The Regulation on Administration of Commercial Franchise ("Regulation") was issued by the State Council (Decree No. 485) on February 6, 2007 and will come into force as of May 1, 2007. The Regulation applies to the franchisors that have been engaging in franchising activities before and after the promulgation of the Regulation, including five chapters and thirty four articles.
Franchisors and commercial franchise
According to the Regulation, "franchisors" refer to the enterprise which is in possession of a registered trademark, enterprise logo, patent, know-how and any other business resource. The "Commercial franchise" as mentioned in the regulation means business activities whereby the franchisor allows the franchisee the use of the operational resources through contracts, and the franchisee undertakes business under the unified business format in accordance with the provisions of stipulated in the contracts and pays franchise fees to the franchisor.
The basic requirements for franchising activities
1. Only the franchisors prescribed in the Regulation may carry out franchising activities, no entities or individuals other than enterprises may engage in franchising activities as franchisors;
2. A franchisor engaged in franchising activities shall own a well-developed business format and has the capabilities to continuously provide operational guidance, technical support, business training, and other services to the franchisee;
3. A franchisor engaged in franchising activities shall own at least two directly operated outlets, and shall be in operation for more than one year.
4. Within 15 days after the execution of the initial franchise contract, a franchisor shall file with the commercial administration authority and put on records in accordance with the Regulation. For the franchisors who have been engaging in franchising activities before the promulgation of the Regulation, they shall put on records within one year starting from the promulgation date of this Regulation..
Commercial franchise contract
1. A franchise contract shall be signed by franchisor and franchisee in written form and meets the requirements of the Regulation;
2. The franchisor and the franchisee shall set forth in the franchise contract that the franchisee is entitled to unilaterally terminate the franchise contract within a certain period after the contract is signed;
3. The term of the franchise as stipulated in the franchise contract shall not be less than three years, unless otherwise agreed to by the franchisee.
Information disclosure
The Regulation prescribes that the franchisor shall establish and implement a complete information disclosure system. The franchisor shall provide the franchisee with the information in written form and the text of the franchise contract at least 30 days before the franchise contract is signed.
The information shall be disclosed by the franchisor include the basic information of the franchisor and its legal representative, commercial reputation record, the business resource owned by the franchisor, the capacity of the franchisor to provide service to the franchisee, specific measures in respect of the guidance and supervision over the operational activities of the franchisee, the amount and payment method of the franchise fees and investment budget for the franchised outlets.
Sunday, June 24, 2007
Friday, June 22, 2007
Enterprise Income Tax Law Passed, Same Tax Rate Applied to Domestic and Foreign-invested Enterprise
On March 16, 2007, the Enterprise Income Tax Law was passed by the National People’s Congress. The Law covers 8 chapters and totally 60 articles, including General Provisions, Taxable Amount of Income, Amount of Payable Taxes, Preferential Tax Treatments, Withholding by Sources, Special Adjustments to Tax Payments, Administration of Tax Collection and Supplementary Provisions and will go into effect on January 1st, 2008.
The Enterprise Income Tax Law provides that the payers of the enterprise income tax are classified into resident and non-resident enterprises. "Resident enterprise" as mentioned in this Law refers to an enterprise which is established inside China, or which is established under the law of a foreign country (region) but whose actual institution of management is inside China, and "non-resident enterprise" refers to an enterprise established under the law of a foreign country (region), whose actual institution of management is not inside China but which has institutions or establishments inside China; or which has not any institution or establishment inside China but which has incomes sourced in China. The enterprise income tax rate is 25%, and the tax rate of 20% is applied to those “non-resident enterprises” without the institution or establishment inside China, or those have not any institution or establishment inside China but which has incomes sourced in China.
The government gives preferential income tax treatment to those state-supported and encouraged industries and projects. Furthermore, in terms of those qualified enterprises with insignificant profit, the 20% tax rate shall be applied. And the income tax rate of 15% will be levied against those hi-tech enterprises for key cultivation
The Enterprise Income Tax Law provides that the payers of the enterprise income tax are classified into resident and non-resident enterprises. "Resident enterprise" as mentioned in this Law refers to an enterprise which is established inside China, or which is established under the law of a foreign country (region) but whose actual institution of management is inside China, and "non-resident enterprise" refers to an enterprise established under the law of a foreign country (region), whose actual institution of management is not inside China but which has institutions or establishments inside China; or which has not any institution or establishment inside China but which has incomes sourced in China. The enterprise income tax rate is 25%, and the tax rate of 20% is applied to those “non-resident enterprises” without the institution or establishment inside China, or those have not any institution or establishment inside China but which has incomes sourced in China.
The government gives preferential income tax treatment to those state-supported and encouraged industries and projects. Furthermore, in terms of those qualified enterprises with insignificant profit, the 20% tax rate shall be applied. And the income tax rate of 15% will be levied against those hi-tech enterprises for key cultivation
National People’s Congress Passed Property Law
On March 16, 2007, the National People’s Congress passed Property Law, which will come into effect on October, 1st, 2007. Property Law constitutes five parts (19 chapters 247 articles), including General Principles, Proprietorship, Usufructaury Rights, Security Interest and Possession. The relatively more important content of the Property Law covers the following issues: Firstly, it expressly gives equal protection on state-owned, collective and private property. Secondly, it clearly sets forth the scope of state-owned property, the exercise of state ownership and strengthened protection on state-owned property. Thirdly, it provides that the individual enjoys the ownership of its real properties and chattels such as legitimate income, house, consumer goods, manufacture tools and raw materials, and it stipulates provisions regarding those issues concerned by the public, such as the owner’s portioned ownership of the building areas. Fourthly, it explicitly sets forth the issue of compensation for expropriation, e.g. it provides the reason and content of expropriation. Fifthly, it provides the possession, and specifies the protection on possession and infringement liability of adverse possessor so as to keep the social order and holder’s legitimate interests.
Thursday, June 21, 2007
PROCEDURE FOR FOREIGN INVESTORS TO ENTER CHINA
Visa:
Foreign investors who wish to visit China for business may approach Chinese partners directly with purpose and time of the visit The Chinese partner can apply for visa notification on behalf of the foreign investors at a local foreign affairs organization if the visit is receptacle. Once foreign investors have received the visa notification from Chinese domestic authorized organization, the foreign investors may apply for entry visa to China at a local Chinese embassy or consulate.
Apply for Employment License, Expert Certificate, Residence Certificate:
A foreign invested enterprise, which is intending to employ expatriates, may apply for "the employment license for the expatriates in the People's Republic of China" (hereinafter referred to as employment license) at the Shanghai Labor & Social insurance Bureau with the following documents: company business license, certificate of approval for setting up enterprise, application report, and the expatriates' personal documents. With the employment license the enterprise may apply for profession visa notification at Shanghai Municipal Foreign Economic Relations and Trade Commission (SMERT), which is authorized by the Ministry of Foreign Affairs of the People's Republic of China. The expatriates can apply for profession visa to entry into China at a local Chinese Embassy with the fax copy of profession visa notification and the employment license. After entering China, the expatriates can apply for employment certificate at Shanghai Labor & Social Insurance Bureau with the following documents: profession visa, employment license, employment contract, health certificate and photos of the expatriates within 15 days. With the employment certificate, the expatriates can apply for residence certificate at the Division of Exit and Entry Administration of Shanghai Public Security Bureau.
If a foreign-invested company will hire employees from Hong Kong, Macao and Taiwan, the company shall submit its application to the Office of Administrating the employment of the personnel from Hong Kong, Macao and Taiwan set up in Shanghai Labor and Social Insurance Bureau. The Employment License for the Personnel from Hong Kong, Macao and Taiwan will be issued after the application has been examined and approved by above-mentioned Bureau and the personnel from Hong Kong, Macao and Taiwan shall apply for the residence certificate with the Division of Exit and Entry Administration set up in Shanghai Public Security Bureau on the strength of the Employment License.
Shanghai agents, which provides service to foreign enterprises for establishing representative offices in Shanghai, can go to SMERT to apply for profession visa notification for the chief representative and representatives on behalf of the foreign enterprise. After receiving the profession visa notification, the chief representative and representatives may apply for profession visa at a local Chinese embassy or consulate for entering into China. Upon entering China, they can apply for work permit certificate at Shanghai Commercial and Industrial Administration Bureau. The representatives can then go to Shanghai Labor & Social Insurance Bureau to apply for employment certificate with the following document: profession visa, work permit certificate, health condition certificate, photos. Then they can go to Shanghai Public Security Bureau to apply for residence certificate.
Foreign investors who wish to visit China for business may approach Chinese partners directly with purpose and time of the visit The Chinese partner can apply for visa notification on behalf of the foreign investors at a local foreign affairs organization if the visit is receptacle. Once foreign investors have received the visa notification from Chinese domestic authorized organization, the foreign investors may apply for entry visa to China at a local Chinese embassy or consulate.
Apply for Employment License, Expert Certificate, Residence Certificate:
A foreign invested enterprise, which is intending to employ expatriates, may apply for "the employment license for the expatriates in the People's Republic of China" (hereinafter referred to as employment license) at the Shanghai Labor & Social insurance Bureau with the following documents: company business license, certificate of approval for setting up enterprise, application report, and the expatriates' personal documents. With the employment license the enterprise may apply for profession visa notification at Shanghai Municipal Foreign Economic Relations and Trade Commission (SMERT), which is authorized by the Ministry of Foreign Affairs of the People's Republic of China. The expatriates can apply for profession visa to entry into China at a local Chinese Embassy with the fax copy of profession visa notification and the employment license. After entering China, the expatriates can apply for employment certificate at Shanghai Labor & Social Insurance Bureau with the following documents: profession visa, employment license, employment contract, health certificate and photos of the expatriates within 15 days. With the employment certificate, the expatriates can apply for residence certificate at the Division of Exit and Entry Administration of Shanghai Public Security Bureau.
If a foreign-invested company will hire employees from Hong Kong, Macao and Taiwan, the company shall submit its application to the Office of Administrating the employment of the personnel from Hong Kong, Macao and Taiwan set up in Shanghai Labor and Social Insurance Bureau. The Employment License for the Personnel from Hong Kong, Macao and Taiwan will be issued after the application has been examined and approved by above-mentioned Bureau and the personnel from Hong Kong, Macao and Taiwan shall apply for the residence certificate with the Division of Exit and Entry Administration set up in Shanghai Public Security Bureau on the strength of the Employment License.
Shanghai agents, which provides service to foreign enterprises for establishing representative offices in Shanghai, can go to SMERT to apply for profession visa notification for the chief representative and representatives on behalf of the foreign enterprise. After receiving the profession visa notification, the chief representative and representatives may apply for profession visa at a local Chinese embassy or consulate for entering into China. Upon entering China, they can apply for work permit certificate at Shanghai Commercial and Industrial Administration Bureau. The representatives can then go to Shanghai Labor & Social Insurance Bureau to apply for employment certificate with the following document: profession visa, work permit certificate, health condition certificate, photos. Then they can go to Shanghai Public Security Bureau to apply for residence certificate.
PROCEDURE FOR ESTABLISHING RESIDENTIAL REPRESENTATIVE OFFICES IN SHANGHAI BY OVERSEAS ENTERPRISES
To foster the development of international economic and trade relations, overseas enterprises can establish residential representative offices in Shanghai upon application and approval.
1. Submitting application
An overseas enterprise which is desirous of establishing a residential representative office in Shanghai may entrust an agency authorized by Shanghai Municipal Foreign Economic Relations & Trade Commission to handle this business in Shanghai to submit application on its behalf for establishing a residential representative office to the Shanghai Municipal Foreign Economic Relations & Trade Commission.
2. Documents required for application
The applicant shall complete "The Form for Establishing Residential Representative Office by Overseas Enterprises" and present the following documents:
(1) An application duly signed by the chairman of the board or general manager of the foreign enterprise with such details as the name of the residential representative office, names of the persons-in-charge, its scope of business, residential duration and its address, etc;
(2) A legal business certificate issued by competent authorities of the country or region where the applicant is located;
(3) A letter issued by a bank which has business relations with the applicant testifying to its financial and credit standing;
(4) Power of attorney issued by the applicant for the staff of its office and their curriculum vitae.
3. Examination and approval
The Shanghai Municipal Foreign Economic Relations & Trade Commission will examine the application of overseas enterprises for setting up residential representative offices in Shanghai. If the establishment is deemed necessary the Shanghai Municipal Foreign Economic Relations & Trade Commission will issue the certificate to the applicant upon approval.
4. Registration
With the certificate of approval and all the documents referred to in section 2, the applicant can register its residential representative office with the Shanghai Administration for industry and Commerce to obtain a registration certificate as well as a representative card.
1. Submitting application
An overseas enterprise which is desirous of establishing a residential representative office in Shanghai may entrust an agency authorized by Shanghai Municipal Foreign Economic Relations & Trade Commission to handle this business in Shanghai to submit application on its behalf for establishing a residential representative office to the Shanghai Municipal Foreign Economic Relations & Trade Commission.
2. Documents required for application
The applicant shall complete "The Form for Establishing Residential Representative Office by Overseas Enterprises" and present the following documents:
(1) An application duly signed by the chairman of the board or general manager of the foreign enterprise with such details as the name of the residential representative office, names of the persons-in-charge, its scope of business, residential duration and its address, etc;
(2) A legal business certificate issued by competent authorities of the country or region where the applicant is located;
(3) A letter issued by a bank which has business relations with the applicant testifying to its financial and credit standing;
(4) Power of attorney issued by the applicant for the staff of its office and their curriculum vitae.
3. Examination and approval
The Shanghai Municipal Foreign Economic Relations & Trade Commission will examine the application of overseas enterprises for setting up residential representative offices in Shanghai. If the establishment is deemed necessary the Shanghai Municipal Foreign Economic Relations & Trade Commission will issue the certificate to the applicant upon approval.
4. Registration
With the certificate of approval and all the documents referred to in section 2, the applicant can register its residential representative office with the Shanghai Administration for industry and Commerce to obtain a registration certificate as well as a representative card.
Guides of investing in China for Foreign Investors in Shanghai
Shanghai Foreign Investment Commission (FICS) is responsible for the examination and approval of foreign-invested projects. Except those subject to examination by the competent departments of the State Council, foreign-invested enterprises to be established in Shanghai should be examined and approved by the FICS and its entrusted Administration Commission of Pudong New Area and Administrative Committee of Waigaoqiao Free Trade Zone and people’s governments at district or county level, or the relevant industrial bureaus (hereinafter referred to as a whole as the examination and approval authorities).
1. A manufacturing project with its total investment of over USD 30 million, and other project with needs t be approved by the competent department of the State Council, shall be preliminarily examined by FICS and all related departments of the Shanghai Municipality and then submitted by FICS to the relevant department of the State Council for approval.
2. If a project with its total investment under USD 30 million is located in Pudong New Area, it shall be examined and approved by Shanghai Pudong New Area Administration Commission; If it is located in Shanghai Waigaoqiao Free Trade Zone, it shall be examined and approved by the Administrative Committee of Shanghai Waigaoqiao Free Trade Zone. For certain restricted projects, their projects proposals shall be pre-examined by FICS and related government departments and then submitted by FICS to the relevant department of the State Council for approval. An encouraged project shall be examined and approved by the people’s government at district, county level where the said project is located.
3. An encouraged or permitted project with its total investment under USD 10 million shall be examined and approved by the examination and approval authorities at district, county or bureau level where the said project is located.
4. Other projects except the said No. 1, 2, 3, shall be examined and approved by the FICS.
(A) Procedures for Establishing an Equity Joint Venture or a Contractual Joint Venture
1. Preparing and presenting project proposal
Chinese or foreign investors may choose their partners through various ways. After they are well acquainted with their counterpart’s business scope and credibility, and have reached agreement of cooperation, the Chinese party shall work out a project proposal and present it to the examination and approval authority. The examination and approval authority shall give a reply (approval or disapproval) within 20 days on receipt of the proposal.
The Chinese party shall apply to Shanghai Administrative Bureau for Industry and Commerce for the enterprise’s name registration after a positive reply.
2. Preparing and submitting feasibility study report
After the project is approved, the Chinese and foreign partners shall jointly prepare a feasibility study covering items such as market survey, financing, technological process, equipment, raw material (parts), site selecting, environment protection, labor protection, fire protection, infrastructure facilities, marketing, economic results, foreign exchange balance, etc. The examination and approval authority shall help to coordinate if there are any problems.
3. Submitting contract and articles of association
While the Chinese and foreign partners are preparing the feasibility study report, they may also draw up the contract and articles of association and submit them jointly to the examination and approval authority. The examination and approval authority shall give a reply (approval or disapproval) with 30 days on receipt of the feasibility study report, contract and articles of association.
4. Application for company identification code
On the strength of the approval certificate of contract and articles of association, the investor shall apply for the company’s identification code with the city’s corporate identification code office.
5. Application for the issuance of the approval certificate
After the feasibility study report, contract and articles of association have been approved, the Chinese part shall apply for the approval certificate from the examination and approval authority.FICS, and its entrusted Administration Commission of Pudong New Area, Administrative Committee of Waigaoqiao Free Trade Zone, people’s governments at district or county level shall issue the approval certificate within 3 days after the receipt of application.
6. Application for business license
The Chinese and foreign parties may register with Shanghai Administrative Bureau for Industry and Commerce with 30 days after receiving the approval certificate and apply for the business license. Shanghai Administrative Bureau for Industry and Commerce shall issue the business license with 10 days to those projects approved by the examination and approval authorities of Shanghai.The enterprise is deemed as established on the date when the business license is issued.
(B) Procedures of Establishing a Wholly Foreign Owned Enterprise
For establishing a wholly foreign owned enterprise, the foreign investor is required to entrust the authorized consultative bodies or agencies with the tasks of application and documents submission for approval.The procedures for establishing an equity joint venture or a contractual joint venture can be consulted as a reference.
1. A manufacturing project with its total investment of over USD 30 million, and other project with needs t be approved by the competent department of the State Council, shall be preliminarily examined by FICS and all related departments of the Shanghai Municipality and then submitted by FICS to the relevant department of the State Council for approval.
2. If a project with its total investment under USD 30 million is located in Pudong New Area, it shall be examined and approved by Shanghai Pudong New Area Administration Commission; If it is located in Shanghai Waigaoqiao Free Trade Zone, it shall be examined and approved by the Administrative Committee of Shanghai Waigaoqiao Free Trade Zone. For certain restricted projects, their projects proposals shall be pre-examined by FICS and related government departments and then submitted by FICS to the relevant department of the State Council for approval. An encouraged project shall be examined and approved by the people’s government at district, county level where the said project is located.
3. An encouraged or permitted project with its total investment under USD 10 million shall be examined and approved by the examination and approval authorities at district, county or bureau level where the said project is located.
4. Other projects except the said No. 1, 2, 3, shall be examined and approved by the FICS.
(A) Procedures for Establishing an Equity Joint Venture or a Contractual Joint Venture
1. Preparing and presenting project proposal
Chinese or foreign investors may choose their partners through various ways. After they are well acquainted with their counterpart’s business scope and credibility, and have reached agreement of cooperation, the Chinese party shall work out a project proposal and present it to the examination and approval authority. The examination and approval authority shall give a reply (approval or disapproval) within 20 days on receipt of the proposal.
The Chinese party shall apply to Shanghai Administrative Bureau for Industry and Commerce for the enterprise’s name registration after a positive reply.
2. Preparing and submitting feasibility study report
After the project is approved, the Chinese and foreign partners shall jointly prepare a feasibility study covering items such as market survey, financing, technological process, equipment, raw material (parts), site selecting, environment protection, labor protection, fire protection, infrastructure facilities, marketing, economic results, foreign exchange balance, etc. The examination and approval authority shall help to coordinate if there are any problems.
3. Submitting contract and articles of association
While the Chinese and foreign partners are preparing the feasibility study report, they may also draw up the contract and articles of association and submit them jointly to the examination and approval authority. The examination and approval authority shall give a reply (approval or disapproval) with 30 days on receipt of the feasibility study report, contract and articles of association.
4. Application for company identification code
On the strength of the approval certificate of contract and articles of association, the investor shall apply for the company’s identification code with the city’s corporate identification code office.
5. Application for the issuance of the approval certificate
After the feasibility study report, contract and articles of association have been approved, the Chinese part shall apply for the approval certificate from the examination and approval authority.FICS, and its entrusted Administration Commission of Pudong New Area, Administrative Committee of Waigaoqiao Free Trade Zone, people’s governments at district or county level shall issue the approval certificate within 3 days after the receipt of application.
6. Application for business license
The Chinese and foreign parties may register with Shanghai Administrative Bureau for Industry and Commerce with 30 days after receiving the approval certificate and apply for the business license. Shanghai Administrative Bureau for Industry and Commerce shall issue the business license with 10 days to those projects approved by the examination and approval authorities of Shanghai.The enterprise is deemed as established on the date when the business license is issued.
(B) Procedures of Establishing a Wholly Foreign Owned Enterprise
For establishing a wholly foreign owned enterprise, the foreign investor is required to entrust the authorized consultative bodies or agencies with the tasks of application and documents submission for approval.The procedures for establishing an equity joint venture or a contractual joint venture can be consulted as a reference.
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