Having a thorough understanding of relevant laws and ensuring your business adheres to them significantly reduces the likelihood of encountering legal issues in China. Over the last decade, foreign companies operating in China have become increasingly aware of the importance of staying compliant. However, in 2024 we still receive clients who lack awareness of the internal compliance issues and possible liabilities.
To assist you, we have compiled a brief compliance checklist for foreign businesses operating in China.
Operations
Doing business in China is much smoother if you have a legal entity. Select a type of entity that will suit your needs best (China subsidiary, Representative Office, Foreign-invested partnership, etc.) and ensure a proper registration. Depending on the business activity and industry you might need to obtain necessary business licenses.
Don’t forget that some businesses that are legal in your home country are illegal in China.
Contracts
Contrary to a popular belief among westerners, China does enforce contracts. If they are done right.
There are a couple of basic rules. Firstly, all the paperwork needs to be checked by a competent lawyer and chopped by both parties prior to the start of the engagement. Secondly, don’t use your standard western contract template and always make sure that Chinese translation is correct, especially if it is a dual language contract. And finally, make sure the official names are accurate and your Chinese counterpart stamps the contract.
Intellectual Property (IP) Protection
- The IP registration abroad does not extend to China. To safeguard your IP protection, register trademarks, patents, and copyrights.
It is also important to note that Western style NDA won’t fully protect you in China. Always opt for an NNN Agreement – non-disclosure, non-use, and non-circumvention – and make sure it’s enforceable.
Financial Compliance
- File tax returns and pay taxes on time.
- Comply with transfer pricing regulations.
- Prepare accurate and timely financial reports in accordance with local accounting standards.
Consider hiring an experienced accounting company that have knowledge of the local tax regulations and an understanding of in the HQ location, and make sure you understand the reporting you receive. Annual audits are not obligatory in China, but highly recommended.
Employment Regulations
- Adhere to labor laws regarding working hours, overtime, wages, and benefits.
- Obtain work permits and visas for foreign employees.
- Comply with social insurance requirements including pension, medical, unemployment, and workplace injury insurance.
China labor regulations are complicated and localized. Make sure you have you are staying compliant when it comes to both local and foreign employees. You need to have signed labor contracts with full and part time employees, make sure that work and residence permits for foreign employees are renewed in timely manner and social insurance contributions are paid for all the employees.
Have a comprehensive Employee Handbook covering non-compete, overtime, travel, reimbursements, etc.
More on why a well-crafted Employee Handbook is essential for your China business
Environmental Compliance
- Obtain necessary permits for environmental impact assessment and pollution control.
- Implement measures to minimize environmental impact and ensure compliance with regulations.
China is going green: environmental regulations are changing fast and getting stricter. Make sure you have all the necessary permits and conduct audits; keep an eye on changes in legislations and your supply chain.
Data Protection and Privacy
- Comply with regulations regarding the collection, storage, and processing of personal data.
Recently Chinese government became proactive with Data Protection and Privacy laws.
The implementation of the Personal Information Protection Law (PIPL) has generated a lot of concern among international firms in China. This legislation mandates that businesses must secure consent from individuals before collecting their personal data, implement robust data security measures, store personal data belonging to Chinese citizens within China, and execute data transfers in strict compliance with the law.
Import and Export Regulations
- Obtain necessary licenses and permits for importing and exporting goods.
- Comply with customs regulations and documentation requirements.
Make sure to check if the products you want to import to China don’t require a special license or could be imported at all.
Anti-Corruption Compliance
- Implement measures to prevent bribery and corruption.
- Comply with anti-corruption laws and regulations, such as the Anti-Unfair Competition Law and the Foreign Corrupt Practices Act (FCPA).
If you are thinking about bribery – don’t, this is not how things work in China. In 2012 Chinese government started a robust anti-corruption campaign. Since then, the most famous case involving a foreign MNC was in 2014 when GlaxoSmithKline (GSK) incurred a penalty of RMB 3 billion (US$490 million) for engaging in the practice of incentivizing doctors and hospitals to endorse its products.
Make sure to have strict internal policies and procedures to prevent internal fraud and corruption. Refer to this article for more information on how to protect your business.
Cultural Sensitivity
- Respect local customs, traditions, and cultural sensitivities.
Be mindful of local cultural and political sensitivities. Master the concept of “face” and the local business etiquette.
To ensure compliance, we strongly recommend connecting with our expert team as we can offer 20+ years of valuable guidance to ensure a successful and compliant venture in the Chinese business landscape.
S.J. Grand is a full-service accounting firm focused on serving foreign-invested enterprises in Greater China since 2003. We help our clients improve performance, value creation and long-term growth.
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