Professional Documents
Culture Documents
China
This publication is copyright. Apart from any fair dealing for the purposes of private study or research permitted under
applicable copyright legislation, no part may be reproduced or transmitted by any process or means without prior written
permission.
The material in this publication is of the nature of general comment only. It is not offered as advice on any particular matter and
should not be taken as such. The firm and the contributing authors expressly disclaim all liability to any person in respect of
anything and in respect of the consequences of anything done or omitted to be done wholly or partly in reliance upon the whole
or any part of the contents of this publication. No client or other reader should act or refrain from acting on the basis of any
matter contained in it without taking specific professional advice on the particular facts and circumstances in issue.
Tables of Contents
INTRODUCTION.............................................................................................. 1
EQUITY JOINT VENTURES .......................................................................... 2
COOPERATIVE JOINT VENTURES ............................................................ 8
WHOLLY FOREIGN-OWNED ENTERPRISES ...................................... 12
REPRESENTATIVE OFFICES .................................................................... 15
DISTRIBUTION .............................................................................................. 17
IMPORTS AND EXPORTS IN CHINA ...................................................... 20
MERGERS AND ACQUISITIONS .............................................................. 25
ANTITRUST AND COMPETITION LAWS ............................................... 30
INTELLECTUAL PROPERTY PROTECTION ......................................... 39
EMPLOYMENT ISSUES .............................................................................. 54
TAXATION........................................................................................................ 60
CONCLUSION ................................................................................................ 66
SELECTED FOREIGN INVESTMENT LAWS ......................................... 67
Baker & McKenzie in China ................................................................... 189
Baker & McKenzie Offices Worldwide ............................................ 193
INTRODUCTION
This guide provides an introduction to selected aspects
relating to investment and business operations in the Peoples
Republic of China (PRC) under current Chinese law and
policy. We provide a brief outline of equity and cooperative joint
ventures, wholly foreign-owned enterprises, and representative
offices. The guide also includes a summary of mergers and
acquisitions, taxation, import and export rules, competition
issues, intellectual property protection, etc. The final part
of the guide includes selected translations of Chinas foreign
investment laws.
Establishment
The procedure for establishing equity joint ventures (and other
foreign-invested enterprises) may vary depending on the
location and the ownership structure of the Chinese party.
First, the Chinese party, generally a state-owned entity, must
receive preliminary approval for the project from its department
in charge. The Chinese party must submit a project proposal
and preliminary feasibility study to its superior governmental
department and to the appropriate examination and approval
authority (generally MOFCOM or its local counterpart).
After the Chinese party has received initial approval from the
examination and approval authorities, the parties will prepare
a joint feasibility study that reflects their assessment of the
economic viability of the proposed project.
The parties will proceed to negotiate and draft the joint
venture contract and articles of association. When the
parties have completed these documents, they must apply
to the examination and approval authority by submitting an
application, the joint feasibility study, the joint venture contract
and articles of association, as well as other documents. Upon
receipt of these documents, the authorities will need to review
these documents and decide whether to approve the proposed
joint venture.
In general, the establishment of an equity joint venture will
have to be approved by the State Development and Reform
Commission, MOFCOM or local governments depending on the
size and business nature of the proposed joint venture and other
factors. The contracts and articles of association of large
equity joint ventures will have to be approved by MOFCOM.
After approval, the joint venture must register with the local
bureau of the State Administration for Industry and Commerce
(SAIC) within one month. The joint venture will then be issued
with a formal business license and be officially established.
Documentation
The Joint Venture Regulations do not set forth detailed
requirements for the form or contents of documents such as
the letter of intent, feasibility study, the joint venture contract
and articles of association. The Chinese authorities have,
however, published model forms for joint venture contracts and
articles of association that are closely adhered to by the Chinese
parties to joint ventures. By law, the joint feasibility study, joint
venture contract and articles of association may be drafted in
both Chinese and a foreign language. Under the Joint Venture
Regulations the joint venture contract must be governed by
Chinese law.
In addition to the above documents, the parties will often
simultaneously negotiate and execute contracts related to the
joint ventures operations, such as those for technology transfer,
trademark licenses, and supplies of parts or raw materials, as
well as for the distribution of finished products. These related
contracts may be attached to the joint venture contract as
attachments.
Parties investments
The most important concepts relating to the capitalization
of an equity joint venture are registered capital and total
investment. In the joint venture legislation, registered capital
refers to the total amount of paid-in capital contributions by
the parties to the joint venture. The total investment equals
4
Foreign exchange
Chinas national currency, the Renminbi, is not freely convertible
into other currencies. Nevertheless, China has introduced
a form of current account convertibility, under which joint
ventures may purchase foreign exchange for current account
expenditures without the necessity of obtaining government
approval. China also permits the conversion of Renminbi
into foreign exchange for remittances of after-tax profits or
dividends to foreign investors in equity joint ventures. Foreign
exchange remittances and receipts must go through banks that
have been designated to handle foreign exchange transactions.
Instead of government approval for foreign exchange
remittances and receipts, the designated banks examine the
documentation for the underlying transaction to ensure that
the proposed payment or receipt qualifies as a current account
item. Joint ventures also have access to the interbank market
Financial administration
An equity joint venture is required to adopt accounting
procedures based on a dual-entry, accrual system. All
accounting records, books and statements are required to be
prepared and kept in Chinese. The accounting system adopted
by the joint venture must be reported, for the record, to the
competent government authorities and the local financial
and tax departments. Chinese legislation also requires an
accountant registered in China to act as the auditor of the joint
venture.
An annual profit distribution plan has to be prepared and
distribution of profits among the parties should be in proportion
to their respective contributions to the registered capital of the
joint venture.
Equity joint ventures are required to allocate a certain
percentage of after-tax profits to a reserve fund, enterprise
expansion fund and incentive and welfare fund for staff and
workers.
Establishment
The documentation required for the establishment of a
cooperative joint venture and the procedures for obtaining
approval of the project are very similar to those outlined above
with respect to equity joint ventures.
In the case of a cooperative joint venture, the examination and
approval authority (generally MOFCOM or its local counterpart).
The contract and articles of association become effective upon
issuance of an approval certificate.
Parties contributions
One of the reasons many investors in the past have chosen to
utilize a cooperative joint venture structure instead of an equity
joint venture has been that the investors are able to make their
contributions to the joint venture in forms other than those
allowed for an equity joint venture.
The Chinese party to a cooperative joint venture might, for
example, be made responsible for providing the required local
labor, including the payment therefor. The Chinese party might
also be responsible for providing the necessary factory or office
facilities.
Relevant rules have become more restrictive in light of the
issuance of the Cooperative Joint Venture Regulations. In some
cases, it may not be permitted to count some of these forms of
9
Operation
Pure cooperative joint ventures will usually have a shorter
term than equity joint ventures, while hybrid cooperative joint
ventures may have longer terms similar to those of equity joint
ventures. Cooperative joint ventures are favored for hotels and
commercial complexes and in infrastructure projects where
the parties intend that the joint venture assets will stay with the
Chinese party at the end of the joint venture term. Cooperative
joint ventures are also commonly used for projects where the
Chinese partner lacks material assets to contribute to the
joint venture. Cooperative joint ventures in manufacturing are
generally discouraged. The operational activities of cooperative
joint ventures are restricted in much the same way as those of
equity joint ventures.
It is common for cooperative joint venture contracts, especially
those of pure cooperative ventures, to provide for the reversion
of all of the assets of the joint venture to the Chinese party
10
Foreign exchange
Cooperative joint ventures are generally subject to the same
foreign exchange rules as equity joint ventures.
Prots
A substantial advantage of cooperative joint ventures is that
the parties may agree on the distribution of profits at a ratio
different from that of the parties capital contributions.
Financial administration
An accountant registered in the Peoples Republic of China
must be engaged to audit and verify accounts. The parties may
engage the accountant jointly or individually. A cooperative
joint venture without legal person status must keep unified
account books, and the parties must, in addition, keep their own
separate account books.
11
Establishment
Under the existing system, the procedures for establishing
WFOEs are similar to those for equity joint ventures. MOFCOM
or its local counterpart is the examination and approval
authority. In certain cases, where the WFOE is engaged in
certain business activities that require prior industry approval,
e.g. advertising, transportation, then prior approval is required
from the specific industry regulator.
The foreign investor is required to submit to the examination
and approval authority the following documents:
an application letter;
a feasibility study for the investment project;
articles of association for the proposed WFOE;
the foreign investors certificate of incorporation;
a letter of creditworthiness issued by the bank of the foreign
investor;
12
Parties investments
As in the case of equity joint ventures, foreign investors
capital contributions to a WFOE may be in the form of foreign
currency, machinery, equipment, industrial property, proprietary
technology or, upon approval, Renminbi profits derived from
their other investments in China. Capital contributions are
subject to the prescribed debt to equity ratios and restrictions
on reduction or increase of registered capital applicable to
equity joint ventures.
Operation
A WFOE is permitted to operate for the period provided for
in its approval from the examination and approval authority.
Requests for an extension of the term of operation must be
submitted to this authority 180 days prior to expiry.
Under the WFOE Regulations and the Catalog for Guiding
Foreign Investment in Industry (which is revised and amended
from time to time), the establishment of WFOEs is prohibited in
13
Foreign exchange
WFOEs are generally subject to the same foreign exchange
controls as joint ventures.
Management
The daily operations of a WFOE will be controlled solely by its
own management, and should not be subject to interference by
the government when operating in accordance with its approved
articles of association.
Financial administration
The accounting rules applicable to WFOEs are similar to those
applicable to equity joint ventures. Accounting books and
statements printed by WFOEs themselves must be written
in Chinese. For those written in foreign languages, notes in
Chinese must be included. Only Chinese registered accountants
can verify annual accounting statements. Annual balance
sheets and profit-and-loss statements must be submitted to
the financial and tax authorities for the record. A WFOE must
allocate at least 10% of after-tax profits to its statutory reserve
fund for a certain number of years, whereas in equity joint
ventures, the board of directors decides the proportion to be
allocated to the reserve fund.
14
REPRESENTATIVE OFFICES
Legal status
Representative offices established in China by non-resident
enterprises are regulated by several national regulations,
as well as local policies, which supplement the national
regulations. In general, representative offices may not conduct
direct business activities. A representative office is permitted
only to make business contacts and render services on behalf of
its head office. Personnel employed by the representative office
of a non-resident enterprise should not sign contracts on behalf
of either the non-resident enterprise or third parties.
Registration
Pursuant to a 2004 State Council decision, it is no longer
necessary to obtain approval for establishment of the most
common types of representative office. Instead, direct
registration with the industry and commerce authorities is
permitted. Some local registration authorities require an
applicant company to submit application materials through
designated agencies, and different registration authorities may
require different documents.
Documents to be submitted generally include:
a registration form for the representative office;
a registration form for each of the representative offices
foreign personnel (effective from 2010, a representative
office can register a maximum of four representatives);
a letter of creditworthiness from the foreign companys bank;
and
15
Taxation
In a wide range of circumstances, the representative office of
a non-resident enterprise will be subject to both enterprise
income tax and business tax on the basis that its activities
either generate revenue, or through attribution, may be
considered to generate revenue for the non-resident enterprise.
The same rate of enterprise income tax that applies to equity
joint ventures will generally apply to a representative office.
Business tax is levied on gross revenue from the provision of
certain categories of services and the assignment of certain
assets. Where there is no evidence of actual revenue and costs,
income and revenue can be imputed to the representative office
for enterprise income tax and business tax purposes on a costplus or deemed profit basis.
In certain limited circumstances, a non-resident enterprises
representative office may be eligible for an exemption from
enterprise income tax and business tax, depending on the
nature and extent of its activities.
16
DISTRIBUTION
Wholesaling and retailing
Chinas policy on foreign investment has always emphasized
manufacturing projects, particularly those that export. The
activities open to foreign-invested enterprises are, however,
expanding. One example is the opening up of Chinas wholesale
and retail sectors in recent years.
Foreign investment in wholesale and retail activities is governed
by the Measures for the Administration of Foreign Investment
in the Commercial Sector (the Commercial Sector Measures),
which came into force on June 1, 2004. Promulgation of the
Commercial Sector Measures represents partial fulfillment
of Chinas WTO obligations to open up its wholesale and retail
sectors to foreign investment. Under the Commercial Sector
Measures, foreign investors can establish 100% wholly foreignowned wholesale or retail enterprises beginning on December
11, 2004. However, there is a cap of 49% foreign ownership
when more than 30 stores are opened and the stores sell the
following types of products sourced from different suppliers:
books, newspapers, periodicals, pharmaceuticals, pesticides,
mulching film, chemical fertilizers, grain, vegetable oil, sugar,
cotton, etc. In addition to liberalizing equity restrictions, the
Commercial Sector Measures lift all geographic restrictions on
foreign-invested wholesale enterprises: such enterprises can
be opened anywhere in China.
Foreign-invested wholesalers and retailers are permitted
to engage in a fairly broad scope of activities. In addition
to wholesaling, foreign-invested wholesalers are permitted
to engage in commission agency (excluding auctioneering),
the import and export of merchandise and related ancillary
17
Franchise operations
China permits foreign investors to engage in franchising
activities through wholly foreign-owned or joint venture
commercial enterprises. Cross-border franchising is also
permitted.
In order for a foreign investor or foreign-invested commercial
enterprise to become a franchisor, the franchisor must have at
least two directly-operated stores that have been operating for
over one year.
Applications to establish a foreign-invested commercial
enterprise to engage in franchising activities must be submitted
to the commerce authorities, and a specimen franchise contract
must be submitted together with other application materials.
Direct selling
Pursuant to its WTO commitments, China liberalized foreign
investment in wholesale and retail distribution away from
a fixed location with the promulgation of the Regulations
for the Administration of Direct Selling by the State Council
and effective from December 1, 2005 (the Direct Sales
Regulations). Following the promulgation of the Direct
Sales Regulations, China issued implementing regulations to
supplement various aspects of the Direct Sales Regulations.
18
19
1.
20
2.
3.
Customs valuation
4.
Tariff classication
rates and most favored nation rates are shown for each
category. Failure to provide an accurate HS Code will attract
penalties and can impact the customs duty rate applied to
imports. If this results in underpayment of customs duty, China
Customs can penalize the importer for Duty evasion.
China Customs has adopted the six General Rules of
Interpretation (GRIs) for classifying imports and exports.
5.
Customs declaration
6.
Origin
7.
Bonded Zones
Export
Processing
Zones
Bonded Logistics
Zones
Bonded Logistic
Centers (Type B)
Bonded Port
Zones
Bonded
Integrated Zones
X
X
X
(domestic)
X (imported)
X
23
8.
24
General framework
Similar to the undertaking of green-field projects, foreign
investors acquiring Chinese companies are subject to foreign
investment restrictions, which are based on the classifications
of industries into encouraged, permitted, restricted and
prohibited categories. Such classifications, which are set
forth in the Catalog for Guiding Foreign Investment (last revised
in December 2007) affect the maximum percentage of foreign
ownership allowed, as well as the level of Chinese government
authorities from which approvals would be required. MOFCOM
and the National Development and Reform Commission are
the major Chinese agencies in-charge for foreign investment
matters.
The Foreign M&A Regulations also introduced the concepts
of industries affecting national economic security and
companies owning well-known trademarks and old Chinese
trade names, a change of control in which will require approval
from central MOFCOM regardless of the transaction value. In
other cases, the level of the approval authorities is determined
by the transaction value or the total investment amount set for
the target entity.
25
26
Mergers
PRC laws recognize two forms of merger: merger by
absorption and merger by new establishment. A merger
by absorption involves the absorption by one company of
another pursuant to which the absorbed company is dissolved
and its registered capital and assets merged into the surviving
entity. In a merger by new establishment, each of the pre28
Recent developments
There are a number of interesting regulatory developments
2009 concerning mergers and acquisitions in China. For
example, the rules allowing shareholders to use their equity
interest or shares in PRC companies for capital contribution
were issued in January 2009 followed by the long-awaited rules
on tax treatments of M&A transactions and restructuring.
These developments offer new possibilities for pre- or postacquisition restructuring. Earlier in December 2008, the PRC
banking regulator lifted the decades-old prohibition against
Chinese banks extending loans for M&A transactions, and
foreign investors can potentially benefit from it by using their
Chinese subsidiaries as acquisition vehicles.
29
Extraterritorial application
The AML applies to both (a) agreements and conduct within
China; and (b) agreements and conduct outside China, where
these have the effect of restricting competition in the Chinese
market.
Enforcement agencies
The Anti-Monopoly Enforcement Agency (AEA) is responsible for
coordinating enforcement, delegated in turn to three agencies:
MOFCOM is responsible for merger control filings and
investigations;
30
31
32
35
Penalties
For anti-competitive agreements and conduct, fines of up to
10% of the total turnover in the preceding year can be levied,
plus confiscation of illegal income resulting from the agreement
or conduct. In addition, agreements that violate the AML are
automatically invalid. Cease and desist orders can also be
issued in respect of anti-competitive behaviour.
For failure to make a merger filing, or closing a transaction
before clearance is granted, fines of up to RMB 500,000
(US$73,000) are available, plus the ability for MOFCOM to order
the annulment or unwinding of the transaction.
Procedure
Rules have been published setting out how investigations are
conducted. These include basic details of a leniency program,
which rewards those confessing illegal conduct or agreements
with either full or partial immunity from fines.
37
Litigation
In addition to administrative enforcement, the AML allows
customers, competitors and third parties to bring civil damages
claims against any business that has caused them to suffer loss
by engaging in a monopoly agreement or abusing its dominant
market position.
38
Patents
The Patent Law of the Peoples Republic of China (the Patent
Law) was amended in December 27, 2008. The revision
came into effect on October 1, 2009 and is expected to be
supplemented in 2010 with revised Implementing Regulations.
The amendments introduce key changes into the system which
merit the attention of patent owners.
The Patent Law and its Implementing Regulations adopt a
first-to-file rather than first-to-invent system, i.e. a system
similar to Europes rather than that of the US. There are three
types of patent: patents for inventions of 20 years duration;
utility models; and design patents of ten years duration. The
system is compliant with the WTO Agreement on Trade-related
Aspects of Intellectual Property Rights (TRIPs), with Paris
Convention priority. This means that if a patent application
for an invention or utility model patent is first filed in another
Convention-member country within 12 months before the
filing date in China, the prior filing date will be regarded as the
priority date in China. In the case of design patent applications,
the relevant period is six months.
The Patent Law grants protection to inventions, utility models
and designs. This includes pharmaceutical products and
substances obtained by means of a chemical process. An
39
40
41
Trademarks
The PRC Trademark Law imposes a strict first-to-file rule for
obtaining trademark rights whereby the first party to file for
registration of a mark pre-empts later applicants. Prior use of
an unregistered mark is generally irrelevant unless the mark
in question is well-known and therefore protected either under
the Paris Convention or pursuant to the Trademark Law and
its Implementing Regulations. An application for trademark
registration must be filed with the Trademark Office of the State
Administration for Industry and Commerce (SAIC).
After a trademark registration application has been granted
preliminary approval by the Trademark Office, it will be
published in the PRC Trademark Gazette. The PRC Trademark
Office will publish an announcement in the Trademark Gazette
and issue a registration certificate if no opposition is filed within
the statutory three-month opposition period.
Trademark law provides that any visually perceptible sign
capable of distinguishing the goods of one natural person, legal
person or other organization from those of another may qualify
for registration as a trademark. The sign may take the form
of words, figures, letters, numbers, three-dimensional signs,
color combinations or a combination of any of these elements.
Collective marks and certification marks may be registered as
trademarks in the PRC.
43
Copyright
The Copyright Law of the Peoples Republic of China (the
Copyright Law), amended with effect from October 27, 2001,
and its Implementing Regulations, amended with effect from
September 15, 2002, attempt to bring Chinas copyright regime
closer to full compliance with TRIPs.
The revised Copyright Law introduces protection for
architectural works, graphic works, model works, and
databases, i.e. original compilations of works or information
that do not qualify for protection under copyright. The
Implementing Regulations provide protection for performances
45
Internet
The Internet Copyright Measures, which came into effect on May
30, 2005, facilitate more efficient administrative enforcement
regarding copyright infringement on the internet by imposing
liability on Internet information service providers (ISPs) and
by providing for administrative penalties. Under the Internet
Copyright Measures, upon receipt of a notice from a copyright
owner of the infringement, the ISP is required to remove
offending contents from its service and keep records of the
provided information. Similar take-down provisions are found
in the Network Dissemination Regulations, which entered into
force July 1, 2006. The Regulations introduced civil liability
for circumventing technical protection measures, as well as
clarified ISP liability for end-user copyright infringement. The
Supreme Peoples Court also introduced a judicial interpretation
which explicitly criminalizes online infringements (subject to
the requirement in the Criminal Code that such infringements
be for profit).
47
Computer software
Copyright in computer software is governed by general
provisions in the Copyright Law, and the Regulations for the
Protection of Computer Software (Software Regulations)
issued in 1991 and amended in 2002.
The Software Regulations accord protection for new types
of uses of software, including rental rights and the right to
authorize broadcast over information networks, which
is assumed to include the Internet. Consequently, on-line
distribution of software without authorization (whether for profit
or otherwise) is considered a prohibited form of reproduction
under the new Software Regulations. Further, the Software
Regulations provide explicit protection against activities that
attempt to circumvent or sabotage technological measures
used by software copyright owners. Likewise, the Software
Regulations outlaw the removal or alteration of electronic rights
management information incorporated into works to facilitate
copyright protection.
In the case of software owned by legal persons and other
organizations, the period of protection is now 50 years,
ending on December 31 of the fiftieth year after the work was
published. If the software is not published within 50 years after
its creation, no protection is given.
The Software Regulations permit registration for the purpose
of providing prima facie evidence of ownership and validity
of software. The Measures for the Registration of Copyright
in Computer Software apply to the registration of software
copyright and to the registration of exclusive software copyright
license contracts and assignment contracts.
48
Domain names
China has issued various regulations to regulate the use
of domain names. They include the Measures for the
Administration of Internet Domain Names in China which took
effect in 2004 and the Detailed Implementing Rules of the China
Internet Network Information Center for the Registration of
Domain Names (the Registration Rules) effective from 2002.
The Registration Rules cover applications to register domain
names with .cn as the top-level domain and Chineselanguage domain names administered by the China Internet
Network Information Center (CNNIC). Only organizations
that have been registered in accordance with law and that can
independently assume civil liability may apply for domain name
registration. Application may be effected by on-line registration,
e-mail or other means. The first-to file principle continues
to apply: i.e. priority is given to the first applicant who files a
valid application. Applications for approval can be made to the
domain name registrar for the assignment of domain names.
Except where an applicant makes a special declaration
that disclosure is not permitted, the domain name registry
administrator or the domain name registrar will put all
information which the applicant included in the domain name
registration application form into the database for public
enquiries.
50
51
Trade secrets
A trade secret is defined in both the Unfair Competition
Law and the PRC Criminal Code as technical and business
information which is private, can bring economic benefits to the
rightful party, is practical and for which that party has adopted
measures to maintain its confidentiality. A non-exhaustive list
of measures to maintain confidentiality is set forth in the Trade
Secrets regulations. Such measures include: disclosing secrets
on a need-to-know basis only, adopting physical preventive
measures such as locking, marking information confidential,
requiring access codes and passwords, and requiring
confidentiality agreements.
Trade secrets are protected under the Law of the PRC Against
Unfair Competition. Under the Law, business operators are
prohibited from infringing upon commercial secrets by obtaining
the commercial secrets of other owners by theft, inducement,
coercion or other illicit means; revealing, using or allowing
others to use commercial secrets obtained by such means; and
revealing, using or allowing others to use commercial secrets
of other owners which are in their possession by violation of
agreements or other requests for confidentiality by the owners
concerned. If a third party knew or should have known of such
acts violating the law, but obtains, uses or reveals commercial
secrets of others, this also constitutes an infringement.
Under a Supreme Peoples Court Interpretation on intellectual
property crimes issued in 2004, the infringement of a trade
secret causing loss in excess of RMB 500,000 will be regarded
as serious and will trigger criminal prosecution under Chinas
Criminal Code.
Chinas legal framework for the protection of intellectual
property is complete, but the challenge is for China to
52
53
EMPLOYMENT ISSUES
Employment contracts
Under Chinas Labor Law and Employment Contract Law,
employers, including foreign-invested enterprises (FIEs),
must conclude an individual written contract with each
employee.
Employment contracts may be for a fixed or open term,
though in light of potential difficulties that employers may
encounter in trying to terminate employees, it is generally
advisable for employers to fix the starting date and the term
of an employment contract to keep the term relatively short.
However, under the Employment Contract Law (and subject to
local interpretations of the law), employers will only be able to
sign or renew an employment contract with an employee for two
fixed terms after January 1, 2008, before having to sign an openterm contract with that employee. As of the date of publication,
with the exception of Shanghai, this new requirement under the
Employment Contract Law effectively shortens the time for an
employee to become entitled to request an open-term contract
from 10 years to the expiration of the second fixed term contract
(which may take place in as short as two years if both contracts
are for a one-year term).
Probationary periods are generally included in the employment
contract. Under the Employment Contract Law, the allowable
length of the probationary period depends on the length of the
contract term, with a maximum possible period of six months.
Restrictions apply to agency or contingency workers who can be
hired only for temporary, auxiliary, or substitutable positions.
54
Representative ofces
Representative offices are a special case. Representative
offices are not permitted to directly employ their staff. Instead,
representative offices enter into labor service contracts with
government-designated labor service companies, pursuant
to which Chinese nationals are employed by the labor service
companies and are then seconded to work as the staff of the
representative offices.
55
56
59
TAXATION
This guide introduces the major taxes applicable to foreign
investors doing business in China and outlines recent legislative
developments.
Income taxes
Enterprise income tax
60
Turnover taxes
Business tax
Other taxes
Customs duties are imposed on exports and imports of goods.
Most export items are duty free, and the duty to be paid on
exports that are not exempt is based on the FOB value. Imports
are generally assessed on their CIF (cost, insurance and
freight) value, with all included charges verified by the customs
administration. When applicable, the rate of duty ranges from
0% to 270%, depending on the nature and the country of origin
of the goods concerned. Customs duties paid are deductible
expenses for enterprise income tax purposes.
Land appreciation tax (LAT) is levied on gains realized from
real property transactions at progressive rates from 30% to
60%, based on the land value appreciation amount, which is
the excess of the consideration received from the transfer or
disposition of real property over the total deductible amount.
Deed tax is levied on the purchase or sale, gift or exchange
of ownership of real property. The transferee/assignee is the
taxpayer. Generally, the rates range from 3% to 5%.
Other taxes include real estate taxes, vehicle and vessel taxes
and resource tax.
64
Tax treaties
China has signed bilateral tax treaties with about 90 countries.
The treaties are primarily to avoid double taxation and to
prevent tax evasion. The tax treaties generally follow the model
treaty of the OECD and the model United Nations treaty.
65
CONCLUSION
As China has undergone the transformation from a socialist
planned economy to a socialist market economy and opened
previously restricted areas to foreign investment, opportunities
for doing business have increased considerably. It seems likely
that this trend will continue in the future as Chinas policy and
legal framework for doing business move closer to general
international norms.
However, with opportunity comes risk. China has indeed made
tremendous progress in establishing a legislative basis for
foreign investment and a legal system to uphold the rule of law.
But much remains to be done before Chinas legal environment
approximates that of many developed or some developing
countries.
Accordingly, while foreign companies will find many
opportunities in what is arguably the worlds largest market,
they will want to pay particular attention to protecting their
interests to the greatest degree possible through careful
planning based on a full appreciation and understanding of the
rapidly changing legal environment for doing business in China.
66
67
Article 2.
68
Article 4.
Article 5.
69
70
71
Article 9.
72
Article 11.
73
Article 13.
Article 14.
74
Article 16.
75
Article 2.
Article 3.
Article 4.
76
Article 5.
(1)
(2)
(3)
(4)
(5)
77
(2)
Article 7.
78
(2)
(3)
(4)
(5)
Article 9.
80
Article 11.
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
Article 13.
82
(1)
(2)
Article 14.
(3)
(4)
(5)
(6)
(7)
(8)
(9)
Article 17.
Article 18.
84
Article 19.
Article 20.
Article 21.
85
Article 23.
Article 24.
86
(2)
Article 26.
Article 27.
Article 28.
Article 29.
Article 31.
88
Article 33.
(2)
89
(3)
(4)
Article 35.
Article 36.
90
Article 37.
Article 38.
Article 39.
91
Article 41.
Article 42.
Article 43.
92
(1)
(2)
(3)
(4)
(5)
(6)
(7)
Article 46.
Article 47.
94
Article 49.
The Site Use Fee for the site use rights obtained by
a joint venture in accordance with Article 44 hereof
shall be paid annually over the period of use of the
site stipulated in the contract starting from the
beginning of the period. If the period of use of the
site in the first calendar year exceeds half a year,
the fee shall be calculated on the basis of half a
year; if it is less than half a year, the fee shall be
exempted. If Site Use Fees are adjusted during the
contract period, the joint venture shall pay the fee
in accordance with the new rates starting from the
year of adjustment.
Article 50.
95
Article 52.
Article 53.
Article 54.
Article 55.
96
Article 57.
Article 58.
97
Chapter 9. Taxation
Article 59.
Article 60.
Article 61.
98
(1)
(2)
(3)
Article 64.
Article 65.
Article 67.
100
Article 71.
Article 72.
Article 73.
Article 74.
Article 75.
Article 76.
102
(2)
(3)
Article 77.
Article 78.
Article 79.
(3)
Article 81.
Article 82.
Article 83.
104
Article 85.
Article 86.
Article 87.
105
Article 90.
106
(2)
(3)
(4)
(5)
(6)
107
Article 92.
Article 93.
108
Article 95.
Article 96.
109
Article 98.
Article 99.
111
Article 2.
112
Article 4.
Article 5.
Article 6.
Article 8.
Article 9.
114
Article 11.
Article 12.
Article 14.
116
Article 16.
Article 17.
117
Article 19.
Article 20.
Article 21.
118
Article 23.
Article 25.
120
Article 27.
121
Article 2.
Article 3.
Article 4.
122
123
Article 7.
(1)
(2)
(3)
(4)
124
(2)
(3)
(4)
(5)
(6)
126
Article 9.
Article 10.
(2)
(3)
(4)
Article 12.
128
(2)
(3)
(4)
(5)
(6)
(7)
(8)
129
(9)
130
(2)
(3)
(4)
(6)
(7)
(8)
(9)
Chapter 3.
Article 14.
Article 15.
Article 16.
132
Article 18.
Article 20.
Article 21.
134
(2)
(3)
(4)
(5)
(6)
Article 23.
Article 25.
Article 26.
136
Article 28.
138
(2)
(3)
(4)
(5)
(6)
Article 30.
Article 31.
139
Article 32.
Article 33.
Article 34.
Article 35.
140
Article 37.
Article 38.
Article 39.
Article 40.
Article 41.
142
Article 42.
Article 44.
(2)
(3)
Article 46.
144
146
(2)
(3)
(4)
(5)
Article 51.
Article 52.
Article 53.
Article 54.
148
Article 56.
Article 57.
Article 58.
149
Article 2.
Article 3.
150
Article 5.
Article 6.
Article 7.
Article 9.
Article 10.
Article 11.
Article 12.
152
Article 14.
Article 15.
Article 16.
153
Article 17.
Article 18.
The foreign exchange matters of wholly foreignowned enterprises shall be handled in accordance
with the exchange control regulations of the state.
Wholly foreign-owned enterprise shall open
accounts with the Bank of China or other banks
designated by states exchange control authority.
Article 19.
Article 20.
154
Article 22.
Article 23.
Article 24.
155
Article 2.
Article 3.
Article 4.
156
Article 6.
(2)
(3)
(4)
(5)
157
(2)
Article 9.
Article 10.
(2)
a feasibility study;
(3)
(4)
(5)
(6)
(7)
(8)
Article 12.
Article 14.
162
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
163
Article 16.
164
The articles of association of a wholly foreignowned enterprise shall cover the following
matters:
(1)
(2)
(3)
(4)
(5)
(6)
(7)
labor management;
(8)
(9)
The articles of association of a wholly foreignowned enterprise, and any amendments thereto,
shall become effective upon approval by the
Examination and Approval Authorities.
Article 17.
Article 19.
Article 20.
The term registered capital of a wholly foreignowned enterprise means the total amount
of capital for the establishment of a wholly
foreign-owned enterprise as registered with the
administration for industry and commerce, i.e. the
total amount of capital subscribed by the foreign
investor.
The amount of the registered capital of a wholly
foreign-owned enterprise shall correspond to its
scale of business. The ratio between the registered
capital and the total amount of investment shall
conform to the relevant regulations of China.
Article 21.
Article 22.
Article 23.
The mortgage or assignment by a wholly foreignowned enterprise to a foreign party of its property
or interest must be approved by the Examination
and Approval Authorities and reported to the
administration for industry and commerce for the
record.
166
Article 24.
Article 26.
Article 28.
168
Article 30.
170
Article 34.
Article 35.
Article 36.
Article 37.
Article 38.
Article 39.
Article 40.
The term of the use of land by a wholly foreignowned enterprise shall be the same as its
approved term of operation.
172
Article 41.
Article 43.
Article 44.
173
Article 45.
Article 46.
174
Chapter 7. Taxation
Article 48.
Article 49.
Article 50.
175
(2)
(3)
176
The foreign exchange matters of wholly foreignowned enterprises shall be handled in accordance
with the relevant exchange control regulations of
China.
Article 53.
Article 54.
Article 55.
Article 58.
Article 59.
178
Article 61.
Article 62.
Article 63.
Article 65.
180
Article 67.
Article 68.
181
182
Article 71.
Article 72.
(2)
(3)
(4)
it becomes bankrupt;
183
(5)
(6)
Article 74.
184
Article 76.
(2)
(3)
(4)
(5)
(6)
(7)
(8)
Article 78.
Article 79.
186
Article 81.
Article 82.
Article 83.
Article 84.
187
189
Infrastructure
Insurance
Construction
Intellectual Property
Dispute Resolution /
Litigation
Employment
Securities
Environmental
Tax
Financial Services
Immigration
190
192
Austria Vienna
Diwok Hermann Petsche
Rechtsanwlte GmbH
Schottenring 25
1010 Vienna
Austria
Tel: +43 (1) 24 25 0
Fax: +43 (1) 24 250 600
Australia Melbourne
Baker & McKenzie
Level 19 CBW
181 William Street
Melbourne, Victoria 3000
Postal Address: G.P.O. Box 2119T
Melbourne, Victoria 3001
Intnl Tel: +61 3 9617 4200
Tel: 03 9617 4200
Fax: +61 3 9614 2103
Azerbaijan Baku
Baker & McKenzie - CIS, Limited
The Landmark Building
96 Nizami Street
Baku AZ1010 Azerbaijan
Intnl Tel: +994 12 497 18 01
Tel: 497 18 01
Fax: +994 12 497 18 05
E-mail: baku.info@bakernet.com
Australia Sydney
Baker & McKenzie
Level 27, A.M.P. Centre
50 Bridge Street
Sydney, N.S.W. 2000
Postal Address:
P.O. Box R126, Royal Exchange
Sydney, N.S.W. 2000
Intnl Tel: +61 2 9225 0200
Tel: 02 9225 0200
Fax: +61 2 9225 1595
Bahrain Manama
Baker & McKenzie Limited
6th Floor, Al Salam Tower
P.O. Box 11981
Manama, Bahrain
Intnl Tel: +973 17 538 800
Tel: 17 538 800
Fax: +973 17 533 379
193
Belgium Antwerp
Baker & McKenzie CVBA/SCRL
Meir 24
2000 Antwerp, Belgium
Intl. Tel: +32 3 213 40 40
Tel: 03 213 40 40
Fax: +32 3 213 40 45
Belgium Brussels
Baker & McKenzie CVBA/SCRL
Avenue Louise 149 Louizalaan
Eighth Floor
1050 Brussels, Belgium
Intnl Tel: +32 2 639 36 11
Tel: 02 639 36 11
Fax: +32 2 639 36 99
Belgium ELC
Baker & McKenzie CVBA/SCRL
149 Avenue Louise
Eighth Floor
1050 Brussels, Belgium
Intnl Tel: +32 2 639 36 11
Tel: 02 639 36 11
Fax: +32 2 639 36 99
Brazil Brasilia
Trench, Rossi e Watanabe Advogados
SCN - Q.04 - Bloco B - Sala 503-B
Centro Empresarial Varig
Brasilia, DF, 70714-900, Brazil
Intnl Tel: +55 61 2102 5000
Tel: 61 2102 5000
Fax: +55 61 3327 3274
194
Canada Toronto
Baker & McKenzie LLP
Brookfield Place
181 Bay Street, Suite 2100
P.O. Box 874
Toronto, Ontario M5J 2T3
Intnl Tel: +1 416 863 1221
Tel: 416 863 1221
Fax: +1 416 863 6275
Chile Santiago
Cruzat, Ortzar & Mackenna Ltda
Nueva Tajamar 481
Torre Norte, Piso 21
Las Condes, Santiago, Chile
Intnl Tel: +56 2 367 7000
Tel: 2 367 7000
Fax: +362 9876; 362 9877; 362 9878
China Shanghai
Baker & McKenzie LLP
Unit 1601, Jin Mao Tower
88 Century Avenue, Pudong
Shanghai 200121
Peoples Republic of China
Intnl Tel: +86 21 6105 8558
Tel: 6105 8558
Fax: +86 21 5047 0020
China Beijing
Baker & McKenzie LLP
Suite 3401, China World Tower 2
China World Trade Center
1 Jianguomenwai Dajie
Beijing 100004
Peoples Republic of China
Intnl Tel: +86 10 6535 3800
Tel: 6535 3800
Fax: +86 10 6505 2309; 6505 0378
Colombia Bogota
Baker & McKenzie Columbia S.A.
Avenida 82 No. 10-62, piso 6
Postal Address:
Apartado Areo No. 3746
Bogot, D.C., Colombia
Intnl Tel: +57 1 634 1500; 644 9595
Tel: 634 1500; 644 9595
Fax: +57 1 376 2211
195
Germany Berlin
Baker & McKenzie LLP
Friedrichstrasse 79-80
10117 Berlin, Germany
Intnl Tel: +49 30 20 38 7 600
Tel: 030 20 38 7 600
Fax: +49 30 20 38 7 699
Egypt Cairo
Baker & McKenzie
(Helmy, Hamza & Partners)
Nile City Building, North Tower
Twenty-First Floor
Cornich El Nil
Ramlet Beaulac
Cairo, Egypt
Tel No.: +20 2 461-9301
Fax No.: +20 2 461-9302
Germany Dusseldorf
Baker & McKenzie LLP
Neuer Zollhof 2
40221 Dusseldorf, Germany
Intnl Tel: +49 211 31 11 6 0
Tel: 0211 31 11 6 0
Fax: +49 211 31 11 6 199
England London
Baker & McKenzie LLP
100 New Bridge Street
London EC4V 6JA, England
Intnl Tel: +44 20 7919 1000
Tel: 020 7919 1000
Fax: +44 20 7919 1999
Germany Frankfurt
Baker & McKenzie LLP
Bethmannstrasse 50-54
60311 Frankfurt/Main, Germany
Intnl Tel: +49 69 29 90 8 0
Tel: 069 29 90 8 0
Fax: +49 69 29 90 8 108
France Paris
Baker & McKenzie SCP
1 rue Paul Baudry
75008 Paris, France
Intnl Tel: +33 1 44 17 53 00
Tel: 01 44 17 53 00
Fax: +33 1 44 17 45 75
Germany Munich
Baker & McKenzie LLP
Theatinerstrasse 23
80333 Munich, Germany
Intnl Tel: +49 89 55 23 8 0
Tel: 089 55 23 8 0
Fax: +49 89 55 23 8 199
196
Hungary Budapest
Kajtr Takcs Hegymegi-Barakonyi
Baker & McKenzie gyvdi Iroda
Andrssy-t 102
1062 Budapest, Hungary
Intnl Tel: +36 1 302 3330
Tel: 1 302 3330
Fax: +36 1 302 3331
Italy Rome
Studio Professionale Associato a
Baker & McKenzie
Viale di Villa Massimo, 57
00161 Rome, Italy
Intnl Tel: +39 06 44 06 31
Tel: 06 44 06 31
Fax: +39 06 44 06 33 06
Indonesia Jakarta
Hadiputranto, Hadinoto & Partners
PT Buananusantara Manunggal
(B&M Consultants)
The Jakarta Stock Exchange Building
Tower II, 21st Floor
Sudirman Central Business District
Jl. Jendral Sudirman Kav. 52-53
Jakarta 12190, Indonesia
Intnl Tel: +62 21 515 5090; 515 5091;
515 5092; 515 5093
Tel: 21 515 5090; 515 5091; 515 5092;
515 5093
Fax: +62 21 515 4840; 515 4845;
515 4850; 515 4855; 515 4860;
515 4865
Japan Tokyo
Baker & McKenzie GJBJ
Tokyo Aoyama Aoki Koma Law Office
(Gaikokuho Joint Enterprise)
The Prudential Tower
13-10 Nagatacho 2-chome
Chiyoda-ku, Tokyo 100-0014
Japan
Intnl Tel: +81 3 5157 2700
Tel: 03 5157 2700
Fax: +81 3 5157 2900
Italy Milan
Studio Professionale Associato a
Baker & McKenzie
3 Piazza Meda
20121 Milan, Italy
Intnl Tel: +39 02 76231 1
Tel: 02 76231 1
Fax: +39 02 76231 620
Kazakhstan Almaty
Baker & McKenzie - CIS, Limited
Samal Towers, Samal-2, 14th Fl.
97 Zholdasbekov Street
Almaty, Kazakhstan 050051
Intnl Tel: +7 3272 509945
Tel: 50 99 45
Fax: +7 3272 584000
197
Mexico Guadalajara
Baker & McKenzie Abogados, S.C.
Blvd. Puerta de Hierro 5090
Fracc. Puerta de Hierro
45110 Zapopan, Jalisco, Mxico
Intnl Tel: +52 33 3848 5300
Tel: 3848 5300
Fax: +52 33 3848 5399
Mexico Monterrey
Baker & McKenzie Abogados, S.C.
Oficinas en el Parque-Piso 10
Blvd. Antonio L. Rodrguez 1884 Pte.
64650 Monterrey, Nuevo Len, Mexico
Intnl Tel: +52 81 8399 1300
Tel: 8399 1300
Fax: +52 81 8399 1399
Mexico Juarez
Baker & McKenzie Abogados, S.C.
P.T. de la Republica 3304, Piso 2
32330 Cd. Jurez, Chihuahua, Mxico
Mailing Address: P.O. Box 9338
El Paso, Texas 79995
Overnight Courier Address:
6248 Edgemere, #504
El Paso, TX 79925
Intnl Tel: +52 656 629 1300
Tel: 629 1300
Fax: +52 656 629 1399
Mexico Tijuana
Baker & McKenzie Abogados, S.C.
Blvd. Agua Caliente 10611, Piso 1
22420 Tijuana, B.C., Mxico
Mailing Address: P.O. Box 1205
Chula Vista, CA 91912
Intnl Tel: +52 664 633 4300
Tel: 633 4300
Fax: +52 664 633 4399
198
Russia Moscow
Baker & McKenzie - CIS, Limited
Sadovaya Plaza, 11th Floor
7 Dolgorukovskaya Street
Moscow 127006, Russia
Intnl Tel: +7 495 787 2700
Tel: 495 787 2700
Fax: +7 495 787 2701
Philippines Manila
Quisumbing Torres
12th Floor, Net One Center
26th Street corner 3rd Avenue
Crescent Park West
Bonifacio Global City
Taguig, Metro Manila 1634
Philippines
Postal Address: MCPO Box 1578
Intnl Tel: +63 2 819 4700
Tel: 819 4700
Fax: +63 2 816 0080, 728 7777
Poland Warsaw
Baker & McKenzie Gruszczynski &
Partners Attorneys at Law LP
Rondo ONZ 1
00-124 Warsaw, Poland
Intnl Tel: +48 22 576 31 00
Tel: 022 576 31 00
Fax: +48 22 576 32 00
199
Singapore
Baker & McKenzie.Wong & Leow
#27-01 Millenia Tower
1 Temasek Avenue
Singapore 039192
Intnl Tel: +65 6338 1888
Tel: 6338 1888
Fax: +65 6337 5100
Switzerland Geneva
Baker & McKenzie Geneva
4, chemin des Vergers
1208 Geneva, Switzerland
Intnl Tel: +41 22 707 98 00
Tel: 022 707 98 00
Fax: +41 22 707 98 01
Spain Barcelona
Baker & McKenzie Barcelona S.L.
Avda. Diagonal, 652, Edif. D, 8th floor
08034 Barcelona, Spain
Intnl Tel: +34 93 206 08 20
Tel: 93 206 08 20
Fax: +34 93 205 49 59
Switzerland Zurich
Baker & McKenzie Zurich
Zollikerstrasse 225
P.O. Box
8034 Zurich, Switzerland
Intnl Tel: +41 44 384 14 14
Tel: 044 384 14 14
Fax: +41 44 384 12 84
Spain Madrid
Baker & McKenzie Madrid S.L.
Paseo de la Castellana 92
28046 Madrid
Intnl Tel: +34 91 230 45 00
Tel: 91 230 45 00
Fax: +34 91 391 5145; 391 5149
Taiwan Taipei
Baker & McKenzie
15th Floor, Hung Tai Center
No. 168, Tun Hwa North Road
Taipei, Taiwan 105
Intnl Tel: +886 2 2712 6151
Tel: 02 2712 6151
Fax: +886 2 2716 9250; 2712 8292
Sweden Stockholm
Baker & McKenzie Advokatbyr
Linngatan 18
P.O. Box 5719
SE 114 87 Stockholm, Sweden
Intnl Tel: +46 8 566 177 00
Tel: 08 566 177 00
Fax: +46 8 566 177 99
Thailand Bangkok
Baker & McKenzie Limited
25th Floor, Abdulrahim Place
990 Rama IV Road
Bangkok 10500, Thailand
Intnl Tel: +66 2636 2000; 2626 2222
Tel: 02 636 2000; 02 636 2222
Fax: +66 2626 2111
200
Ukraine Kyiv
Baker & McKenzie - CIS, Limited
Renaissance Business Center
24 Vorovskoho St.
Kyiv 01054, Ukraine
Intnl Tel: +380 44 590 0101
Tel: 044 590 0101
Fax: +380 44 590 0110
201
Venezuela Valencia
Baker & McKenzie SC
Edificio Torre Venezuela, Piso No. 4
Av. Bolivar cruce con Calle 154
(Misael Delgado)
Urbanizacin La Alegria
Postal Address: P.O. Box 1155
Valencia, Estado Carabobo, Venezuela
Intnl Tel: +58 241 824 8711
Tel: 0241 824 8711
Fax: +58 241 824 6166
Venezuela Caracas
Baker & McKenzie Geneva
4, chemin des Vergers
1208 Geneva, Switzerland
Intnl Tel: +41 22 707 98 00
Tel: 022 707 98 00
Fax: +41 22 707 98 01
202
Vietnam Hanoi
Baker & McKenzie (Vietnam) Ltd.
Hanoi Branch Office
13/F, Vietcombank Tower
198 Tran Quang Khai Street
Hoan Kiem District, Hanoi
Socialist Republic of Vietnam
Intnl Tel: +84 4 3825 1428; 3825 1429;
3825 1430
Tel: +04 3825 1428; 3825 1429;
3825 1430
Fax: +84 4 3825 1432
Vietnam Ho Chi Minh City
Baker & McKenzie (Vietnam) Ltd.
12th Floor, Saigon Tower
29 Le Duan Blvd.
District 1, Ho Chi Minh City
Socialist Republic of Vietnam
Intnl Tel: +84 8 3829 5585; 3829 5601;
3829 5602
Tel: +08 3829 5585; 3829 5601;
3829 5602
Fax: +84 8 3829 5618
203
www.bakermckenzie.com
Beijing
Suite 3401, China World Tower 2
China World Trade Centre
1 Jianguomenwai Dajie
Beijing 100004, PRC
Tel: +86 10 6535 3800
Fax: +86 10 6505 2309
Hong Kong
23rd Floor, One Pacific Place
88 Queensway, Hong Kong
14th Floor, Hutchison House
10 Harcourt Road
Central, Hong Kong
Tel: +852 2846 1888
Fax: +852 2845 0476
Shanghai
Unit 1601, Jin Mao Tower
88 Century Avenue, Pudong
Shanghai 200121, PRC
Tel: +86 21 6105 8558
Fax: +86 21 5047 0020
2010 Baker & McKenzie. All rights reserved. Baker & McKenzie International is a Swiss Verein with
member law firms around the world. In accordance with the common terminology used in professional
service organizations, reference to a partner means a person who is a partner, or equivalent, in such
a law firm. Similarly, reference to an office means an office of any such law firm.
This may qualify as Attorney Advertising requiring notice in some jurisdictions. Prior results do not
guarantee a similar outcome.