What Foreign Companies Should do to Achieve Full Compliance in China

In terms of legal developments, China emphasized that it will strengthen oversight to ensure compliance with the constitution, advance constitutional review, and safeguard the authority of the constitution. For U.S. firms seeking overseas expansion opportunities, China is perhaps a natural candidate. China is now one of the most lucrative international markets in which to conduct business.

There are both internal and external reasons to why compliance in China is so challenging. Internally it is hard because of language, habits and culture differences. Besides these more obvious differences, it is difficult because of the difference in administration, HR, and other departments regulations. Western people simply do not have the time to learn every detail of running a business in China. One way to make sure you are compliant is to make sure all business components are handled by professionals. This is obvious, and it is not difficult for big corporates and other large organizations to achieve.

However as small/medium enterprise or a start-up, it can be financially challenging to involve a CFO or third party. We know keeping your spending in check is important in order to become successful as a smaller organization. However, hiring qualified financial and legal experts will save you a lot of potential trouble. When you first established your operations in China, you probably had many challenges you needed to solve to operate in China, some of which were not completely legal. There are many common questions you need to know, such as:

 

1. Are you compliant with China’s employment laws?

2. Do you have good enforceable contracts?

3. Are you financially compliant?

 

China Labor Contract Law

In 2007, China has revised its Labor Contract Law and included clauses that addressed issues on employment contract and redundancy. Being knowledgeable with the updated laws will help you save more money and be a better employer to your employees. Also, you need to be aware of Chinese Labor Law so you have an idea of the mandatory benefits and employee welfare and include it when you are coming up with a budget for your company set-up in China.

 

Annual Compliance Requirements in China

Annual compliance requirements include several items. They are different for ROs and WFOEs. For ROs, the requirements are annual audit, annual tax reconciliation, annual reporting to the Administration of Industry and Commerce (AIC). For WFOEs, in addition to these three steps, you also have to file another report to SAFE, and another combinative reporting including several government bodies. Without doing those annual compliances in a fixed timeline, the company may face penalties, also at the risk of getting their license suspended or cancelled by the AIC. Leveraging internal and external resources to monitor policy changes and identify risks to current operations or future plans. Some companies have also developed processes to inform their suppliers and customers about changing policies. To maintain supply chain integrity and ensure regulatory compliance, companies should conduct robust due diligence and regular audits of suppliers, industrial parks, JV partners, and M&A targets.

For several reasons, China presents itself as an ideal jurisdiction within which an overseas company can do business. To that end, it is not surprising that there are scores of foreign companies which have Chinese subsidiaries.

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