Viewpoints from Kaizen

To set up a representative office (RO) in China used to be a common way for foreign investors that intend to enter into China. The main reason is that an RO is easy to establish. However, China has imposed more registration restrictions and tougher tax rules on ROs since 2010. The establishment and maintenance of ROs have been restricted and discouraged. And it is becoming much more expensive from a tax point of view. On the other hand, the establishment of wholly foreign owned enterprises (WFOEs) have become much simpler and more straightforward. Foreign investors may consider setting up a service type WFOE rather than an RO now. The main reasons are follows: 1. Scope of Business The biggest disadvantage with ROs is that they are not allowed to engage in any profit making activities except for those activities which China has agreed on in international agreements or treaties. An […]

Employee Recruitment As stated in LABOUR LAW OF PEOPLE’S REPUBLIC OF CHINA and A REGULATION FOR EMPLOYMENT OF FOREIGN-CAPITAL ENTERPRISES, foreign-capital enterprises have the right to decide for their company structures and employment needs as necessary of their operations. They also have the right to recruit their own employees by applying to a variety of legal agents including human resource organizations, recruitment fairs and advertising on the media. The recruitment of employees from foreign countries, Hong Kong, Taiwan and Macao requires permission and certificates from the labor office of the local government. Salary Under A TEMPORARY REGULATION OF SALARY AND INCOME IN THE FOREIGN-CAPITAL ENTERPRISES, the enterprise decides the Salary system, salary level and bonus and stipends in line with the national and local minimum salary standards. The increase of the average salary of the employees is based on the development of the enterprise. The company’s annual return, productive rate […]

(I) Technology Transfer (a) Introduction China’s foreign investment policy has traditionally placed a strong emphasis on the transfer of technology to Chinese enterprises. Consequently, technology licensing has played and continues to play a major role in foreign investment projects in China. Applicable laws, regulations and administrative practices have also imposed some significant restrictions on the terms on which such technology can be licensed into China. (b) Applicable Regulations Prior technology transfer rules and regulations imposed certain onerous limitations on the contents of technology transfer contracts and required centralised government approvals. This approval/registration regime has been further streamlined post-WTO to the effect that many of the previously more onerous existing provisions and practices have been eliminated or further relaxed. (c) Prior Technology License Terms Under the prior technology licensing rules, without approval, a technology transfer contract was void. It was also not permitted to include any of the following restrictions or […]

(I) Representative Office The most basic form of foreign business presence in China is the Resident Representative Office (RO). A China Representative Office provides a permanent base from which its resident personnel may conduct local sales and purchasing activities. As a practical matter, it is desirable, and in most cases necessary, to establish a formal Representative Office for a foreign company to do the following in China: – Open an office with company signage – Print company business cards showing local contact information – Open bank accounts – Import office equipment and supplies – Import personal effects of resident company representatives, and – Hire Chinese employees. Representative Offices are prohibited from engaging in “direct business operations” and violations may result in fines and the closure of the office. There is no precise definition of “direct business operations”. However, it is clear that the Representative Office may not directly enter into […]