All You Need to Know About China’s New E-Commerce Law

Top legislators of China passed an e-commerce law on August 2018. The new law is aimed at regulating the China’s online luxury sales market and will become effective on January 1st 2019. The law differentiates different e-commerce operators. The law, which is set to “protect legal rights and interests of all parties” and “maintain the market order,” requires all e-commerce operators to fulfill their obligations to protect consumers’ rights and interests as well as personal information, intellectual property rights (IPR), cyberspace security and the environment. The new law also contends that platforms should take responsibilities in the customer-seller disputes that take place on the platform, which would lead to more legal risks.

The single purchase limit will increase from $288 (RMB 2,000) to $720 (RMB 5,000), and the yearly purchase amount increases from $2,900 (RMB 20,000) to $3,780 (RMB 26,000). Cross-border purchases under the new limits will be exempt from duties and receive a 30 percent discount on consumption tax and VAT.

Platform Operators– This refers to any legal persons or unincorporated organizations that offer virtual places of business, transaction matching, information release and other services to the parties of an e-commerce transaction to enable them to carry out independent transaction activities. A typical example would be the operator of Taobao.

Operators on Platform– This refers to third party merchants that sell goods or provides services on e-commerce platforms. An example is a vendor operating an online store on Taobao.

Other E-commerce Operators– This might include e-commerce operators that sell their own goods or provide their own services through self-established websites or social network such as Tencent’s WeChat.

For goods or services that are related to the lives and health of consumers, e-commerce platforms will bear corresponding responsibilities if they fail to examine the qualification of vendors on their platform. According to the new law, if a customer suffers any health-related problems by using a product bought online, the e-commerce platform will be responsible. So it makes it really important for the e-commerce platforms to properly verify each and every dealer doing business on their site.

Have a look at some of the most important articles of the new law

Article 15 of the new law appears to require that vendors make their ID data available online.

Article 12 of the law requires vendors to display business registration certificates containing core information on their company.

Article 28 of the law to “remind” – but not require – vendors that are not already incorporated to obtain business licenses, and to work with local MSBs in this regard.

Articles 42, 43 & 45 of the new law contain provisions that, on their face, seem to dilute the protections currently offered in take-down work in China.

The law is wide-ranging and covers the requirement for registration and licensing of e-commerce operators, taxation, electronic payment and e-commerce dispute resolution. It also addresses other important aspects of e-commerce including false advertising, consumer protection, data protection and cybersecurity. One practice that definitely won’t benefit from the law is daigou buying. Daigous are the shoppers who buy luxury products overseas, where those goods cost less and don’t incur China’s high import tariffs, but they’ll now come under scrutiny for their undocumented practices.

There is a provision in the new law that said the State Council, local governments at or above country-level as well as related departments should take measures to support and promote environmentally friendly packaging, storage and transportation in e-commerce.

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How WFOE Allows Complete Control of all the Business Operations in China

Building up a business presence in China offers limitless opportunities, but the success of your business lies in the correct understanding of China’s complicated business and regulatory environment. Forming a company in China is much more complex, time-taking and expensive compared to forming a company domestically. But the good news is, if your WFOE has the proper documentation and goes through the right process, it will ultimately be approved and registered to conduct business in China.

As China has become the world’s top investment destination, market experts are of the opinion that WFOE has a huge potential in China. Global companies, in their quest for new markets, can get the best out of this country. A WFOE is a 100% autonomous, financial entity, bearing lawful obligation independently. It is also worthy to note that any foreign enterprise in China that does not engage in direct business activities is not regarded as WFOE, with no exception to branches that carries out operational activities and representative offices. A WFOE can only operate within its business scope as put forward in its business license. If it chooses to engage in a different exercise than the ones specified in its Scope of Business, it is imperative to gain approval from the local authorities.

 

A Wholly Foreign Owned Enterprise (‘WFOE’) is a common investment vehicle to do business in China. Some of the traits are:

>> It is a 100% foreign owned limited liability company so the registered capital of a WFOE should be pledged and contributed solely by the foreign investors.

>> Organization form of foreign capital enterprise is mostly limited liability company, also can be called as one person limited company.

>> The registered capital of a Wholly Foreign Owned Enterprise (WFOE) should be subscribed and contributed solely by the foreign investor(s) and it can also repatriate dividends back to the parent company or shareholders overseas.

>> Foreign companies are able to operate using Chinese Yuan (RMB), meaning that any invoices and costs could be tax-deductible.

 

The establishment process of a WFOE can vary somewhat depending on the chosen structure, namely a service WFOE, manufacturing WFOE or trading WFOE and its associated business scope. Foreign investors are not permitted to directly submit the application documents of incorporate a WFOE to the relevant authority in China. They must retain a PRC entity that is authorized or permitted by relevant authorities to act as a sponsor.

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