A typical Case of a company that wants to enter into to Chinese booming outbound tourism industry:
A foreign investor planned to found a WFOE (Wholly Foreign-Owned Enterprise) in China and enter into the Chinese outbound tourism industry. For a foreign-invested travel agency, the establishment must be first approved by the Ministry of Commerce PRC and the China National Tourism Administration. That means there are quite a few restrictions for foreign investors to fulfill when they want to successfully apply for a Travel Agency Business Certificate. Without this certificate, the travel agency cannot get the business license and operate legally.
This is what is needed to establish a travel agency: a fixed site for business operation, necessary business facilities and not less than 300,000 RMB as registered capital. The primary question was how to enter into the outbound tourism market. However foreign travel agencies are only allowed to offer inbound/domestic travel according to the Chinese National Tourism Association. They cannot provide outbound tourism travel to Chinese nationals. Even a Joint Venture wouldn’t be a possible solution in this case. For offering outbound tourism services a specific business license is necessary, that foreign companies are not allowed to receive.
A first possible work around could be a (Representative Office) with a mother company abroad. A RO with a parent company in a foreign country is an option but there are several disadvantages coming with the it. An RO is not allowed to issue fapiaos and to sign contracts in its own name as it is not an independent liable entity. Furthermore the expenses of the RO are liable to tax. This tax rate is different from case to case but usually amounts up to between 11 to 12%. That makes everything of course more expensive. Meaning e.g. on your rent your salaries or your office expenses an extra tax of 11 to 12% (often 11.69%) will be applicable. Besides, not more than four foreign employees are allowed to work in the RO. However you have the option to sign contracts in the name of the parent company.
Another option would be to found a WFOE (Wholly Foreign-Owned Enterprise) with the business scope “tourism information consulting”. In this case no special licenses are needed and also fapiaos could be issued. However, only outbound tourism consulting services could be offered to Chinese nationals and no outbound travel. One advantage would be that the registration process is not as complicated as for a real travel agency (which, as above mentioned, also couldn’t offer outbound tourism travel). The registration capital of such a WFOE could potentially only amount to 100,000 RMB.
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Richard Hoffmann is a partner at ECOVIS Beijing China. Richard obtained an honors degree in law and worked in Germany, the United States, and China for various prestigious law firms prior to joining ECOVIS. In addition to being a member of the board of ECOVIS International, he is Supervisor for the China business of a respected German company and shares his extensive knowledge to students by teaching commercial law in China at SRH Hochschule Heidelberg. He has published more than fifty articles in international magazines, frequently speaks at high profile events in China and abroad and is often invited as a legal expert by international TV stations. Contact: firstname.lastname@example.org
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