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Doing Business in China with Deportation or Worse Hanging Over Your Head

Thursday, March 2, 2017 8:33
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(Before It's News)

alt="China WFOE lawyer" width="375" height="281" srcset=
" 320w, 120w, 40w, 80w, 160w, 550w, 367w, 275w, 220w, 440w, 184w, 138w, 413w, 123w, 110w, 330w, 300w, 600w, 344w, 55w, 640w"
sizes="(max-width: 375px) 100vw, 375px" />We have frequently been
writing of late on how China has like never before been tracking
down foreign companies (especially U.S. companies) that are
operating in China without having a business entity (a WFOE or a
Joint Venture) that allows them to legally do so. See "nofollow" href=
target="_blank">Donald Trump and Your China Business: Double Down,
Ditch It or Die
and  ""
target="_blank">Donald Trump and Your China Business: Double Down,
Ditch It or Die, Part 2
. In China’s defense (not that its
decision to rigorously enforce its own laws needs any defense), the
new WFOE formation rules enacted last year do actually make it
somewhat faster, cheaper and easier to form a WFOE.

Anyway, since we started hitting this issue hard here on the
blog, we have gotten an even greater stream of emails from people
who have been “caught” by the Chinese government and from people
who want to know what exactly they need to do to get legal. But the
most interesting emails come from those who either fully or
partially refuse to believe what has been happening in China and
how at risk they are. About half of the emails sent to our China
lawyers evidence at least some aspect of this and about half of
those mention forming a company in Hong Kong as an option for
solving all problems.

So let me say right here and right now that forming a company in
Hong Kong will not do a thing to make you legal in Mainland China.
Nor will forming a company in Macau or Taiwan or Singapore. If you
are doing business in the PRC/Mainland China, you need a
PRC legal entity,
such as a WFOE or a Joint Venture.
See  ""
target="_blank">Having A Hong Kong Business Does NOT Make You Legal
in Mainland China
. See also  ""
target="_blank">A Hong Kong Company Is NOT a Mainland China Company
and a Hong Kong Trademark is NOT a Mainland China
 If it were otherwise, virtually nobody would go
through ""
target="_blank">the agony and the costs of forming a WFOE
; they
would instead pay some accountant in Hong Kong about USD$1,000 and
have an HK company in less than a week. Please, please, please do
not fool yourself into believing otherwise!

The below email is an amalgamation of two emails I received just
this morning, both involving people with United States and Taiwan

I came across your law blog and would
like to ask a question. I’m in a slightly strange situation,
professionally and nationality wise, and I I wonder if you might be
able to offer me guidance.

I am a US/Taiwan dual national living
and working as a freelancer in Shanghai, which is my base. I work
in the _________ business on a contract-to-contract basis.
Though my Taiwanese friends are always telling me not to worry
about things like taxes, the more established and successful I
become, the more I think I should be figuring out how to get legal
in China and make myself legitimate, business-wise.

I am a ________________ and I do
other related things. For example, I’ve just been asked to
__________ on a relatively large project. Sometimes I am paid
in RMB and other times I am wired foreign currency to accounts I
hold overseas. Sometimes because I am not a legal business the
companies I work for negotiate discount rates from me because my
not having a China company precludes them from getting a tax
deduction for their payments to me.

As I progress professionally, the
amounts I charge and get paid keep increasing and I worry about
what all of this means for the long term.

A friend has suggested I go to Hong
Kong to set up a WFOE. However, I know some of the rules are
different for Taiwanese nationals who wish to set up businesses in

It is not my ambition to have a big
company or service but I also know that this gray area situation
may not be sustainable forever. I also want to know if any of this
might affect me as a U.S. citizen. At the moment, I just file
federal taxes online.

Please let me know if you have
encountered cases such as my own, and if you might be able to point
me to resources that would enable me to best formalize my

Many thanks.

Our response is always something like the following:

Setting up a company in Hong Kong
will not help you one bit in terms of getting legal in China. You
need to re-think what you are doing because as you get bigger
you become a bigger target. I do not know how China treats Taiwan
citizens, but if you are an ethnic Chinese there on a US passport,
you are probably at the top of the list. My advice is that you
start doing something and fast. You should consider either leaving
China or setting up a WFOE in China that employs you. If you leave
China you can do some business in China without triggering the need
to have a WFOE in China, but because you provide services there,
you will still be required to pay income tax there. So long as you
are paying your United States taxes, the U.S. very likely does not
care what you are doing or where you are doing it; your big concern
should be the PRC, especially since you live there. The bigger you
get, the more likely it is that someone will rat you out or that
you will be noticed by the Chinese government. Productive
legitimate businesses do not operate with this sort of hammer
poised to hit them on the head. What you should do is weigh the
various costs and benefits of your various alternatives and decide
on one.

What are you hearing out there?

We will be discussing the practical aspects of Chinese law and how
it impacts business there. We will be telling you what works and
what does not and what you as a businessperson can do to use the
law to your advantage. Our aim is to assist businesses already in
China or planning to go into China, not to break new ground in
legal theory or policy.


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