Company set-up in the Chinese tourism industry

By Richard Hoffmann, ECOVIS Beijing

From 1949 until the early 1970s, the People’s Republic of China was a closed country and only selected foreign visitors were allowed to enter China. During that time, many Chinese nationals were not allowed to travel abroad and even if they would have been allowed to leave China, they would not have been able to afford it. When Deng Xiaoping took over the leadership in 1978 the command economy in China was gradually dismantled and the path was laid for the development of the tourism industry in China. “To get rich is glorious” was one of his famous phrases. Indeed, one of the main factors that led to the travel boom was increased wealth. Furthermore, restrictions on movement were removed. Today, China is one of the largest inbound tourism markets (involving non-residents traveling in the given country) and outbound tourism markets (involving residents traveling in another country).

In 2012 the Chinese outbound tourism market became the world’s largest outbound tourism market surpassing Germany and America. The total outbound tourism market reached around 100 billion USD and around 83.3 million Chinese nationals traveled abroad.

Several inquiries reached ECOVIS Beijing regarding company set-up in this Chinese outbound tourism market. One inquiry was about a company that was planned to sell trips to the US for Chinese individuals and small groups. These trips would include sightseeing, accommodation, transportation and travel planning.

They originally planned to establish a WFOE (Wholly Foreign-Owned Enterprise) in China. For a foreign-invested travel agency, the establishment must be 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 apply for a Travel Agency Business Certificate. Without this certificate, the travel agency cannot get the business license and legally operate. The most basic requirements for the establishment of a travel agency are a fixed site for business operation, necessary business facilities and not less than 300,000 RMB as registered capital. 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. Establishing a Joint Venture in order to offer outbound tourism services is also not possible in this case. For offering outbound tourism services a business license is necessary, but foreign companies are not able to receive it.

The question came up if a RO (Representative Office) with a mother company abroad could be possible. A RO with a parent company in Germany or Austria is an option but there are disadvantages that come with a RO. The issuing of fapiaos is not allowed and the contracts can’t be signed in the name of the RO. Furthermore, the expenses of the RO are liable to a tax which is different from case to case and amounts in several cases around 10%. That makes everything, of course, more expensive. Besides, not more than four foreign employees are allowed to work in the RO. However, there is the option to sign in the name of the parent company. Learn more about a RO here.

An option would be to establish a WFOE (Wholly Foreign-Owned Enterprise) with the business scope “tourism information consulting”. In this case, no special licenses are needed and 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 a real 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.

With contributions by Markus Mönch (ECOVIS Beijing)

	Richard Hoffmann is a Partner at ECOVIS Beijing China. Richard obtained an honor’s degree in law and worked in Germany, America and China for various prestigious law firms prior to joining ECOVIS. 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. Contact: richard.hoffmann@ecovis.com
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