Accurate information on legal requirements is one of the crucial conditions for qualified decision making in any business. Practical application of Chinese legislation, as in any other legal system, requires professional legal assistance. However, an introduction to elementary laws on foreign investment and foreign trade can facilitate SMEs’ initial orientation on requirements for entry to the Chinese market and can be helpful when formulating the scope of services and during negotiations with a legal advisor. The EU SME Centre has gathered about 40 laws and regulations and created an easily accessible and user-friendly law database which contains a selection of laws and regulations covering seven important areas relevant to doing business in China: foreign investment, cross border trade, foreign exchange, tax, labour, visa policy, and franchising. This law database is a complementary source of information to the guidelines published by the Centre on the website and provides a first impression of Chinese legislation in relevant areas. In no case does it constitute a full list of legislation covering the mentioned topics, and professional advice either through consultation with a Centre expert or another qualified legal professional should be sought in each individual case. For an overview of the content of the database use the below scheme or type a keyword. Disclaimer: This database is set up for general information purposes only and does not constitute legal, investment or other professional advice on any subject matter. The English translation in this database is provided by CCH China for the use by EU SMEs themselves only. The following behaviour is prohibited: (1) Combination of the whole or any part of the English translation with any other software, data or materials; (2) Publication as well as commercial and non-commercial transmission to a third party or infringement against the intellectual property rights or other proprietary rights of the translation provider in whatever means including but not limited to selling, licensing, renting, copying. Though every effort has been made to ensure that the information given is accurate, the EU SME Centre accepts no liability for any errors, omissions or misleading statements, and no warranty is given or responsibility accepted as to the standing of any individual, firm, company or other organisation mentioned. The views expressed in this database and its introduction do not necessarily reflect the views of the European Commission. Please click on the regulation listed below to download. 1. Foreign investment There is a series of basic laws and regulations (collectively called “regulations” hereafter) which govern foreign direct investment (“FDI”) in mainland China. Under the current legal system, there are three different types of FDI in China available for foreign investors: foreign-invested enterprises (“FIE”), foreign-invested partnership enterprises (“FIPE”) and representative offices of a foreign enterprise (“RO”), which – strictly speaking – is not FDI but does form a physical presence in the territory. FIE are either wholly foreign-owned enterprises (“WFOE”) or joint ventures (“JV”), depending on whether the investors are all foreign or both foreign and Chinese. JVs can also be divided into two types, namely equity joint ventures (“EJV”) and contractual joint ventures (“CJV”). In this section we list the main regulations applied to each form of FDI as well as general ones that apply to more than one form, such as the Chinese company law which applies to all companies in China, including FIEs. Kindly note that this section does not include a complete list of all regulations governing FDI. It is likely that in some industries, there are specific legal provisions on certain issues concerning FIEs, such as the registered capital required for them. In such case these specific provisions shall be observed, too. 1.1 General regulationsThis sub-section is about the first steps a foreign investor needs to consider before investing in China. Regulations in this sub-section help investors to get a feel for the attitude of the Chinese government towards foreign investment, currently and within a predictable period of time in the future. It helps to find answers, amongst others, to the following questions: Does the government encourage, allow, restrict, or simply prohibit the proposed foreign investment in relevant industries? Which basic factors need to be considered before implementing any investment activities, and which procedures will have to be followed in the investment process? The central guideline for foreign investment, called the Catalogue for Guidance of Foreign Investment Industries (the “Catalogue”), is updated on a regular basis by the Ministry of Commerce (MOC) and other relevant authorities. The latest Catalogue came into effect on January 30, 2012. Besides the Catalogue, other relevant regulations of a more general nature are also provided in this section, such as the Chinese Company Law and the Regulation on Administration of Enterprise Name Registration. Notice of the National Development and Reform Commission and the Ministry of Commerce on the Promulgation of Negative List for Market Access (For Chinese version please click here) Company Law of the People’s Republic of China (2018 Revision) (For Chinese version please click here) Partnership Enterprise Law of the People’s Republic of China (For Chinese version please click here) Catalogue of Priority Industries for Foreign Investment in Central and Western China (Revision 2017)(For Chinese version please click here) Foreign Investment Law of the People’s Republic of China(For Chinese version please click here and here) Implementation Regulations for the Foreign Investment Law of the People’s Republic of China(For Chinese version please click here) Interpretation of the Supreme People’s Court on Several Issues Concerning the Application of the Foreign Investment Law of the People’s Republic of China(For Chinese version please click here) Industry Guidelines on Encouraged Foreign Investment (Year 2019) (For Chinese version please click here) Special Administrative Measures (Negative List) for Admission of Foreign Investment in Pilot Free Trade Zones (Year 2019)(For Chinese version please click here) Special Administrative Measures (Negative List) for Admission of Foreign Investment (Year 2019)(For Chinese version please click here) Administrative Measures on Approval and Filing for Foreign Investment Projects(For Chinese version please click here and here) Implementation Opinion on Issues relating to Application of Law for Administration of Examination and Approval and Registration of Foreign-invested Companies(For Chinese version please click here) Administrative Regulations on Registration of Representative Offices of Foreign Enterprises (2018 Revision)(For Chinese version please click here and here) Partnership Law(For Chinese version please click here) 1.2 Wholly Foreign Owned EnterpriseMost foreign investment in recent years has been in the form of WFOEs for various reasons, one of them being that this form of FDI offers sole control over the management of the company. This sub-section contains regulations on the establishment of WFOEs and rules for their implementation. Here, some basic but important provisions are specified, such as the approval and registration of the setup and change of a WFOE, the type of incorporation, the registered capital, the mandatory content of the articles of association and more. Law of the People s Republic of China on Wholly Foreign-owned Enterprises(For Chinese version please click here) Detailed Implementing Rules for the Wholly Foreign-Owned Enterprise Law (Revised)(For Chinese version please click here and here) 1.3 Joint VentureDue to various reasons, such as the legal limitation for investment in certain industries or the commercial expectations of the investors, foreign investors might choose to set up a JV rather than a WFOE. With Chinese investors involved, foreign investors have to consider the allocations of rights and obligations in the operation and management of the company carefully. This sub-section contains specific regulations concerning the establishment of JVs (both EJV or CJV) as well as rules for their implementation, including information on issues such as the approval and registration processes involved, the distribution of profit and the allocation of risk and loss, as well as the composition of the board of directors and its resolution mechanism. Law of the People s Republic of China on Sino-foreign Equity Joint Ventures(For Chinese version please click here) Implementing Regulations for the Sino-Foreign Equity Joint Venture Enterprise Law (2014)(For Chinese version please click here) Law of the People s Republic of China on Sino-foreign Co-operative Enterprise(For Chinese version please click here and here) Implementation Regulations for the Law of the People’s Republic of China on Sino-foreign Cooperative Joint Venture Enterprises(For Chinese version please click here and here) 1.4 Representative OfficeSometimes a foreign enterprise just needs to have a presence in China to conduct market research, showcase its products, conduct marketing activities or liaise with possible partners and customers. For these activities, as well as service provision, domestic procurement, the preparation of domestic investment and the assessment of next steps, an RO may be the suitable investment form. In this sub-section you will find relevant regulations on the setup, changes and the cancellation of an RO, its registered items, annual checks, activities an RO may engage in and the appointment of a chief representative or representatives. Administrative Regulations on the Registration of Permanent Representative Organizations of Foreign Enterprises(For Chinese version please click here and here) 2. Foreign trade Cross-border trade encompasses the export to and import from China of various goods and services as well as technology. Included in this section are several basic laws and regulations concerning this field of international trade. The Foreign Trade Law sets the fundamental legal rules for foreign trade in China while the two import and export regulations on goods and services provide a detailed picture of government administration in cross-border trade of goods and services in China. They include topics like the classification of goods, services and technology into permitted, restricted and prohibited categories as well as procedures to acquire a license necessary for the import from or the export to China of restricted goods or technology. Foreign Trade Law(For Chinese version please click here and here) Regulations on Administration of Import and Export of Goods(For Chinese version please click here) Regulations of the People’s Republic of China on the Administration of the Import and Export of Technology(Revised in 2019)(For Chinese version please click here and here) 3. Foreign exchange administration China exercises foreign exchange administration. The regulation presented in this sub-section defines the basic structure of this administration, including the foreign exchange administration on current and capital account transactions and the administration of the Renminbi (CNY) exchange rate and the foreign exchange market. Regulation on Foreign Exchange Control(For Chinese version please click here) 4. Taxes Foreign enterprises have good reasons to care about taxes involved in transactions they engage in as it may influence their transaction costs or weaken their products’ competitiveness in the Chinese market. The Chinese tax legislation is a complicated and complex system however. In this section, we list regulations on some major taxes, including value-added tax, business tax, consumption tax, corporate income tax (CIT), and individual income tax, as well as their implementation rules. You will also find special regulation on taxes related to RO in this sub-section. 4.1 Corporate income tax (“CIT”) Enterprises registered in China or registered in accordance with the law of a foreign country (region) but with an actual administration institution in China, i.e. resident enterprises in China from a tax perspective, which includes FIEs but not partnership enterprises and FIPEs, are subject to corporate income tax if they generate a profit. Non-resident enterprises, mainly foreign enterprises, may also be subject to CIT. Under most circumstances, ROs are treated as a permanent establishment of a foreign enterprise in China and may therefore be subject to CIT. If a non-resident enterprise provides services, technology or investment in China, it may also be subject to CIT for service fees, royalties paid or profit distributed to it. In this sub-section you will find the CIT Law and its implementation rule for a basic understanding of the Chinese CIT system. Kindly note that bilateral tax agreements (BTA) between China and the respective foreign country can play a role when determining whether or not a non-resident enterprise needs to pay CIT and what rate shall be applied. Such BTAs prevail if their provisions are different from those in the Chinese CIT Law and its implementation rule. Corporate Income Tax Law of the People’s Republic of China(For Chinese version please click here) Implementation Regulations for the Corporate Income Tax Law of the People’s Republic of China (Revised in 2019)(For Chinese version please click here) 4.2 Individual income tax (“IIT”)Individuals which have income sourced from China have the obligation to pay individual income tax (IIT) for their global income or income sourced from China alone, depending on the specific situation stipulated in various IIT-related Chinese regulations. An FIE is obligated to withhold and pay IIT on behalf of its employees, whether Chinese or foreigners. A foreign individual dispatched by a foreign enterprise to China may also be subject to IIT in China, depending on whether there is a bilateral tax agreement (BTA) in place between China and the foreign country or region of which the foreign individual is a tax resident which covers IIT. Kindly note that the Chinese IIT Law and its implementation rule provided in this section can only provide a very general overview of the basic Chinese IIT legal system. For many specific cases the State Administration of Taxation (SAT) additionally issued detailed regulations which may apply. Individual Income Tax Law(For Chinese version please click here) Implementating Regulations for the Individual Income Tax Law(For Chinese version please click here) 4.3 Turnover taxesIn China, turnover taxes refer mainly to value-added tax (VAT), business tax (BT) and consumption tax (CT). The sale of goods, immovable property, services or technology may be subject to VAT or BT. Among the goods the sale of which is subject to VAT, there are 14 items also subject to CT – mainly luxury goods, goods made from non-renewable resources or goods with great adverse impact on the natural environment. We list only the basic regulations concerning these three turnover taxes in this sub-section. Kindly note that in China the reform on pilot collection of VAT in lieu of BT in the transportation industry and parts of the ‘modern services industries’ was implemented on 1 January 2012 in Shanghai, then expanded to 8 additional provinces and municipalities directly under the Central Government including Beijing, and will roll out nationwide starting from August 2013. The aim of the reform is to replace BT with VAT. Therefore, when it comes to the sale of services and technology, besides the general regulations listed here, the regulations related to this reform are also important. Provisional Regulations of the People’s Republic of China on Value-added Tax(Revision 2017)(For Chinese version please click here and here) Interim Regulations on Consumption Tax(For Chinese version please click here) 4.4 Major taxes involved in the operation of an RORepresentative offices (RO) are a special form of presence open to foreign enterprise’s in China. The State Administration of Taxation (SAT) issued a special regulation on the operation of an RO, available in this sub-section. This regulation standardises the tax administration of ROs established by foreign enterprises. It covers such areas as tax registration of an RO, the filing of the three major taxes (CIT, VAT and BT) and the calculation and payment of these taxes. Notice of State Administration of Taxation on Promulgation of theProvisional Measures on Administration of Tax Collection for Resident Representative Offices of Foreign Enterprises (For Chinese version please click here and here) 5. Visa policy The increasing economic exchange between China and other countries or regions brings with it a rising flow of people in and out of the country. In this sub-section we supply basic regulation concerned with these matters, which will come into effect on 1 July 2013 and covers the exit and entry of Chinese citizens, the entry and exit of foreigners, the stay and residence of foreigners in China and the exit-entry border inspection of means of transport. Exit and Entry Administration Law(For Chinese version please click here) 6. Labour related laws As two fundamental laws governing all employment relationships in China, the Labour Law and the Labour Contract Law including its amendment are important to all employers, including FIEs and FIPE. ROs cannot employ staff directly under the Chinese legal system. In this sub-section we provide these two laws to help foreign investors to get to know the basic framework of China’s legal system concerning employment. Labour Law(For Chinese version please click here and here) Labour Contract Law(For Chinese version please click here and here) 7. Franchising Commercial franchising is an increasingly common way to expand ones business activities in China. Some detailed regulations on franchising were issued recently. We list in this sub-section two basic regulations which cover the qualifications necessary for a franchiser, the main content of a franchising contract, detailed information on the filing of commercial franchising, information a franchiser is required to disclose to the franchisee, as well as information available to the general public for research on the information management system for commercial franchises. Regulations for the Administration of Commercial Franchising(For Chinese version please click here) Administrative Measures for the Record-filing of Commercial Franchises (2011)(For Chinese version please click here)
