Legal & Regulatory

Establishing a Legal Representative Office in China

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By Dezan Shira & Associates
Editors: Lorena Miera and Thibaut Minot

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This is the first feature in a two-part series. The second article will explore taxation and funding issues for LROs.

The legal representative office (LRO) is one of the handful of special representative offices with unique characteristics in China. These special ROs are usually established in China’s restricted industries, within which foreign investors are not allowed to set up a wholly foreign-owned enterprise (WFOE) and sometimes not even a Sino-foreign joint venture (JV), as is the case of the legal services industry.

Effectively, the LRO structure allows foreign law firms to perform their legal services in China while the parent company overseas assumes civil liabilities for the activities of its LRO in China. Key differences set the LRO structure apart from traditional ROs, differences that range from the traditional RO registration process to the entity’s business scope, and from the different accounting and tax practices they must follow to the funding mechanisms available to grow their operations.

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China Regulatory Brief: FTZ Foreign Investment Negative List, Environmental Pollution Liability Insurance

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Cybersecurity Law’s critical network equipment catalogue released

The Cyberspace Administration of China (CAC), along with other bureaus such as the Ministry of Industry and Information Technology (MIIT), jointly issued the first dedicated security products catalogue on June 1, 2017.

It outlines specific critical network equipment (CNEs) such as routers, switches, servers, and programmable logic controllers, that will be subject to inspection and accreditation requirements in China’s controversial new Cybersecurity Law.

In particular, dedicated cybersecurity products subject to inspection stipulated in the rules include ones relating to integrated data backup, firewall hardware, web application firewall, intrusion detection systems, intrusion defense systems, security isolation and information exchange products, anti-spam mail products, network synthetic audit system, network vulnerability scanning products, security data systems, website recovery products, and other accredited bodies.

The catalogue itself provides that the issuing bureaus will jointly promulgate further information on how a body may become an accredited body and to provide the accreditation and certification contemplated in the catalogue.

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Setting Up a WFOE in China: a Step-by-Step Guide

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By Dezan Shira & Associates
Editors: Jake Liddle and Tongyu Zhang

Over the last few years, there have been a number of changes to the wholly foreign owned enterprise (WFOE) establishment process in China. Primarily, the latest update to the Catalogue for the Guidance of Foreign Investment Industries, which lifts regulatory thresholds for certain industries such as the energy and finance sectors, affects the record filing process with MOFCOM. In addition, obtaining a business license has become easier with the introduction of the new five-in-one license: previously, five different certificates had to be acquired from different authorities. These new considerations for investors looking to set up a WFOE in China are advantageous, widening the scope of investment and speeding up the application process.

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China’s New Cybersecurity Law: Clarifications, Implementation Delay Announced

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By Alexander Chipman Koty

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China’s sweeping new Cybersecurity Law (“the Law”) came into effect on June 1 amid widespread anxiety from the foreign business community. Many in the private sector were concerned by the Law’s stringent requirements, ambiguous language, and unclear implementation plan.

To allay these concerns, the Cyberspace Administration of China (CAC) modified the language of certain parts of the Law, and delayed implementation of cross-border data localization provisions until the end of 2018. While the last minute changes add a degree of clarity to the Law, and give additional time for companies to organize compliance, many of the fundamental issues that concerned foreign companies remained unchanged.

As a result, companies with operations or customers in mainland China should review the Law. Professional advisors can help determine whether your business needs to make changes to its business structure to comply with the new Law.

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China Regulatory Brief: Liaoning Loosens FDI Regulation, Large Overseas Bank Transactions to be Reported

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Liaoning to loosen restrictions on foreign investment

On June 6, Liaoning province’s Department of Commerce released measures to further open the market and use foreign capital, which will ease restrictions for foreign investors and reduce operating costs to create a fairer and more efficient investment environment.

These will be specifically aimed at investors in the service, manufacturing, and mining sectors, with supportive policies implemented to encourage investors to contribute to the state-owned manufacturing industry’s transition to mixed ownership.

China has been loosening restrictions on FDI in order to combat capital outflows in recent months. The measures also compliment the country’s wider initiative to reform the manufacturing industry under the name of ‘Made in China 2025’, which encourages innovation in the high tech sector.

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China’s Great Firewall: Business Implications

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By Alexander Chipman Koty

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The Great Firewall, the popular term for the regulations that govern the internet in China, has substantial implications for foreign internet companies looking to enter the Chinese market, as well as for companies simply trying to access overseas websites and internet services.

Foreign companies should develop a comprehensive strategy to navigate the operational issues that arise as a result of China’s idiosyncratic internet landscape, whether they are in an industry directly affected by the Great Firewall or not.

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China Regulatory Brief: New Cybersecurity Law, Regulation for Bike Sharing

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Language for China’s new cybersecurity law amended before enforcement

Changes to the language of China’s new cybersecurity law, which will come into force on June 1, could implicate a wider range of products and services, and provide the government with access to foreign companies’ sensitive data and technologies.

The law will necessitate many companies to store information within mainland China. Companies storing information via cloud computing may need to use domestic cloud computing services.

The government has chosen to go ahead despite more than 50 trade associations and chambers of commerce signing a petition calling for a delay passing the law. They argued that the law could affect billions of dollars of cross-border trade and lock out foreign cloud operators because of limits on how they operate in the country.

The law will also introduce a mechanism that will allow the government to oversee cybersecurity, implement a multi-layered cyber protection scheme, a security review of network products and services, and a security assessment for cross-border data transmission.

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New Data Localization Rule in China’s Cybersecurity Law to Impact HR

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By Alexander Chipman Koty

The Cyberspace Administration of China recently released the Measures for the Security Assessment of Personal Information and Critical Data Leaving the Country (the Measures), which regulates the transfer and storage of personal information and data leaving China. The Measures are part of China’s expansive Cybersecurity Law (the Law), which will come into effect on June 1.

Although the Measures are designed to aid in the implementation of the Law, they raise fresh concerns for foreign companies in China that store information overseas. In particular, stipulations governing the collection and storage of “personal information” could pose a challenge for foreign companies that centralize their HR operations for China-based employees outside of the country.

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