Jenny Zhang, Attorney at Law, Lawyer, Law firm in Dalian, China

Many foreign friends hesitate to decide the form of investment, a WFOE or a Representative Office in China?To answer this question is just like to anwer “how do I decorate my condo?”. It absolutely varies from person to person.

Unlike the total “Chinese legal person” as a WFOE, a Representative Office is not a separate legal entity rather it is an extension of its parent enterprise. A Representative Office may only engage in non-profit making activities such as conducting research and survey for its parent enterprise in the local market or liaising with local and foreign contacts in China on behalf of the parent enterprise. As as resulet, a Representavie Office can’t invoice its business and the rights and obligations shall be undertaken by the parent enterprises. 

The governing rules on representative offices of foreign enterprises are Regulations on the Administration of Resident Representative Offices of Foreign Enterprises. In applying for the establishment of Representative Offices, a foreign enterprise shall submit the following documents and materials to the Registration Authority.

1. Application for the Registration of the Establishment of Representative Office;
2. Proof of the domicile of the foreign enterprise and legitimate business certificates for more than 2 years’ existence;
3. Articles of association or constitutional agreements of the foreign enterprise;
4. Letters of appointment of its chief representative and representative(s) issued by the foreign enterprise;
5. Identity certificates and resumes of the chief representative and representative(s);
6. Financial Creditworthiness Certificate issued by financial institutions that have business connections with the foreign enterprise; and
7. Certificate for the lawful use of the premises of the Representative Office.

If laws, regulations or State Council rules provide that approval is required for the establishment of Representative Offices, the relevant foreign enterprises shall, within 90 days from the date of approval, file an application for establishment registration with the Registration Authority and submit relevant approval documents.

All these days, I’ve been visited a lot by foreign educators seeking to open schools in Dalian, and most of times, none of them have any idea as to what would be involved and as to what the costs would be.

I made a research and here is my report of this question.

Rules & Regulations

The rules and regulations that govern the setting-up schools include Education Law of PRC, Vocational Education Law of PRC, Higher Education Law of PRC, and Private Education Promotion Law of the PRC. All these laws provide that foreign organizations and persons can set up schools with Chinese organizations, but there are no more specific rules about how to cooperate between the parties. All the details are reserved to be explained by the State Council.

After China’s entry into the WTO, Regulations of the People’s Republic of China on Chinese-Foreign Cooperation in Running Schools was enacted, also with its Concrete Measures. However, this Regulation mainly governs the cooperation between foreign educational institutions and Chinese educational institutions (see Article 2). That is to say, for individual foreigners, they even have no qualification to be governed by this Regulation.

Therefore, the answer is individual foreigner can not set up schools in China to provide education service to Chinese citizens. Foreign investors can only establish schools for children of foreign personnel under Interim Regulations for the Administrion of Establishement of Schools for Children of Foreign Personnel by the Ministry of Educaion of  PRC.

Alternative Solution:

After reading the above, maybe you would feel depressed a lot. Don’t be disappointed, if you determine to create a business and make some kind of achievement in China as a teacher or a headmaster, there is a compromise way for you—that is to be affiliated to a school or training center with an education license. We call it “Gua Kao”(挂靠) in Chinese.

Gua Kao is to use the other’s license and run one’s own business. All the operation has to be under the other’s name, including issuing invoices. Legally, Gua Kao is a kind of cooperation between the foreign educator and the Chinese school. A complete agreement seems to be necessary and essential for both parties. Actually, the approval of an education license is very hard even for most of Chinese. The requirement of scale and capital for schools is much stricter than the requirement for common businesses. Quite a lot of business starters choose to be adjunct of other schools. Like licensing, the starters pay fees to the schools with license.

During the process of finding your partner, the school with license, do make a due diligence research and make sure they really possess the license.

Good News:

Maybe you still feel worried for using the other’s license. Even the Agreement is “perfect drafted”, there are still some concerns, e.g. if you intends to do a long term business, or if you want to promote your own brand.

Up to now, there is still no good resolution. In Catalogue for the Guidance of Foreign Investment Industries (2007), higher education is encouraged but skill traing is not mentioned. 2007 version has been implemented for almost 4 years. Recently, National Development and Reform Commission and Ministry of Commerce has recitified the Gatalogue and the draft is issued for comments. In the Draft for Comment, skill training is listed in the Catagory of Encouraged Foreign Investment Industries. We can believe that in the near future, when this new version is issued, the relevant governmental organs would issue detailed implementing procedures. At that time, for those who dreams to open language schools in China, all come to true.

BEIJING, June 4 — Five types of people with foreign nationalities will be allowed to stay longer in China from the beginning of June. The policy released by the Ministry of Public Security is considered a humanitarian measure.

Gong Lei’s twelve year old son is a Canadian. Before June, Gong had to apply for a residence permit for his son every year in order to let the boy stay with his parents in China.

Now the new policy allows his son to stay two years with multiple entries.

Football coach Gong Lei said, “This is very convenient for us. My son can stay longer with us, and the procedure to enter and leave China is even simpler.”

As more Chinese migrate to other countries and more foreigners choose to live in China, some people with foreign nationalities have had to separate from their families. Their residence permits in China were usually valid for six months or one year.

Gao Peng, Beijng Public Security Bureau Visa Dept. chief. said, “After the limitation is extended, people with foreign nationalities can apply for residence permits of six months, one year, or two years with multi entry. It provides more choice for the applicants.”

The five types of people include: spouses, parents and children under 18 with foreign nationalities of Chinese citizens and foreigners with permanent residence.

Foreigners and their foreign spouses aged 60 or above, without immediate family outside China, to live with their immediate family in China.

Chinese with foreign nationalities aged 60 or above, their spouses and children with foreign nationalities, who have purchased real estate in China.

Chinese with foreign nationalities aged 18 or above, staying in China to look after their parents aged 60 or above without other descendents in China.

Children under 18 with foreign nationalities of Chinese parents with foreign nationalities or with foreign permanent residence, who are fostered in China.

Spouse, parents and children under 18 with foreign nationalities of Chinese citizens and foreigners with permanent residence.

Foreigners and their foreign spouses aged 60 or above, without immediate family outside China, to live with their immediate family in China.

Chinese with foreign nationalities aged 60 or above, their spouses and children with foreign nationalities, who have purchased real estate in China.

Chinese with foreign nationalities aged 18 or above, staying in China to look after parents aged 60 or above without other descendents in China

Children under 18 with foreign nationalities of Chinese parents with foreign nationalities or with foreign permanent residence, who are fostered in China.

Source: Xinhua Net

If you want to set up a WFOE, you should offer the following documents:

1. the application paper and the resolution by the Board of the foreign investor
2. Feasibility Study report
3. Copies of the business licenses or certificates of incorporation of the foreign investor (with local notarization and verification of Chinese Embassy).
4. A copy of leasing agreement and the certificate of the real estate
5. A copy of Notice of enterprise’s name confirmation appraised by the Industry & Commerce Administrative Bureau.
6. Letter of Appointment of Directors, Directors name list and copies of their passports
7. Articles of Association
8. Credit Certificate issued by bank
9. Power of Attorney for delivery of documents

Some laws and regulations regarding the administration of  foreign experts,  including 30 rules and orders, coveing exit-entry and residence, personal income tax, foreign exchange control, the Customs, employment in China, encouragement of setting-up business, experts settling dowm in China, scholars studing abroad, and One thousand expers plan”

 1. Administration of exit-entry and residence

a. general regulatins:

Law of the People’s Republic of China on Control of the Entry and Exit of Aliens 《外国人入境出境管理法》

Rules for the Implementation of the Law of the People’s Republic of China on Control of the Entry and Exit of Aliens《外国人入境出境管理法实施细则》

b. adminstration on foreign experts:

Notice on “Interim Measures on Entry and Exit ,  travel and  stay  of introducing foreign experts” 转发〈引进国外专家入境出境居留旅行管理暂行办法〉的通知

c. adminstration on high level talents

Notice on  “ Public Security Ministry, Foreign Affairs Ministry and related ministries facilitate foreign high level talents and investors in entry and residence ” 《转发公安部外交部等部门关于为外国籍高层次人才和投资者提供入境及居留便利规定的通知》

d. Permanent Residence

Measures for the Administration  of  Exmamination and Approval of Aliens’ Permanent Residence in China《外国人在中国永久居留审批管理办法》

2. Personal Income Tax

Individual Income Tax Law of the PRC 《中华人民共和国个人所得税法》

Regulation for the Implementaion of the Individual Income Tax Law of the PRC 《中华人民共和国个人所得税法实施条例》

Clarification of Questions in regard of  foreigner’s individual Income Tax 明确外籍个人所得税有关问题

3.Foreign Exchange Control

a.  Control of foreign exchange for hiring foreign experts

Recently,  a lot of my foreigner friends just consult how to get a “green card” in China. So here I just extract some details about Measures for Administration of Examination and Approval of Foreigners’ Permanent Residence in China.

 In accordance with Article 6 of the above Measures, those who want to apply Chinese green card shall abide by Chinese laws, be in good health and without criminal record, and also shall meet at leat one of the following requirements:

1. having made direct investment in China with stable operation and a good tax paying record for three successive years;

2. having been holding the post of deputy general manager, deputy factory director or above or of associate professor, associate research fellow and other associate senior titles of professional post or above or enjoying an equal treatment, for at least four successive years, with a minimum period of residence in China for three cumulative years within four years and with a good tax paying record;

3. having made a great deal and outstanding contribution to and being specially needed by China;

4.Being the spouse or unmarried child under 18 years old of a person with reference to the item (1),(2)or (3) of this paragraph.

(5)Being the spouse of a Chinese citizen or of a foreigner with permanent residence status in China, in a marriage relationship for at least five years, with at least five successive years of  residence in China and at least nine months of stay in China each year, and having stable source of subsistence and a dwelling place.

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