dividends to their foreign parent companies, but this is generally allowed only after the annual audit confirms profitable operations. A restriction to note is that 10% of the profits must be allocated to a statutory reserve fund until the fund reaches 50% of the registered capital.

 

Service Fees: If services are provided by the parent company to the Chinese subsidiary, these services can be invoiced and repatriated as service fees. However, it’s important to note that these transactions are subject to withholding taxes. Before processing payments, you should ensure that any service agreement is appropriately documented and registered with the relevant tax authority.

 

Royalties: If technologies developed overseas are used by the Chinese subsidiary, royalty payments can be another way to repatriate profits. Royalty agreements should be accompanied by detailed supporting evidence – including the rationale for determining the price.

 

Interest on Foreign Loans: Interest payments on loans provided by foreign parent companies can be repatriated, but there are strict regulations surrounding foreign debt that must be taken into consideration. The amount of foreign debt should be calculated carefully, either as the difference between the total investment and the registered capital or as twice the value of the audited net assets from the previous year.

 

Please consult a financial advisor or tax professional to understand the nuances and choose the most efficient method for repatriating your profits from China.

 

Disclaimer

The insights shared in the webinar are intended to provide a general understanding of the subject matter and should not be relied upon as definitive professional advice. Before making any decision or taking any action, you should consult an Integra Group professional.

We are here to help make your business journey smoother and more successful. Please feel free to contact us if you require any assistance in doing business in China.