Legal System in China for Business
Shortly after its establishment in 1949, the government of the PRC dismantled the old legal system and created a socialist legal system. The modern Chinese legal system consists mainly of seven (7) branches and four (4) legal levels. The seven (7) branches of law are: the Constitution and laws relating to the Constitution; civil and commercial law; administrative laws; economic laws; social legislation; Criminal laws; and litigation and extrajudicial procedural law. The four (4) levels of law are: the Constitution; Laws; Administrative; Local regulations and autonomous regulations, specific rules and rules. The socialist legal system with Chinese characteristics is an organic integration of the related laws of the Constitution, civil and commercial law, administrative law, economic law, social law, criminal law, procedural and extrajudicial law and other branches of law, with the Constitution at the top, laws as the main body, and administrative and local regulations as the main components. Laws on the following matters are promulgated exclusively by the NPC and its Standing Committee: State sovereignty; the formation, organization, functions and powers of State bodies; the system of regional autonomy for ethnic minorities, the system of special administrative regions and the system of basic self-government; criminal offences and penalties; deprivation of citizens` political rights and coercive measures and sanctions involving restrictions on personal freedom; expropriation of non-State property; the basic civilian system; the basic economic system and the basic systems of finance, taxation, customs, banking and foreign trade; litigation and arbitration systems and other matters for which laws must be enacted by the NPC or its Standing Committee. The NPC Standing Committee follows the “three-deliberation system” when passing legislation, which means that a bill must be discussed at three (3) meetings of the NPC Standing Committee before being voted on. An important or controversial bill may be the subject of more than three (3) deliberations. While the previous sections dealt with China`s basic political and legal system and its entry into the Chinese market, this section describes the main trade and trade regulations for FIE mining in China.
1. What is the current business climate in your country, including the main political, economic and/or legal activities in your country that could have a major impact on businesses? 5. What is a cultural fact or custom in your country that others should know when doing business there? Companies wishing to have a permanent presence must establish themselves as an appropriate legal entity according to the intended scope of business and comply with Chinese legal and tax requirements. The most commonly used legal structures to establish a presence in the PRC are: Chinese culture values personal trust between acquaintances and emphasizes maintaining close relations with business partners, thus enhancing mutual trust. In trade negotiations, foreign partners very often try to stipulate all the details of a contract in order to achieve the highest possible level of trust, while their Chinese counterparts do not like such an excessive level of detail and see it as a sign of mistrust. In China, Zhongyong (Chinese: “center” and “immutable” or “middle doctrine”) is a highly regarded Confucian philosophical concept. In practice, Zhongyong means countless things: moderation, righteousness, objectivity, sincerity, honesty, truthfulness, decency, balance, and absence of prejudice. In business transactions, Zhongyong requires partners to take a more balanced approach to the details of certainty and indeterminacy of trust.
If a foreign businessman can appreciate and master the art of Zhongyong, he can avoid unnecessary misunderstandings or even the destruction of a good relationship, thus enjoying more harmonious cooperation with his Chinese partner. This certainly does not mean that foreign investors should make their decisions solely on the basis of verbal commitments from their Chinese partners – a number of comprehensive and well-designed legal documents are always essential for successful investments, but foreign investors are advised to understand and consider the concept of Zhongyong and try to strike a good balance between security and trust. accomplish. The WFOE is a suitable structure for enterprises whose main activities in China are the manufacture and sale of products or the provision of services such as research and development or business consulting. A WFOE allows the foreign investor to issue invoices and receive income in renminbi (“RMB”), which can then be converted from China and repatriated. The legal system of the People`s Republic of China (PRC) is based on the Constitution of the People`s Republic of China, which was last amended in 2004. It consists of a hierarchy of laws, regulations and written administrative instructions. Although the Constitution does not grant it formal legal status or powers, and it is technically separate from the government, the Chinese Communist Party (the Party) is parallel, overlapping and controlling the government at all levels – its power is truly pervasive. Enterprises employing more than three Party members are required to establish a primary Party organization, while those employing more than three but fewer than 50 Party members must establish a Party department.
MOFCOM is responsible for reviewing and approving the establishment of EPRs, including the form of their governing documents and the approved areas in which they are authorized to operate. There are three types of working time systems, namely the standard working time system, the full working time system and the open-ended working time system. Each of these structures has unique advantages and disadvantages, and it`s important to choose the option that best fits your business goals. Among the above forms, WFOE, EJV, CJV and FIPE are collectively referred to as FIE. Although China has a unified national legal system, there are still differences in local regulations, government practices, and business practices in different regions. These local differences can sometimes be overlooked by foreign companies, becoming their pitfalls when doing business in China. There is a system of guaranteed minimum wages for Chinese workers. The local people`s government will formulate its own specific standards for minimum wages.
Wages and salaries payable (excluding overtime pay, social security/housing fund contributions borne by the employee or allowances for mid/night shifts, high/low temperatures, etc.) shall in no case be below local minimum wage and salary standards if workers have performed “normal work” in accordance with their employment contract. We are a Shanghai-based non-governmental consulting firm that helps foreign companies enter the Chinese market and develop their operations. Our clients are supported from the initial phase with business start-up and employment solutions to support further phases with our business solutions such as tax and accounting and payroll and taxation. On 1 January 2008, the new Unified Corporate Tax Act of the PRC (the “EIT Act”) entered into force. It merged the two previous separate income tax systems for domestic corporations and FIEs into a single income tax system. The new EIT Law introduced the concept of resident enterprises, unified the tax rate for domestic companies and Chinese foreign-invested enterprises, replaced the old tax incentive system with a new model, and addressed specific tax adjustments, such as transfer pricing adjustments or thin capitalization rules. Compared to an OR, setting up a WFOE is a bit more complex and time-consuming, as the WFOE usually needs MOFCOM approval before registering with SAIC. In addition, in addition to MOFCOM`s approval, the WFOE should generally seek approvals from other government agencies such as NDRC and SFDA, etc., depending on the WFOE`s field of activity.
In the past, China maintained a “Foreign Investment Guide” in which all business activities were classified as “encouraged”, “restricted”, “prohibited” or “permitted” for foreign investment. China`s political system refers to the political structure, basic laws, rules, regulations, and practices implemented in China that control state power, government, and state-society relations. As a socialist country based on the Union of Peasant Workers and practicing the democratic centralism of the people, the most important system in the country is the socialist system. China does not have a single, codified product safety law. Product manufacturers and sellers and other stakeholders in this field must comply with the legal requirements established in various laws and regulations, including general principles of civil law, the Law on the Protection of Consumer Rights and Interests, criminal law, and the laws on the administration of medicines and on product quality.