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Setting up a Company in the Restricted Tourism Industry in China

(October 30th, 2014)

By Richard Hoffmann, ECOVIS Beijing

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If you want to get your feet wet in the biggest outbound tourism market of the world then you must know about the legal and tax regulations that you will face. Not only is China supporting certain industries but also preventing investors from entering specific industries. Find out more in today’s article which gives you a quick introduction of the Chinese outbound tourism market – Tourism Industry in China -.

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. The tourism industry is obviously a protected industry in China.

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.

Contact us for further information.

Richard Hoffmann 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
Ecovis Beijing is the trusted tax and legal advisor of several embassies and official institutions in China. It specializes in mid-sized international companies and focused on tax & legal advisory, accounting and auditing. If you’re interested in finding out more about tax and legal, don’t hesitate to sign up to our Newsletter or give us a call +86 10-65616609 (ext 811/806) or contact us directly via Beijing@ecovis.com
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Author:
Richard Hoffmann
richard.hoffmann@ecovis.com
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