NEED TO KNOW! Complying With The Law In China

January 23

Disclaimer: this is an edited article taken from Kudosbay酷豆湾. For the original article

Complying With The Law In China

What To Know

Situation 1: A foreigner in China plans to join with a local friend, business partner, or personal partner to set up a new business.

NEED TO KNOW! Complying With The Law In China

A foreigner owning and operating a business in China—in most industries—is not required to have a Chinese national or a local partner. So, there is no advantage of having a joint venture arrangement.

Assuming you operate in an industry that does not require a corporate or individual joint venture Chinese partner, the best situation may be for you to register a company and cooperate for the specified project with this Chinese person, either as an individual or as a company (assuming he or she has a company).

First, let’s consider the situation where you set up a company jointly with a Chinese national. What are the pros and cons?

If you set up a company together, the real problem often appears when there is a dispute—business or personal. Each side may be fighting for control and you may find a local person has advantages to gain the upper hand. In most companies of this type, the foreigner is designated as the legal representative, somewhat similar to being the CEO. You are legally responsible for the company, control the bank accounts and the company stamps, called chops. However, the legal representative is just a position within the company. If your Chinese venture partner is a director or a shareholder of the company, then he or she could force you out of the company that you created.

Alternatively, if you set up your own company as the sole shareholder, and cooperate with a Chinese national, as an individual or a company, through a contractual joint venture arrangement, then you control the risk since you maintain legally separate entities while sharing the risks and benefits for that project. Also, you can widen your opportunity to cooperate on other projects or business lines within your business scope.

As a side note. If you register your own company a work permit and the related residence permit is not a guarantee. So, before registering your company do your research; make sure you qualify for these permits. There are minimum requirements for respective categories in addition to the point system. Obtaining a visa as a shareholder of a company is much more difficult than as the legal representative. This a key reason why it is not common for the foreigner to be the shareholder and the Chinese person to be the legal representative. It is difficult to prove to authorities why a foreigner is required for that position.

Situation 2: A company wants me—a foreigner—to work part-time / as a freelancer for an extended period. How does this work legally and affect my visa status?

Part-time and freelancing work by foreigners is not allowed in China because these types of positions are viewed by the government as unstable. Chinese government policy is for foreigners to take positions that locals are unable to perform.

The only legal way to take on part-time and freelancing are first to register a company and then your company contracts with the other company for you to provide the services for the project.

In the past, years ago, many consulting agencies offered to employ you at their company while you performed work for another company. This practice was common and mostly overlooked by the authorities. These days, this is increasingly not the case and many of these consulting companies have shut down. If you choose to be employed by such a consultancy, here are some of the risks.

Risk 1: The company that wants to employ you cannot legally employ foreigners (that is, their company does not meet legal requirements to employ foreigners).
Risk 2: If you decide to change your situation in the future, the employer providing your work permit and residence permit do not cooperate to assist with obtaining a work permit cancellation receipt and/or will not issue a release letter. These are two mandatory documents are needed to change companies in China and can only be done through them. Leaving China and starting again is not necessarily an option anymore. Increasingly these documents are also required if you recently worked in China and are starting the process from scratch to avoid not following procedures. This is true for both a “z visa” which is issued overseas and the work permit.
Risk 3: The company you work for is inspected and you are caught working illegally. You cannot legally have your documentation with one company but work for another company. In the situation where it’s your own company, this is different because you are “on assignment” for your own company. In the agency situation, you are paid by the actual employer and not the on-paper employer.
Risk 4: Other issues with work permit applications. Increasingly, cities and/or districts within cities, are requiring that foreign workers have two years, or more, of work experience in the same area as the position applied for, and some cities will not count work experience gained in China. Furthermore, there are no complications if your current status is higher than your proposed next position, and the like. Since you are likely unaware of the job that your agent claims you are doing for them, you cannot match your documents to meet your next employment.

Risk 5: Relating to Risk 4 — keep in mind that the agency must create fake documents to submit on your behalf to the government. The fake documents describe a job that you will not perform and create the related full-time work contract to make it look real.

Risk 6: If you are involved in an incident beyond your control — such as a taxi in which you are a passenger gets into an accident — your documents will be inspected. This could create an issue for you via an indirect situation.
Risk 7: “Stuffing companies full of foreigners” – this term applies where a company employs many foreigners on paper but almost none of them work for the company. This practice has been carefully monitored recently by companies being forced to comply with related regulations to avoid this practice. This relates to what we mentioned above regarding foreigners only employed for jobs that locals are not qualified to do. There are no set criteria that the company must meet to employ foreigners. Some of the criteria could be the number of local employees, company share capital, just to name a couple of areas. If the agency employs too many foreigners, your chance of acceptance is even lower.
Risk 8: Agency closes. Simply put, many people have paid an agency and the services were not rendered or the company that they are employed by closes. In this situation, they need to find another solution and do not have a way to get many necessary documents that are required to move on or financially recoup on this.
Risk 9: What about a situation where agency claims they can deal with the government authorities on your behalf if you are in one of the situations described above. Many people believe this to be a solution. But, in many of the situations described, you may not have the time, ability, or attentiveness of the authorities to talk with another party on your behalf.

Always Remember: while in China we are subject to Chinese law and you can still receive legal consequences from the authorities.

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Situation 3: Obtaining a visa for China in Hong Kong, or any other jurisdiction—not your home jurisdiction.

This is not a new situation. It’s a situation that people have asked about before.

According to Chinese law, the general rule: applicants are only allowed to apply for a visa in their home jurisdiction. This may be a specific country or a specific consulate or embassy within unless the applicant has a long-term status (such as a work visa, permanent residency, citizenship, etc.) for another place. With this said, many people report that they have been approved for various visas in Hong Kong, and many other places.

Submitting a visa application from a jurisdiction which is not your home jurisdiction, we remind you is like gambling. While it is noted that this practice is not allowed in each of the respective jurisdictions some people have been approved, while others have not. Official websites, and other such documents, say that unless the applicant has a long-term status in the non-home jurisdiction they will not be approved. However, some people not meeting this have been approved.

Importantly, there is no way your agent, in whatever jurisdiction you are considering to apply from, can guarantee your success. Embassies and consulates are independent bodies of the government in China. So, if an employer or inviter says they have a special relationship at a certain embassy or consulate, this is a false claim. It is also important to remember that the invitation/application documents are made out to a specific embassy or consulate and must be redone if you need to apply from another location.

Situation 4: Recent US Government China Advisory Alert.

The US embassy/government recently issued an alert warning extreme caution in China due to “arbitrary enforcement of local laws as well as special restrictions on dual US-Chinese nationals.”

Here are a few points addressing this alert that has been pointed out in various WeChat groups. In no specific order:

You must consider the audience for such a message and why such a message was published.

European countries—such as the UK and France—have such extreme warnings.
This alert may refer to the fact that Chinese authorities have implemented laws differently locally—down to the city and district level. But, this has been happening for a while – it’s nothing new.
This could refer to authorities increasingly stopping people from leaving China if they break Chinese law. This, also, is nothing new.
Comparing the situation in China to other countries — We note greater enforcement of laws around the world, even in the US. For example, if you are a US citizen or permanent resident and owe back taxes or have not filed tax returns, the US authorities are starting to penalize by deactivating passports and denying renewals.
Dual nationality is not recognized by the Chinese law. Please refer to our article on the [] — which depends partly on the nationality of the parents and where they were born.