The world today is undergoing profound changes unseen for centuries. At the end of 2022, China formally decided to scrap the most of Covid-19 restrictions. Regardless of the feeble and faltering recovery of economy, the incessant influence of COVID-19, and the rampant unilateralism and protectionism, China continues to build up its opening-up layout. Market access will be broadened, free trade zones will make further progress and the opening of free trade ports will be explored. These efforts will facilitate all-round opening-up by linking east and west and connecting the land and the sea. Meanwhile, the negative lists of foreign investment access in the country and the pilot free trade zones (PFTZs) were reduced to 31 and 27 entries respectively. Particularly, entries for the manufacturing industry were reduced to zero in the negative list for PFTZs. The 2022 version of the “Catalogue of Encouraged Industries for Foreign Investment” aims to expand openness, foreign investment in the “Encouraged Catalogue” of industries, fields can enjoy tax, land and other preferential policies. However, while entries into China are expected to be less challenging for foreign investors, multinationals should pay due attention to whether foreign investment security reviews may be involved in the process of investing in China, which makes the whole compliance process a costly and time-consuming project. The following information will allow your organisation to understand some of the most important legal requirements for opening up shop and engaging in employment in China.
Zhong Lun Law Firm, with over 390 partners and over 2,400 professionals working in 18 different cities worldwide, is one of the largest law firms in China and provides a complete spectrum of legal services. Our labour and employment law practice group are highly experienced in advising multinationals in entering China and also mobilising employees to China at the same time. In addition to assisting our clients with continuous compliance with national and local regulations, we also advise on the establishment and enforcement of company policies, employee transition in M&A and restructurings, internal compliance investigation, employee compensation & benefits, application for expatriate’s work permits and labour dispute resolution. The information summarised below, reflects common compliance requirements of opening up shop and engaging in employment in China and may need to be further slightly customised for any specific province or city in China.
2. Labour and Employment Law Requirements
A) EMPLOYER POLICY REQUIREMENTS
Employers shall establish and improve internal policies to ensure employees’ entitlement to employment rights and performance of employment obligations. Employers shall follow certain consultation procedures to formulate or revise internal policies regarding matters that directly concern the vital interests of employees. Where the internal policies formulated by employers through consultation procedures do not violate the provisions of laws, administrative regulations and policies of the State and have been announced to the employees, they may be used as the basis for the determination of the rights and obligations of both parties.
B) EMPLOYEE TRAINING REQUIREMENTS
Where employees may be exposed to the occupational hazard, employers shall carry out occupational health training before and during employment and guide employees to use occupational disease protection equipment correctly. In some special industries like the food-producing industry, employers are obligated to provide food safety training to their employees. In terms of protecting women’s rights and interests, employers should carry out educational and training activities to prevent and stop sexual harassment.
C) EMPLOYMENT AGREEMENTS
The rights of the employees are stringently protected by China’s labour and employment laws. Employers are obligated to execute written employment agreements with full-time employees within one month since such employees’ commencement date, otherwise the employers may be subject to paying compensation to the employees in a punitive nature.
3. Corporate Law Requirements
A) COMPLIANCE FOR INCORPORATION
As we may assist foreign investors in establishing presence in China through a number of corporate structures, for the purpose of this proposal, we would focus on how to establish a wholly foreign-owned enterprise (WFOE) in mainland China according to the Foreign Investment Law of the PRC. Before incorporation, the foreign investors shall check the following:
- Check whether the business scope of the proposed WFOE belongs to the negative list.
- Check whether foreign investment projects need to be approved and filed for fixed asset investment project.
- Check whether license is required for the industries or fields to be invested.
- Check whether it involves review of undertaking concentration.
- Submit foreign investment information report to the competent departments.
- Check whether it needs to fulfil the security review process.
B) POST INCORPORATION REGISTRATIONS
After completing the above inspection items or processes, WFOE can go through registration formalities at the market regulatory departments. The following steps and procedures shall be completed:
- Have WFOE’s name pre-approved by the State Administration for Market Regulation
- Prepare and file articles of association.
- File notarized and authenticated certificates on identity of the foreign investors.
- Appoint WFOE’s legal representative, director(s), supervisor(s) and general manager.
- File meeting minutes of the said appointment and certificates on identity of the appointed legal representative, director(s), supervisor(s), and general manager.
- Establish the initial registered office address and file corresponding supporting documents.
- Issue a Power of Attorney for deputizing local personnel to complete filing procedures with competent authorities and sign relevant application forms on behalf of the WFOE for the purpose of incorporation.
- Apply for qualification to open a foreign currency bank account with local administration of foreign exchange and open such account at the designated bank.
4. Payroll and Benefits Providers
In China, the vast majority of smaller employers outsource payroll and benefit responsibilities to the qualified third-party companies in order to reduce operational cost. The larger employers however have their own internal teams processing payroll and directly handle all related compliance requirements. Depending on preference, we would be happy to recommend payroll providers to fit your business requirements.
Zhong Lun is pleased to offer its service for all the required work identified above and assist your organisation in commencing its operations in China. Any portion of the work can be conducted on the basis of a blended rate of CNY 2,500 per hour in addition to any required disbursements and tax. As an alternative, we may offer a project budget depending on the specific situation.