By Dezan Shira & Associates
Legal Editor: Steven Elsinga
As China’s consumer market is expanding, demand for Western products is growing rapidly. Hand in hand with this development is the ever-increasing use of advertising to reach the rising Chinese middle class. In the first of this three part series, we explain how a foreign investor can set up an advertising agency. The second article will shed some light on the rules and regulations that apply to advertising your products in China. We wrap up the series with a discussion of the recently released draft Advertising Law, of which the current version dates back to 1994.
For a company to be active in advertising, it needs to have advertising as part of company’s business scope. Advertising is considered to include:
- Publications in print media
- Broadcasting on radio, TV, movies etc.
- Installing advertisements on signs, neon lights, window showcases, light boxes etc.
- Displaying ads inside public buildings like hotels, cinemas, shopping malls etc.
- Placing advertisements on vehicles, vessels, airplanes
- Sending promotional materials by mail
- Using gifts and samples
- Publication, display etc. through other means or media.
Apart from special advertising companies (i.e. companies with advertising listed in its business scope), radio stations, TV stations and publishers of print media may advertise as well, if they have been granted an advertising license. However, foreigners are completely banned from investing in or setting up news agencies, publishers of print media, radio stations and channels, TV broadcasters, news websites, online video websites etc. Those that do often use a VIE structure or are registered abroad.
Setting up an Advertising Company
As a foreign investor, you can open and run an advertising company in China as a Chinese-foreign joint venture or a wholly foreign-owned enterprise (WFOE). The set-up process differs slightly.
When setting up a WFOE to engage in advertising, the investment needs to be made by an enterprise mainly engaged in advertising and been in operating for over three years. For a joint venture, two years of operations is sufficient. All parties need to be advertising companies.
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To set up an advertising WFOE, you need to submit the following documents to the state or authorized provincial-level Administration for Industry and Commerce (AIC):
- The application forms for setting up a WFOE
- A resolution passed by the board of directors of the foreign company setting up the WFOE
- A project proposal and feasibility report
- Proof of registration of the foreign company
- Proof of creditworthiness of the foreign company
- A notice of pre-approval of the WFOE enterprise name
Within 20 days, the state or provincial AIC will decide whether to approve the proposal. If it is approved, you will be granted an Examination Opinion for the Project Proposal of a Foreign-invested Advertising Enterprise. You then go back to the provincial AIC with the abovementioned six documents, the Examination Opinion and the articles of association for your new WFOE.
If the provincial AIC agrees to the proposal, you will receive the Approval Certificate for Foreign-invested Enterprise. With these two documents, the foreign investor can follow the regular WFOE establishment procedure.
RELATED: Foreign-Invested Advertising Agencies in the Shanghai FTZ
When setting up a Chinese-foreign JV, the main Chinese party handles the incorporation process. The procedure requires roughly the same documents as used for the WFOE. Instead of going straight to the state-level AIC, the Chinese joint venture party needs to submit the documents to the AIC in the area it is registered for pre-approval. The local AIC will then submit the documents to the state or provincial AIC.
All documents need to be written in Chinese, but the procedure may be handled by a qualified intermediary. If a foreign company acquires a domestic advertising company, it needs to follow this procedure as well.
Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email email@example.com or visit www.dezshira.com.
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