China WFOE Formation

Asia Catalyst, just came out with China’s New Nonprofit Regulations: Season of Instability, updating the situation for Non Governmental Organizations (NGOs) in China.

The post starts out discussing how NGOs can register as a not for profit entity in China only via government sponsorship, which effectively places the new NGO under Chinese government control. To avoid having this massive weight on its back, many NGOs register in China as a commercial enterprise (typically a WFOE, occasionally as a Joint Venture), which in turn subjects it to normal commercial tax burdens.

China’s new regulations create a two-step hurdle that makes it more difficult for these “commercial enterprises” to get funding:

  • All NGOs have to open a special bank account for the foreign donations they receive.
  • To open one of these special bank accounts, the NGO has to provide an application, a copy of their business license, a notarized contract with the overseas donor explaining the purpose of the donation, documents proving the overseas donor is legally registered in its home country, and, if the notary is unsatisfied with the documentation, other materials.

The notarization requirement is the real roadblock because “notarization of the contract between donor and grantee” requires “both the donor and the grantee . . . to have representatives physically present at the notarization office in person.” Obviously, having representatives for both the FOREIGN donor and the Chinese NGO physically present at the notarization office is, at the least, a significant inconvenience, and at worst, a deal-breaker. All of which is leading to a serious drought of funding for NGOs in China.

All of which begs these questions: why stifle NGOs and why now? What do you think?

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Photo of Dan Harris Dan Harris

Dan is a founder of Harris Bricken, an international law firm with lawyers in Los Angeles, Portland, San Francisco, Seattle, China and Spain.

He primarily represents companies doing business in emerging market countries, having spent years building and maintaining a global, professional network. 

Dan is a founder of Harris Bricken, an international law firm with lawyers in Los Angeles, Portland, San Francisco, Seattle, China and Spain.

He primarily represents companies doing business in emerging market countries, having spent years building and maintaining a global, professional network.  His work has been as varied as securing the release of two improperly held helicopters in Papua New Guinea, setting up a legal framework to move slag from Canada to Poland’s interior, overseeing hundreds of litigation and arbitration matters in Korea, helping someone avoid terrorism charges in Japan, and seizing fish product in China to collect on a debt.

He was named as one of only three Washington State Amazing Lawyers in International Law, is AV rated by Martindale-Hubbell Law Directory (its highest rating), is rated 10.0 by AVVO.com (also its highest rating), and is a recognized SuperLawyer.

Dan is a frequent writer and public speaker on doing business in Asia and constantly travels between the United States and Asia. He most commonly speaks on China law issues and is the lead writer of the award winning China Law Blog. Forbes Magazine, Fortune Magazine, the Wall Street Journal, Investors Business Daily, Business Week, The National Law Journal, The Washington Post, The ABA Journal, The Economist, Newsweek, NPR, The New York Times and Inside Counsel have all interviewed Dan regarding various aspects of his international law practice.

Dan is licensed in Washington, Illinois, and Alaska.

In tandem with the international law team at his firm, Dan focuses on setting up/registering companies overseas (via WFOEs, Rep Offices or Joint Ventures), drafting international contracts (NDAs, OEM Agreements, licensing, distribution, etc.), protecting IP (trademarks, trade secrets, copyrights and patents), and overseeing M&A transactions.