Shanghai FTZ to Expand Liberalization of the Legal Services Industry in China

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SHANGHAI – On January 27, the Ministry of Justice (MOJ) approved the Shanghai Judicial Bureau’s “Pilot Work Scheme for Exploring China-Foreign Law Firm Business Cooperation Methods and Mechanisms in the China (Shanghai) Free Trade Zone (Shanghai FTZ)” (hereinafter referred to as the “Scheme”). The Scheme is expected to expand liberalization of the legal services industry and serve as a model for other legal service markets in China.

Previously, foreign lawyers were prohibited from directly participating in China’s legal affairs as a foreign law firm can only set up a branch or a representative office (RO) in China, which means that their business scopes are limited. Further, China’s National Judicial Examination (lawyer’s qualification test) is not open to foreigners, making it impossible for foreign lawyers to obtain a license to practice law in China.

The Scheme will pilot two opening up measures. First, a foreign law firm that has established an RO in the Shanghai FTZ will be allowed to enter into an agreement with a Chinese law firm to mutually dispatch lawyers to the other firm. This means that the Chinese law firm can dispatch China-licensed lawyers to the RO, while the latter can dispatch foreign lawyers to the former to serve as foreign legal consultants. They can commence business cooperation via the division of labor within the scope of their respective practice and authorization.

RELATED: Establishing a Company in the Shanghai FTZ

Second, foreign law firms that have already established ROs in China can set up a joint operation in the Shanghai FTZ with a Chinese law firm, whereby they would provide legal services to Chinese and foreign clients based on Chinese and foreign laws in accordance with the rights and obligations stipulated in their agreement. During the period of joint operation, the two parties’ legal status, names and finances should remain independent, and they should bear civil liabilities independently.

The MOJ also specifies that that the Scheme will apply to Hong Kong and Macau law firms already established in Mainland China.

The Shanghai Judicial Bureau is studying corresponding measures to support the Scheme and to, among other things, better supervise and administrate legal service agencies and personnel in the Zone. Detailed implementation regulations regarding the Scheme are expected to be promulgated shortly.

Dezan Shira & Associates 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 emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam in addition to alliances in Indonesia, Malaysia, Philippines and Thailand as well as liaison offices in Italy and the United States.

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