China’s stricter government rules and regulations and tighter tax and compliance controls have made many international companies worry. Are we still on par with China’s legislation and what are the risks we face? Experts of three major consultancy firms in Beijing and Shanghai have launched a new service that answers today’s big question: is your business Chinable?
Recent reports about the experiences of some international companies in China show that there may be a market for the ‘Chinable Business Scan’. Some companies have been fined half their yearly turnover just because government officials found that they were operating outside their business scope. Others missed certain tax requirements and ended up with equally hefty fines.
What is going on?
The government has adopted a stricter application of regulations as part of president Xi’s reform of public administration. The recent anti-corruption campaign is just one example of this wider drive for reform and tighter application of rules. There are stricter rules in place, particularly in the areas of labour laws, taxes, accounting, immigration and environmental regulations. “Monitoring and enforcement will only increase further. Companies that already have a presence in China or do business there, should urgently ask themselves whether their activities in China are still in compliance with the law”, says Erik van der Molen of Kneppelhout & Korthals, a Rotterdam law firm with a large China practice that works closely together with partner firms in China on issues like compliance.
Van der Molen, a recognised expert on ‘Chinability’, has witnessed that China’s tax agency has intensified controls, specifically targeting foreign companies, expats and Chinese nationals with foreign incomes. Companies with a presence in China such as a representative office, WFOE or Joint Venture will need to take action. “They should ask themselves whether their activities are still in accordance with the activities for which the permit is issued, and whether they are initiating activities that fall outside the scope of allowed activities of a representative.”
The Chinable Business Scan
1421 Consulting Group (1421), in collaboration with Vistra Group (Vistra) and R&P Lawyers (R&P), have developed a tool that can help determine the future sustainability of a foreign owned entity in China. The Chinable Business Scan helps find out whether a company’s labour contracts are in order, whether a company operates within its business scope, whether taxes are filed properly and any HR issues may surface in the near future. The Chinable Business Scan is created to scan a company on these and other issues, which combined the partners have a lot of extensive experience with.
Major questions answered
The scan answers major questions like: Is your lease contract still valid? Are employees who have left the company still officially a member of the board, if so do they have power? Do all foreign employees have all their legal employment documents up to date? Mature companies that have been present in China are by no means exempt from this quest for answers”, says Peter Pronk, CEO of 1421 Consulting Group, who has over 10 years of experience in supporting international companies – SME and larger – in China.
Analysis and recommendations
The Chinable Business Scan starts by gathering documents and contracts. Peter Pronk: “When departments are hesitant to deliver the documents this could be a sign of a red flag already. Also the analysis of the documents can give us an idea to which areas we should check more thoroughly.” After the documents have been checked consultants will hold interviews, they will present their analysis with findings, red flags and recommendations. “Their advice will will ensure that a company is fully equipped, healthy and remains Chinable.”
Chinable, meaning: with little or no risk of having to pay considerable fines, deportation, suspension of activities, passport confiscation, even to incarceration.