Header graphic for print
China Law Blog China Law for Business

Is China Moving Against Unregistered Companies?

By Dan Harris on Posted in China Business, Legal News

Got an unusual phone call from a client yesterday.

The client is an American company that conducts business with China, not in China. This means that there is absolutely no legal requirement that it have a Chinese entity such as a WFOE or a Joint Venture or a Rep Office. What it does with China is 100% legal and above board. None of this can or has been disputed.

One of China’s largest newspapers had written a very positive article on our client but before they could run it, they needed to see our client’s China company registration. Because our client is not registered in China (and again, this is wholly proper), it could not produce such a registration and so the story did not run.

This is the first I have ever heard of such a thing. Is this new or has it always been the case? Is it yet another example of China’s strong intent to crack down on illegal foreign businesses?

  • Anon

    Couldn’t it just be a misunderstanding of the law on the part of the newspaper?

  • Tax Man

    Under certain circumstances a foreign company receiving “China Derived Income” can be liable for withholding tax at rates depending upon the services rendered. A request for company registration details may be followed by a tax demand.

  • David McKnight

    Wouldn’t the next logical question be, Dan, “why would you want to see China company registration papers for an article on a US company that does business with Chinese companies (or the central or provincial governments)?”
    That would likely clear up any misunderstanding — and it may be that the misunderstanding was on the part of your client; that the paper may have simply wanted to do a story on a company with in-country operations.
    Your client may need some local (China) PR assistance, because even if the intent of the paper was to do such a story, they may be just as interested in doing a story on a US company that is assisting local Chinese companies in accomplishing something of particular interest, giving it the angle they’re looking for. We have had a number of articles written about our organization, but the focus is always on the China angle.

  • Li

    Chinese media has such rules as to what kind of legal entity it requires to be to have articles or advertisements published. For some business, like study abroad conselling, agencies cannot make ad. on newspaper if it is not one of the certified agencies by Ministry of Education, through many of them could be totally legal with company registration.
    It is correct that nowhere in the law says no entity in China is illegal but the media has it owns policies to play. For a country with massive scale of tricks, policies and rules in one line of business are necessary to safeguard the general interests of the people, not only for outsiders, but also for insiders.

  • Champagne Charlie

    @Taxman is correct – if you are a foreign company with no China presence but are deemed to have “China Derived Income” then the China tax bureau considers that taxable. Withholding tax applies. Consultants overseas offering China services had better factor that into their biz plan if the Chinese decide they want to start to collect. And there’s a 7 year claim period. No whinging for prominent firms that should be aware, I reckon the day isn’t far off when the Chinese start sending bills.