Carry out business activities throughout China – Are you well prepared for the branch registration?
On 27 July 2021, the State Council of the People’s Republic of China published the “Administrative Regulation on the Registration of Market Participants” (State Council Order No. 746), which will come into effect on 1 March 2022. The regulation now standardizes a unified registration obligation for all types of market participants as well as their branches in China. The term of “market participants” is defined as the natural persons, legal persons and unincorporated organizations that engage in profit-oriented business activities in the People’s Republic of China.
According to the regulations, a market participant shall only register one domicile or main business premise as a basis for the business registration. A market participant may render services or carry out business activities outside its registered place in a different province or city. If such activities reach a certain level, the market participant shall file the business registration of a branch.
If a company (or other type of market participant) fails to file for branch registration in accordance with the regulations, the local authorities (i.e., Administration of Market Regulations, in brief “AMR”) have right to order the company to complete the branch registration or to close the unlicensed business operation. It can also impose on the company a penalty up to CNY100,000 or, if the operation adversely impacted society or human safety up to CNY500,000.
However, the critical level at which branch registration becomes necessary is not clearly defined in the available rules. Since the end of 2020, the local AMR authorities have been increasingly taking action against companies that hire field staff for purpose of business operations in the locations without officially registered branches. Recently, some companies are requested by the local authorities to register a branch for any business activities outside the company’s registered place. According to our opinion, once the company rents an office in a different city, then the company shall register a branch.
According to the tax administration rules, upon the completion of the branch registration with AMR, the branch shall file its registration with the tax authority. The tax authority will assess the applicable taxes of the branch and determine the routine tax filing formalities to be fulfilled by the branch.
Although the branch registration is not a new requirement provided by State Council Order No. 746, we estimate the local authorities would intensify their administration on branches registration in their jurisdictions. We suggest you review your business activities in China (particularly services and sales activities) that are carried out by your staff located outside the registered address of your headquarter and seek professional advices from your advisors regarding the legal and tax implications of the branch office registration.
Please feel free to contact us if you need further information or assistance.