New requirements on leasing property for commercial use

As we all know, one company needs an office for its registration purpose and its daily operation. In most cases, such offices are rented from others, especially from individual landlords. Before, the company’s initiators just have to obtain the copy of the deed, the leasing agreement and the certificate on the usage of the property signed by the landlord for register the property as the registered office of their company and to complete the establishment registration procedures for their start-ups. However, in practices, there are many investors steal the copy of the deed and fake the signature on the lease agreement and certificate of the property in order to register it as their registered office without notifying the real landlords, or there are landlords leasing the properties which are unqualified for using on commercial purposes to company investors. Such false registrations and contract defaults lead to so many disputes between the landlord and tenants that infringe both party’s interests and legitimate rights.

In view of those mentioned above, the Chaoyang AIC formally published their notice on March 27, 2017, requesting the individual landlords to apply for record-filing before the AIC for leasing their commercial premises to any companies for commercial use. Otherwise, such premises will not be allowed for using as the registered office for any company. Also, the platform for managing the certificate on the usage of the office is adapted to the new notice, and it is required that only one platform user may be created for filing one property on the platform system.

Published by Crys Zheng on April 25th, 2017 tagged Uncategorized | Comment now »

NGOs in China, Pay Attention to the New Law

A new law named Law on Administration of Domestic Activities of Overseas Non-governmental Organizations was promulgated last year. NGOs in China shall pay attention to this, or the organization might be under risk of violating law.

NGOs in this law refer to foundations, social organizations, think tanks, and other non-profit-making and non-governmental social organizations legally established overseas.

The key point of this law is that any NGO with an intention to conduct activities in mainland of China must go through procedures of registration or record filing. As indicated clearly in article 9 of the law,  To conduct activities within the territory of China, overseas NGOs are required to register and establish their representative offices in accordance with the law; and those failing to do so but needing to carry out temporary activities within the territory of China shall make a record-filing in accordance with the law. Overseas NGOs that fail to register and establish representative offices or that carry out temporary activities without record-filing are not allowed to carry out or carry out in disguised form activities within the territory of China, or entrust or fund or entrust or fund in disguised form any domestic entities or individuals to do so.

It is not an easy thing to establish a representative office for a NGO. Besides some procedural requirements the NGO needs to meet when filing an application, it also needs approval of business authorities. The business authorities differ from industry to industry and to determine which department is one certain NGO’s business authority is quite a professional issue.

If a NGO carries out activities in China without registration or record filing, relevant public security bureau shall ban or order the suspension of the illegal acts, confiscate illegal property and illegal gains, and give warnings to the personnel directly liable; if the circumstances are serious, detention of less than ten days shall be imposed.

Published by Mike Wang on April 21st, 2017 tagged Uncategorized | Comment now »

China and Business: Expect the Unexpected. 9 things to Know before you go to the World’s most Populous Nation

Last night, I was chatting with a former classmate, now a high-flying hedge fund manager-cum China angel investor (most of my classmates are wildly more successful than myself). This person is indirectly funding a foreign corporate client for whom our firm is helping to organize a new variable interest enterprise (VIE) to help facilitate foreign investment in the media/IT space. Foreign investment in media/IT is technically prohibited by law in China, but is actually very widespread and well known. Alibaba, Baidu, Sina, Sohu, some of China’s most well known and successful IT companies, all were foreign funded and all float on overseas bourses. I was explaining to this former classmate that in China, just like our mutual hometown of Chicago, most things are possible, it often depends upon who you know, and finding a “work-around”.

He and I inherently understood such incongruities. We had learned such things growing up, through a kind of osmosis. Yes, such incongruities were second nature to us Chicagoans (the Chicago River actually runs backwards). Our beloved, “Second City” had not been America’s second most populous city since 1956. We had our own word for “guanxi” (关系, roughly in Chinese, “connections), which Chicagoans know as “Clout”. The Chicago of our youth was essentially a “one party system” (Daley Democrats). No less than four Illinois Governor’s during our lifetime had been convicted and sentenced to prison for corruption. Governor Rod Blagojevich our last Illinois Governor was convicted for trying to ‘sell’ former President Obama’s vacated Senate seat. That was our “normal” when growing-up. We as Chicagoans and Cubs fans suffered with the dubious reputation as ‘lovable losers’, much like China was labeled so-long as a developing country. Yet, to the surprise of many, (and the joy of Chicago), the Cubs won the World Series last year (finally), and China now has the second biggest economy in the world.

My classmate, who had never been to China (too busy), was joking that my Chicagoland upbringing really prepared me for living and working in China. I pointed out to him some things I have learned while living and working in China that he might not have realized. The following is the list I assembled recalling our discussion about China:

1. Do not be surprised if you notice what appears to be a “wrestling match” before a restaurant cashier between two or more patrons who just finished dinner at an eating establishment. Eating is a big deal in China, hosting a meal and paying for a meal, unlike in the west could be a very big deal. One should always at least go through the motions of feigning who is to pay for a meal, usually both persons are clear about who is to pay based upon a series of social cues timing and hierarchy.

2. Always refuse a compliment. My classmate is super smart and super wealthy. But I told him, when you finally manage to say 你好 (“ni-hao” or “hello” in Chinese), or  啤酒(“pi-jiu” meaning “beer”) inevitably a Chinese will say, your Chinese language is “Very Good”. Do not simply say, “Thank you,” as it’s seen as vain and selfish. Instead find a way to be humble by saying something like, “You’re very kind, but my Chinese is really very limited”. Still, I reminded him, “A compliment’s a compliment” and for most of our fellow Americans, a couple of words of Chinese could seem like fluency.

3. Eating dog is becoming increasingly unpopular. Contrary to what you might see on TV (think the drivel of Lisa Vanderpump, Real Housewives of Beverly Hills). According to CNN, the rate of dog consumption is declining and love of ‘man’s best friend’ is rapidly increasing among many Chinese. In some provinces there are regulations prohibiting restaurants from serving dog meat. There has been even talk of considering legislation passed by the National People’s Congress that would make eating cats and dogs illegal. Recently, Weibo (China’s Twitter) blew up with viral protesting against eating dogs. Most Chinese people these days prefer to keep cats and dogs as pets.

4. Breathing in Beijing air is not as bad as you might think. Although pollution in Beijing is a major issue, according to a recent study by MyHealthBeijing, breathing-in the air is only equivalent to being exposed to secondhand smoke (one-sixth of a cigarette) as opposed to smoking a pack a day, which is the popular belief.

5. Each Chinese character is not necessarily an individual word. Although some words use just one character, most words are composed of two or more characters. Chinese characters are usually morphemes, meaning a unit of language or word that cannot be further divided.

6. No one in space will be able to see you on the Great Wall. According to Universe Today, you actually cannot see the Great Wall from space with the naked eye, let alone the moon. The pictures that exist of the monument from space are usually taken with professional zoom lens cameras.

7. There is a good chance you will have to use a squat toilet at some point. Don’t be afraid. Like all men of a certain age, chat soon turned to ‘bowel movements’, one must always think about planning a dignified hasty exit to “use the facilities”. I told my classmate, using the squat toilet is of course more difficult and awkward, than the western commode. The squat toilet however, is vastly more practical and believe it or not, more hygienic (especially at crowded China tourist sites), than using a regular toilet (which are there, but usually way-more dirty). Just remember to bring your own toilet paper).

There was more, but this is enough for one blog post. If you would like to hear more China incongruities, or learn about the unique business and legal environment in China, send me an email at elehman@lehmanlaw.com.

Published by Edward E. Lehman on April 18th, 2017 tagged Uncategorized | Comment now »

NGOs in China, Pay Attention to the New Law

A new law named Law on Administration of Domestic Activities of Overseas Non-governmental Organizations was promulgated last year. NGOs in China shall pay attention to this, or the organization might be under risk of violating law.

NGOs in this law refer to foundations, social organizations, think tanks, and other non-profit-making and non-governmental social organizations legally established overseas.

The key point of this law is that any NGO with an intention to conduct activities in mainland of China must go through procedures of registration or record filing. As indicated clearly in article 9 of the law,  To conduct activities within the territory of China, overseas NGOs are required to register and establish their representative offices in accordance with the law; and those failing to do so but needing to carry out temporary activities within the territory of China shall make a record-filing in accordance with the law. Overseas NGOs that fail to register and establish representative offices or that carry out temporary activities without record-filing are not allowed to carry out or carry out in disguised form activities within the territory of China, or entrust or fund or entrust or fund in disguised form any domestic entities or individuals to do so.

It is not an easy thing to establish a representative office for a NGO. Besides some procedural requirements the NGO needs to meet when filing an application, it also needs approval of business authorities. The business authorities differ from industry to industry and to determine which department is one certain NGO’s business authority is quite a professional issue.

If a NGO carries out activities in China without registration or record filing, relevant public security bureau shall ban or order the suspension of the illegal acts, confiscate illegal property and illegal gains, and give warnings to the personnel directly liable; if the circumstances are serious, detention of less than ten days shall be imposed.

Published by Mike Wang on April 14th, 2017 tagged Uncategorized | Comment now »

Foreigners: Know Your Rights on China Social Benefits

Several days ago, one of our clients contacted the firm with a question about China social insurance for expats. This client was seeking clarification as to whether all foreign employees are required to pay China social insurance, since some employees have labor contracts with foreign enterprises outside of China, and are dispatched to work for the subsidiary in China. In fact, all foreigners legally employed in China must pay social insurance China, this includes any foreign worker employed in accordance with the law by any enterprise, public institution, social group, privately owned non-enterprise institution, foundation, law firm, accounting firm or other organization incorporated or registered in accordance with the law in China, and any foreigner who, upon signing an employment contract with a foreign employer, is dispatched to work in any branch or representative office of the foreign employer incorporated or registered in China. No exceptions.

Foreigners legally working in China, must participate in social insurance programs including basic endowment insurance, basic medical insurance, work-related injury insurance, unemployment insurance and maternity insurance, just like Chinese employees.  Social insurance premiums shall be paid by the China company employing the individual, as well as the foreign employee. Of course where a foreign worker meets requirement he or she is entitled to receive the social insurance benefits in China, for example, if he or she meets the relevant legal requirements, he or she will be entitled to receive basic pension in China.

The specific requirements for receiving pension are:

(1)   having participated in the basic pension insurance prior to retirement;

(2)   having reached the age for retirement or having satisfied legal retirement conditions as stipulated by the State; and

(3)   whose contribution payment term having reached 15 years (including deemed payment term) when at the time of retirement.

Under some special circumstances, for example, where the foreign worker departs China before the above requirements are met, the social insurance he or she has already paid will not simply be lost, but will be subject to special treatment.

When a foreigner leaves China before becoming eligible to receive the pension, the account will be maintained, and will begin to accrue again when the foreigner returns to China. If the foreigner has no plans to continue work in China, application may be made to receive the current balance of benefits in a lump sum. If a foreigner dies, his social security benefits are allowed to be distributed to the estate.

Published by Myra Kong on April 11th, 2017 tagged Uncategorized | Comment now »

Foreigners Doing Business in China: Here’s a List of 5 Things You Should Never Say While Negotiating

If you’re new to negotiating in China or have been doing business in China and still find it difficult, here are some classic missteps to avoid.

Every China Businessman/China-entrepreneur spends some time haggling. Haggling is arguably a national sport in China whether it is with vendors, customers, suppliers, investors, or would-be employees. Most Chinese business owners are street smart, and seem to naturally perform well in negotiations. You probably have a trick or two —some magic phrases to say, perhaps— that can help you gain the upper-hand (or balance). But, often, the moment you get into trouble in a negotiation is when something careless just slips out. If you are new to negotiations in China, or feel it is an area where you can improve, check out these tips on precisely what not to say.

1.  The word “between” 在…到…之间:

It often feels reasonable—and therefore like progress especially in the professional service industry where Chinese are not accustomed to paying for services (—to throw out a range. With a customer, that may mean saying “I can do this for between $10,000 and $15,000.” With a potential hire, you could be tempted to say, “You can start between April 1 and April 15.” But that word between tends to be tantamount to a concession, and any shrewd negotiator with whom you deal will swiftly zero-in on the cheaper price or the later deadline. In other words, you will find that by saying the word between you will automatically have conceded ground without extracting anything in return.

2. “I think we’re close” 我们几乎达成协议了

We’ve all experienced deal fatigue: The moment when you want so badly to complete a deal that you signal to the other side that you are ready to settle on the details and move forward. The problem with arriving at this crossroads, and announcing you’re there, is that you have just indicated that you value simply reaching an agreement over getting what you actually want. Negotiators in China are notoriously patient, and they may well use this moment as an opportunity to stall, and thus to negotiate further concessions. Unless you actually face extreme time pressure, you shouldn’t be the party to point out that the clock is loudly ticking in the background. Create a situation in which your counterpart is as eager to finalize the negotiation (or, better yet: more eager!) than you are.

3. “Why don’t you throw out a number?” 你认为多少公平?

There are differing schools of thought on this, and many people believe you should never be the first person in a negotiation to quote a price. Let the other side start the bidding, the thinking goes, and they will be forced to show their hands, which will provide you with an advantage. But some research has indicated that the result of a negotiation is often closer to what the first mover proposed than to the number the other party had in mind; the first number uttered in a negotiation (so long as it is not ridiculous) has the effect of “anchoring the conversation”. This is especially prevalent in China where the cost of material and labour may be much lower than that in foreign countries. Chinese negotiators may rely on your unfamiliarity with China’s prices to receive a starting price point higher than what they would have even started with. One’s role in the negotiation can matter, too. In the book Negotiation, Adam D. Galinsky of Northwestern’s Kellogg School of Management and Roderick I. Swaab of INSEAD in France write: “In our studies, we found that the final outcome of a negotiation is affected by whether the buyer or the seller makes the first offer. Specifically, when a seller makes the first offer, the final settlement price tends to be higher than when the buyer makes the first offer.”

4. “I’m the final decision maker” 决定只是我的

At the beginning of many negotiations, someone will typically ask, “Who are the key stakeholders on your side, and is everyone needed to make the decision in the room?” For most entrepreneurs, the answer, of course, is yes. Who besides you, is ever needed to make a decision? Isn’t one of the joys of being an entrepreneur that you get to call the shots? Yet in negotiations, particularly with larger organizations, this can be a trap. You almost always want to establish at the beginning of a negotiation that there is some higher authority with whom you must speak prior to saying yes. In a business owner’s case, that mysterious overlord could be a key investor, a partner, or the members of your advisory board. The point is, while you will almost certainly be making the decision yourself, you do not want the opposing negotiators to know that you are the final decision maker, just in case you get cornered as the conversation develops. Particularly in a high-stakes deal, you will almost certainly benefit from taking an extra 24 hours to think through the terms. In China, you can always expect the counterparty to be doing the same thing, the main decision maker will not be around for the initial negotiations. Adopting this same premise allows you to keep negotiations at a more equal level. For once, be (falsely) humble: pretend like you aren’t the person who makes all of the decisions.

5. “Fuck you.” 侮辱言语

The savviest negotiators take nothing personally; they are impervious to criticism and impossible to fluster. And because they seem unmoved by the whole situation and unimpressed with the stakes involved, they have a way of unnerving less-experienced counterparts. This can be an effective weapon when used against entrepreneurs, because entrepreneurs tend to take every aspect of their businesses very personally. Entrepreneurs often style themselves as frank, no-nonsense individuals, and they can at times have thin skin. But whenever you negotiate, remember that it pays to stay calm, to never show that an absurdly low counter-offer or an annoying stalling tactic has upset you. The Chinese often have the impression that foreigners, American citizens in particular, are brash and easy to anger. They will attempt to take advantage of this. Use your equanimity to unnerve the person who is negotiating with you. And if he or she becomes angry or peeved, don’t take the bait to strike back. Just take heart: You’ve grabbed the emotional advantage in the situation. Now go close that deal.

Published by Edward E. Lehman on April 10th, 2017 tagged Uncategorized | Comment now »

Procedures for Closing a Company in China

We have discussed much about procedures for establishing a company in China, and you know that it is not an easy and quick thing. Neither is closing a company. Or even more complicated and time assuming, sometime it may incur conflicts between the shareholder and the employees if the liquidation team doesn’t handle matters properly.

The main procedures are as below:

1. Establish a liquidation group which will in full charge of the liquidation.

2. Record the liquidation group with the local administration department of industry and commerce.

3. Notify creditors of the liquidation.

4. Liquidate the company’s assets and make a balance sheet and a schedule of assets.

5. Negotiate with employees to terminate the employment relationship.

6. Dispose of company’s residual assets.

Above procedures are just a sketch, and each step is not easy to achieve. Among those, the most complicated or difficult step is to terminate the employment relationship, especially if the company employs many workers who are difficult to find new jobs. They are protected by the local work union and Chinese labor law. In most occasions, the company is obligated to pay compensation to employees for their agreement of ending the employment, and the bargaining process may be tough.

Liquidating the company’s assets is quite a professional procedure and it requires the participation of accountants or auditors.

You need also pay attention to some details, such as the time limit for notifying creditors. If the liquidation group doesn’t notify the creditors within the time limit, creditors may claim damages against the company.

The most important step is distributing the residual assets. And in this step, you should know that a statutory order is fixed by the law. The assets must be distributed in order and the shareholder could get the residual money or asset in last order if there is any left.

Published by Mike Wang on April 7th, 2017 tagged Uncategorized | Comment now »

Use Chinese in China Product Advertisements

We help a lot of client’s review and draft advertisements to be shown in the China market. Client will typically send us a pre-made ad, probably the same ad they use in the USA, with a few Chinese words thrown in, and want us to make sure it will work under China advertising laws. Usually, the draft ads sent to us by clients have a mixture of Chinese and English wording.

We have to tell them the English language has to go. Per Chinese law, the language used in an advertisement must be simplified Chinese characters. No foreign language or word may be used alone in advertisements (except in a few rare case). Where any foreign languages or words are used uder special requirements in advertisements, they must be used in conjunction with simplified Mandarin Chinese characters such that Chinese characters shall be have “primary prominence” and that such foreign languages and words shall be used only secondarily.

In some circumstances using a foreign language is the sole option, for example, many internet links show only foreign words. Such links are allowed. There are also a few an important exceptions to the Chinese language requirement in advertising which it will be helpful to keep in mind:

Exceptions:

1. the foreign words are a Registered Trademark;

2. the foreign words are a generic name of a goods or service first developed overseas, which have become recognizable in China by the foreign name;

3. the foreign words are international call-signs, phrases or symbols which have been recognized by Chinese government bodies in their respective field (think (S.O.S. to signal a distressed ship);

4. the foreign words are part of professional technical standards as recognized by the competent departments of China

5. There is also a broader exception for adds displayed on television or radio stations which are primarily broadcast in a foreign language

Advertising laws in China are very strict, and focus on ensuring Chinese citizens can easily understand and are not mislead by advertisers. Any foreign company seeking to sell product in China, or to advertise goods or services from abroad should consult with a China lawyer before initiating any advertisement campaign within China.

Published by Myra Kong on April 6th, 2017 tagged Uncategorized | Comment now »

Expat Tax Preferences for China Individual Income Tax

Following our previous blog post regarding the tax obligations for a foreigner staying in China, let’s take a look at what preferential tax policies a foreigner in China may be entitled to.

1. 1300 RMB deduction in income tax

Subject to the relevant provisions of Individual Income Tax Law of China and Implementing Regulations of Individual Income Tax Law of China, foreigners who meet the specific requirements provided in the law and regulations are entitled to deduct 1300 RMB more compared with Chinese individuals when calculates their income tax.

2. Tax exemption for some income

Subject to the polices of the Ministry of Financial Department and the State Administration of Taxation, some income to foreigners will be exempted from individual income tax, including

a.subsidies for housing, meal and laundry obtained by a foreign individual in the form of non-cash or reimbursement upon receipts;

b.relocation allowance a foreign individual obtained in the form of complete reimbursement due to taking or leaving office in China;

c.subsidies of domestic and overseas business trips in line with reasonable standards obtained by a foreign individual;

d.family visit subsidies obtained by a foreign individual;

e.language training and children’s education subsidies obtained by a foreign individual;

f.income gained by a foreign individual from dividends and bonuses of enterprise with foreign investment.

3. Tax exemption for foreign experts

The wage and salary incomes gained by foreign experts who meet one of the following conditions may be exempted from individual income tax:

a.foreign experts directly sent by the World Bank to work in China in accordance with a special loan agreement;

b.experts directly sent by one of the United Nations’ organizations to work in China;

c.experts coming to work in China for the UN aid projects;

d.experts sent by an aid-granting country to China to work specially for the project granted gratis by the country;

e.cultural and educational experts coming to China to work for two years on the cultural exchange project under an agreement signed between two governments, with their wages and salaries being borne by the country;

f.cultural and educational exerts coming to China to work for two years on the international exchange projects of China’s universities and colleges, with their wages and salaries being borne by the country concerned;

g.experts coming to work in China through a non-government scientific research agreement, with their wages and salaries being borne by the government organization of the country concerned.

These are the general provisions, whether a foreigner or foreigner expert is entitled to enjoy such tax preference or exemption depends from case to case. The true China income tax bill can only be determined by consultations with China legal and financial professionals.

Published by Myra Kong on April 5th, 2017 tagged Uncategorized | Comment now »

Qingming

Qingming (Tomb-sweeping) Festival, a four-day national holiday in mainland China has just come to an end. During this festival, Chinese nationals visit graves or burial grounds to pray to their ancestors and pay their respects. It is similar to ‘All Saint’s Day’ of Judeo-Christian tradition celebrated on November 1st each year.

This message is not about legal matters as most of our other posts (although it is a ‘legal’ governmental holiday in China). It is about economics, as the holiday is supported in the hopes that people will spend money and improve the economy by giving the population time-off from work (smart thinking in this country of savers).

What is this holiday, exactly? Well, it has certainly evolved over the course of my 30+ years as a continuous resident in mainland China. When I first arrived it was not an official government holiday. It was as I recall, actually a non-observed holiday condemned as silly & superstitious. Later, the holiday was tolerated. Now it is embraced and the general population have four consecutive days off work.

The Qingming Festival is an opportunity for celebrants to remember and honour their ancestors at their grave sites. In Beijing at the biggest gravesite Baobaoshan, the young and old pray before their ancestors, sweep the tombs and offer food, tea, wine, chopsticks, joss paper, and/or libations (not unlike the urban custom of pouring a libation/Malt 45 to your departed ‘homeboy’) to their ancestors. I am told, the rites have a long tradition (more than my 30 years of observation that is) in China, primarily among farmers. In some years, I was in the countryside when the festival occurred and observed the locals carry willow branches with them on Qingming and put the branches on their gates and/or front doors. They believe the willow branches help ‘ward off’ an evil spirit that wanders on Qingming. This is similar to the tradition of Halloween, where costumes are used to fool the evil spirits that come the night before All Saints day.

On Qingming, people go on family outings, start the spring planting of gardens, many travel abroad or around the country for the long four-day holiday, and like most in my little neighbourhood in Beijing simply enjoy a long walk around our community.

As it is the start of spring, Qingming is also a time when young couples traditionally start ‘courting’, but truth be told in China it appears like all times are good for young people to start courting. However, unlike in the past, nowadays they simply use an app and a smartphone, not a matchmaker to accomplish the goals of courtship. Another popular thing to do is to fly kites in the shapes of animals or characters from Chinese Opera (although this does not happen in my community of upper-middle-class Chinese yuppies). Thankfully, no firecrackers are used in this celebration (at least where I live). I am still getting over all the fireworks from Spring Festival where I seem to suffer from PTSD as the fireworks seem to go off 24-7 for a few weeks.

As for me, my parents departed many years ago now. I cannot sweep their gravestones as they are currently working their way through eternity in a Cemetery just outside the city of Chicago. I just mark the day by saying a small prayer of remembrance for them. They were not perfect, they did the best they could in the time they lived on this earth, I loved them then, and love them still. I miss them. I then usually go out and look at the blooming spring flowers (my Mother always insisted we plant flowers and make a garden in the spring around this time). I hated the task as a kid, but now it is a bittersweet reminder, God is everywhere. They are with me still and all my other family who went before even though their remains are thousands of miles away. I know they rest-in-peace with that same God we all worshiped together as family when we were kids, somehow, in an ever-changing world, this at least brings me comfort. Happy Qingming. RIP Mom & Dad.

Published by Edward E. Lehman on April 5th, 2017 tagged Uncategorized | Comment now »