China's Great Wall: Six Local Rules That May Surprise You

Why does setting up operations in China give finance and human resource professionals pause? China has very complex business and tax regulations that can be utterly mind boggling for foreign businesses. Complicating the issue is the fact that regulations are subject to frequent change, as well as different interpretations by both state and local authorities. It can be a challenge just to keep track of what’s permitted, where, at a given point in time.

 

Here are some China business practices to consider when getting your operation off the ground:

  • Capital investment into China generally cannot be repatriated until eventual exit.China’s view on foreign investment is more rigid than other countries. While business profits can be repatriated, whatever capital you initially invest in China cannot be brought back to your company’s home country, until the eventual dissolution of the business venture. Careful consideration of your initial investment in China is one of the most important decisions you’re likely to make.

  • Most official documents need to be completed in “wet, black ink” to be approved. So throw out your ballpoints, and invest in a nice fountain pen for your Chinese operations in order to avoid any complications as you get started.

  • Your accounting software must be approved by the Chinese government. Whether you buy a package “off the shelf” in country, or you have special, company developed software built out, the finance bureau in the locality of your operations will need to explicitly approve its use.

  • An official company seal is needed. When conducting business on behalf of the company, a company seal, or “chop”, is required to sign off on documents. The use of such a seal in lieu of a signature is common practice not only in China, but in much of Asia.

  • Representative offices cannot hire local employees directly. If you are operating arepresentative office in China, you cannot hire Chinese nationals directly. In order to bring on local staff, you must contract with a government-authorized labor services company. Such an organization can hire local citizens that can be contracted out to work for your RO.

  • Expatriates in China are required to enroll in social security programs. Recent changes to regulations require expatriates to contribute to social insurance programs as Chinese nationals do. While many countries have totalization agreements with the U.S., which prevent expatriates from having to make payments into the social security systems of two countries, this is not the case with China.

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