The Five Keys to China Company Compliance

Our China compliance lawyers have mostly been focusing on the following five key areas of company compliance:

1. Corporate Compliance. Are your company’s activities still covered by the scope of business used during registration? If you registered as an import/export company and you now own a factory, you should make some changes. Is your business in a different location from that listed on your business license? That requires a change also. Is the the person listed as your company’s legal representative still with your company and still the person you want in this position? What about the general manager? The supervisor? Have there been any changes to the parent company?

2. Employment Compliance. China’s employment laws are complicated, localized, and pro-employee. Make sure you have appropriate written employment agreements with ALL of your employees in China, domestic and foreign. Review and update your employee manual (a/k/a Employer Rules and Regulations). Review and update all other employment-related documents, from offer letters to severance agreements and everything in between. Make sure you otherwise stay in compliance: are all of your non-Chinese employees’ work permits and residence permits up-to-date? Have you secured approval from the local labor bureau for any employees under a non-standard working hours system? Have you secured all necessary renewals for such employees? Are you paying into the appropriate social insurance accounts for each employee? If you have not had an employer audit done on your business in the last couple years, you are long overdue.

3. Tax Compliance. It is essential to engage a competent local accounting firm. Your accountant must of course understand Chinese tax law, but they should also have at least a rudimentary understanding of your home country’s tax laws as well. For instance: make sure your transfer pricing is current and accurately reflected in your contracts and that your profit margins are high enough to keep China’s tax authorities at bay. Make sure you are paying all required income and employer taxes.

4. IP Compliance. We constantly get calls from foreign companies doing business in China that have let their China IP registrations fall into disorder (or never organized their IP in the first place). Even if you registered everything appropriately when you first came to China, have you kept up with newer products/services or brands? Are you registering design patents before you release your products? Are you keeping sufficient evidence of trademark use to fend off a non-use cancellation? Have you properly drafted and registered any trademark license agreements? Are you taking full advantage of China’s trademark system?

5. Contract Compliance. Many foreign companies do business in China in a way that makes it all but impossible for them to enforce their contractual rights. Do you have written agreements with all your major sources and clients? Are you using a lawyer to draft your design/manufacturing/licensing/purchase/etc. agreements? Are these agreements in Chinese? Are they enforceable under Chinese law? See The Five Keys to a China Contract that works.  I cannot tell you how many times (three times already this week), our China dispute resolution attorneys have to tell potential clients that we are not interested in taking on their litigation or arbitration matter because we have little to no confidence in the contract on which they want us to base their case.

China has changed, especially for foreign companies, and there is no going back. You and your company must adjust accordingly. It is that simple.