Q20:We are a foreign company (a “WOFE”) incorporated in China and the shareholder of our WOFE is a French company. The Chinese authorities are asking who our “legal representative” is, but we have no such position in our company and in France. What is a “legal representative”?
Under Chinese law, a legal representative of a company is a person who can act (and thus sign) on a company’s behalf. Thus, for a foreign company, the Chinese authorities deem a legal representative of the company as the person who is able to act on your company’s behalf; such person is usually a director, or the chairman of the board of directors. The Chinese authorities will usually require proof of such person’s position. Where they require proof, your company would need to submit to the nearest Chinese embassy documentation such as your company’s articles of association, written resolutions of the board of directors or shareholders of the company, a business profile issued by the local government stating the name of this person as director, or an appointment letter outlining the signing powers of the person in question. This person would then be deemed the legal representative for all relevant dealings of your company in China. Such documentation needs to be notarized, authenticated and legalized by a local notary and the Chinese embassy. In some countries, the embassy requires the so-called legal representative to come physically to the embassy.
Q19:In China, are novelty requirements less strict for a utility mode patent than for an invention patent? Is a publication made outside China novelty destroying for a Chinese utility model filed later?
There are three types of patents under Chinese law: invention, utility model and appearance design.
Are novelty requirements less strict for a utility mode patent than for an invention patent?
Yes, because there are more techniques in an invention than in an utility model, thus, there are more requirements for creativity. Besides, invention application includes product invention and method of invention, while the utility model focduses more on product’s structure (not on the way of manufacturing the product).
Is a publication made outside china novelty destroying for a Chinese utility model filed later?
Under Chinese patent law, novelty means that no similar invention or utility model has ever been published in Chinese and foreign publications or similar invention or utility model has never been used publicly in China or made public in China in any means. In a common sense, a publication made outside China will destroy the novelty of a utility model filed later in China. However, there are some exceptions:
- Within 6 months prior to the application date, the utility model or invention was exhibited for the first time in an exhibition held by or recognized by the Chinese government;
- Within 6 months prior to the application date, the utility model or invention was published for the first time in certain academic meetings or technical communication meeting;
- Within 6 months prior to the application date, any third party released the contents of utility model or invention without permission of the patent owner or holder;
- The prior patent application is canceled, revoked or abandoned before it is published, then, the later utility model or invention application shall still have the novelty.
Q18:I have been doing business in China since 1995 and worked closely with a Chinese guy I met during a fair back then. I am now thinking about setting up a legal structure (most likely a rep office). Can I still continue to hire that Chinese employee?
Under Chinese laws and regulations, a representative office has no right to hire a Chinese employee directly. Chinese employees have to register with Fesco (i.e. Foreign Enterprise Services Co., Ltd.) first and the contractual relationship will be established between the Chinese employee and Fesco. Fesco will then sign a labor service agreement with the representative office and the Chinese employee will be appointed to work with the representative office in accordance with the labor service agreement signed between the representative office and Fesco.
Q17:I am about to set up a representative office in Shanghai. My Chinese employee says that he can work from home. Is there any special requirement on this if I want to set up legally a representative office?
Yes, there are some requirements. Please note that representative offices can be set up only if they have an official lease in a commercial building and NOT in a residential building. This aspect is regulated in China and different cities have different requirements. In addition, in Shanghai for example, only landlords having permission from the Shanghai Foreign Economic and Trade Committee are entitled to rent premises to foreign companies. However, there is no such regulation in Beijing and Guangzhou.
Q16:I have received a call from my Chinese employee last night informing me that she is getting married next week and she wants to take thirteen (13) day leave. She mentioned she was entitled to this leave according to Chinese law. Is it true? What are the regulations on marriage leave in China?
Under Chinese law, a person getting married is entitled to three (3) day leave. However, if the groom is 25 years old or older, he is entitled to ten (10) more days. If the bride is 23 years old or older, she is entitled to ten (10) additional days. Please note that the marriage leave shall be a continuous calendar day leave (including the week-end). In addition, please note that in the event that the marriage leave falls on weekends and/or legal holiday, the weekends shall be included in the marriage day leave but the statutory holiday shall be excluded.
Q15:I have a representative office in Shanghai and one of my employees is pregnant. What are the regulations on delivery/pregnancy leave in China?
According to the regulation on female employees’ labor protection of the PRC and the regulation on population and family planning of Shanghai, the female employee shall be entitled to no less than ninety (90) days for maternity leave and the 90 days include fifteen (15) days before giving birth; If a female Employee has a Caesarean birth, she will be entitled to thirty (30) additional days of maternity leave; If the female Employee gives birth to twins or triplets, she shall be entitled to fifteen (15) additional days of maternity leave for each child; If the female Employee gets married for the first time later than 23 years old, she will be entitled to seven (7) additional days; If the married female Employee is over 24 years old when she gives birth to her first child, she will be entitled to thirty (30) additional days and her husband shall be entitled to three (3) days as paternity leave as well.
Q14:We have set up a WOFE in Beijing and we are in the process of deciding who will be the authorized signatory for our USD and RMB accounts. Do you have any suggestions?
Please note that in China, there is no bank signatory. To withdraw money/have access to bank accounts, anyone can do it as long as they have the three (3) seals (which include the seal of the legal representative of the WOFE).
Q13:I am setting up a WOFE in Xiamen and I don’t want to appoint Chinese directors on the board of directors of my WOFE. Is there a law on this aspect? How many directors a WOFE must appoint? Is there any requirements under Chinese law to appoint a resident director? And if yes, how many?
Under PRC law, you have two options: you can either appoint one executive director or a board of directors with a minimum of three (3) directors. None of them have to be resident in China and none of them have to be Chinese national.
Q12:I heard that it is easier to set up retail/wholesale business in China now, as the required capital is lower. What is the minimum registered capital for a retailing/wholesale WOFE or JV?
It is true that the minimum registered capital required is lower since December 2004. In fact, the minimum registered capital required for wholly-owned foreign enterprise or joint venture company with retailing activities is RMB 300,000 and 500,000 for wholesale activities.
Q11:My Canadian company is about to set up a wholly owned enterprise in China and I have been asked to affix the company seal of my Canadian company on the articles of association of that new WOFE. I don’t have a company seal as it is not a common practice in Canada to have one. Is it ok to submit the documents with no seals affixed?
It is common in most Western countries to not require companies to have a company seal. From our past experience, documents without a seal affixed submitted to Chinese authorities have been accepted but a risk remain that the FETB and AIC reject them.
Q10:We have set up a WOFE in Chongqing, Sichuan province. Please let me know if we can pay a low salary to one of our foreign employees (to avoid him paying a high income tax) and pay the balance in Hong Kong or Singapore, which have low income tax rates.
This is a common practice for many foreign companies although under the Chinese Income Tax Law, employees shall also pay income tax on salary paid overseas. However, please note that in practice, it is almost impossible for the Chinese tax authorities to verify whether a foreign employee has been paid a salary overseas. Another option may be to hire this employee via a consultancy agreement and pay him professional fees in Hong Kong or Singapore and expenses in China. These expenses paid to him shall be taxed under PRC law though.
Q09:I am a bit confused with what I have heard in the last months or so. I wish to set up a trading company and I would like to benefit of tax advantages. Does the location of my trading WOFE have an impact? Indeed, I would be grateful if you could please confirm whether wholly owned foreign service companies and trading companies can benefit of taxes advantages if they are established in special economic zones.
Unfortunately, these types of companies can’t benefit of income tax advantages if they are set up in economic zones.
Q08:I have been informed that I need to submit the audited report of our WOFE. To which authorities shall I submit it?
You shall submit your audited report to the Foreign Economic and Trade Bureau (known as “FETB”) or in some cities, it is called the Commercial Bureau.
Q07:I am in the process of setting up a joint venture in China. I understand that each shareholder must inject its respective contribution in foreign currencies or RMB (if it is a Chinese party). Can the shareholders fix the exchange rate in the articles of association? For example, if I, as a foreign shareholder, must inject 60,000,000 USD, at an exchange rate of 8.05 or 7.95, it may have an impact of a couple of hundred thousands for me. Is a there a practical way to sort this out?
Yes, we suggest that the exchange rate be fixed in the articles of association of the joint venture company and agreed on upon signature of the documents by all parties as the exchange rate may vary from time to time during the payment schedule of the registered capital.
Q06:I am finalizing the corporate documents required for the setting up of my WOFE. I have been informed that the articles of association require the supervisor and the general manager to be appointed for three (3) years. Is this term a legal requirement? I do not feel comfortable with this term. What will happen if the general manager I appoint is not the right person?
Unfortunately, the three-year term is mandatory according to PRC Company Law. However, the supervisor and general manager can be dismissed at anytime if the dismissal and new appointment is in accordance with Chinese law and the articles of association of the WOFE. For example, your articles of association shall explicitly state that the shareholders can dismiss and appoint new supervisors and general managers upon giving them a one-month notice period or pay them in lieu of salary.
Q05:I set up my WOFE some years ago and now, in order for my WOFE to comply with the new laws and regulations, I have been told that I need to appoint a supervisor. What is the role of a supervisor in a WOFE? Does he have to be Chinese or foreigner?
Firstly, please note that the shareholders of the WOFE appoint supervisors. The supervisor’s duties are to supervise the directors’ and managers’ activities in order to protect the shareholder’s interests. Supervisors’ rights include reviewing the company’s accounting books and financial documents, attending meetings of the board of directors of the WOFE and holding shareholders meetings. Supervisors can be Chinese or foreigners, but can’t simultaneously be directors or managers of the WOFE. (See art. 52, 54, 55 of the Company Law 2005)
Q04:My Chinese accountant told me that there is a minimum deposit to maintain in a foreign account and a RMB account in a Chinese bank. Is this true and if so, what is the minimum to maintain?
Yes, it is true. The minimum will vary from one bank to another one, and within the same bank, from one city to another city. It should be noted that in some cases, the deposit required can be negotiated with the bank.
Q03:I have just set up a WOFE in Dongguan, China. I am told that according to the law I need to inject 15% of my required registered capital within 90 days of the issuance of my business licence, which is fine with me. However, I don’t know in which accounts I should inject the registered capital?
The registered capital shall be paid in the foreign currency account and you should mention in the telegraphic form that it is a payment for the registered capital.
Q02:My company in Germany has been doing banking with an international bank since its beginning. That bank also has a bank in China. Now, as I need to open a RMB account for my WOFE in Suzhou, can I open that RMB bank account in a foreign bank established in China?
Yes, your WOFE shall open a bank account at the sub-bank of the foreign-invested bank in China which business scope has been approved by the China’s Bank Regulatory Commission. However, in practice, some foreign bank has set up sub-bank in China but they have not provided the corporate banking service yet and some foreign banks do not have the payroll service, which you can not pay the salary to the employees through this opening bank. Besides, foreign banks usually have more requirements on the daily balance of the WOFE kept in the bank account. Thus, we would like to suggest using a Chinese commercial bank as the opening bank for your WOFE.
Q01:I am about to finalise the set up of a wholly-owned foreign enterprise (hereinafter “WOFE”) in Chengdu and I am told that I need a RMB account and a foreign currency account. Is this true?
A WOFE must have (a) a foreign currency account to receive foreign currencies from the investor/shareholder in order to pay the registered capital required of the WOFE and (b) a RMB account in China to receive RMB. Usually, foreign currencies can’t directly be used in China. Foreign currencies/RMB deposited in the RMB account or transferred from the foreign currencies account shall be used for the daily operations of the WOFE.