Business Scope of FIE in China
Companies registered in overseas countries or regions are usually permitted to engage in any lawful business activities. In contrast, a company registered in China’s mainland shall conduct business within its registered business scope.
The business scope of Chinese companies is divided into two major categories, that is general business items/activities and licensed business items/activities. General business items/activities do not require prior or post approval, and companies can commence operations after obtaining a business license. To commence the operation of the licensed business items/activities, extra approvals or licenses must be obtained from the relevant authorities before or after obtaining a business license. For example, value-added telecommunications services fall under licensed business items/activities, the Chinese company must apply for and obtain a Value-Added Telecommunications Service License before commencing such business activities.
The business scope of foreign invested enterprises (FIEs) shall comply with the provisions of the Special Management Measures for Foreign Investment Access (Negative List), Special Management Measures for Foreign Investment Access in Pilot Free Trade Zones (Negative List), and Negative List for Market Access as well. Industries restricted to foreign investment must meet the conditions specified in the negative list before it is allowed to apply for the corresponding business scope. For example, according to the Special Management Measures for Foreign Investment Access (Negative List) (2024 Edition), the foreign equity ratio for value-added telecommunications services shall not exceed 50% (except for e-commerce, domestic multi-party communication, storage-forwarding, and call centers). Therefore, the foreign equity ratio in the foreign invested enterprises shall not exceed 50%, otherwise they cannot apply for the business scope and license related to value-added telecommunications services.
For non-licensed business activities, although the market regulatory authority currently does not punish enterprises for conducting non-licensed business activities beyond their business scope, and the tax bureau also allows enterprises to occasionally issue tax invoices beyond their business scope, there are still risks in conducting non-licensed business activities beyond their business scope for a long time. Enterprises should promptly complete the registration of the changes of their business scope. For licensed business activities, enterprises should apply for the corresponding license. Operating without a license is an illegal act, and the relevant regulatory authorities have the right to impose administrative penalties on enterprises in accordance with the law, including but not limited to ordering them to cease operations, confiscating illegal gains, and imposing fines. If operating without a license constitutes a crime, they must bear corresponding criminal liabilities as well.
KAIZEN Group is equipped with experienced and highly qualified professional consultants and is therefore well positioned to provide professional advices and services in respect of the formation and registration of company, application for various business licences and permits, company compliance, tax planning, audit and accounting in China. Please call and talk to our professional consultants for details.
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