Managing Cross Border Staffing and Permanent Establishment Risks
Cross border staffing into China without local entity structuring exposes foreign parents to deemed profit enterprise income tax and labor law penalties.
Wholly Foreign Owned Enterprise Scope
Meaning
Corporate registration in the People’s Republic of China requires every company to declare its intended business activities to the government. A wholly foreign owned enterprise scope defines the specific industries and commercial activities the company is legally authorized to conduct within the territory. This operational boundary is recorded on the company’s business license and is supervised by the administration for market regulation, which ensures that foreign companies do not stray into restricted sectors of the economy.
Ultra Vires
Any business activity carried out beyond the registered scope is considered an administrative violation. The company must modify its business scope before embarking on new lines of business.
Negative List
The formulation of the business scope must comply with the national negative list for foreign investment. This list specifies the sectors that are prohibited or restricted for foreign investors, such as telecommunications, mining and educational institutions. Foreign companies must tailor their planned activities to align with these regulatory restrictions.
Amendment Process
Amending the registered business scope requires an application to the registration authority. This process involves updating the articles of association, obtaining approval from the commerce department if necessary, and renewing the business license, followed by mandatory updates to the tax registration, banking records and customs filings.