We are pleased to provide updates for foreign investment enterprises in the Waigaoqiao Free Trade Zone, especially for foreign commercial/trading enterprises on the following:

1. Regulations on De-Registration of Representative Offices
2. Comparison between Branch Companies of Commercial/Trading Companies
3. Distribution Rights of the Commercial/Trading Company

Regulations on De-registration of Representative Offices

According to the relevant provisions of Implementing Rules of Administrative Regulations of the Registration of Foreign Investment Enterprises and other laws in connection with foreign investment enterprises, the registration for a foreign enterprise’s representative office will not be extended at the Shanghai Administration of Industry and Commerce (SHAIC) with effect from 1 st January 2006 .

Under these regulations, please take note of the following:

1. If necessary, foreign investment enterprises can set up their representative offices directly, without registration at the Waigaoqiao SHAIC. However, their business scope will still be under SHAIC’s supervision.
2. For existing representative offices, upon expiry of their registration certificates, an extension will not be granted. They will be de-registered in Waigaoqiao SHAIC and have to apply for branch company status.

Comparison between Branch Companies of Commercial / Trading Companies

Branch companies engaged in the relevant China parent company’s business activities can be established outside Waigaoqiao. In accordance with the parent commercial/ trading companies’ business scope, there are two different types of branch companies. Differences between them are as follows:

By comparing the two types of branch companies, we can understand clearly that in practice, there are limitations and restrictions for branch companies without business rights, such as its business scope, the issuance of invoices or execution of contracts, etc. In addition, its tax filing responsibility is more difficult to define. On the other hand, if you choose to set up a branch company with distribution rights, the distribution rights must be essential to the company’s operations. Ultimately foreign commercial/trading companies should consider their operation needs carefully and select a suitable type of branch company.

Distribution Rights of the Commercial/Trading Company

Under the provision of the latest law, “Measures for the Administration on Foreign Investment in Commercial Sector” issued in April 2004, distribution rights are available for all foreign commercial/trading companies in Waigaoqiao.

With distribution rights, a foreign enterprise can possess the total rights of trade and business. It can conduct import/export and wholesaling/retailing business activities , independent of the local import/export company. Furthermore, it can file documents through the Customs directly.

Generally, most existing commercial/ trading companies in Waigaoqiao do not have distribution rights. They can be classified into these two kinds below:

1. Companies which are established prior to 2004 and not granted the rights of import/export and distribution.
   
   Their business scope reads as: international trade, transit trading, free trade zone trading, trading agent; trading with non-free trade zone through the approved import/export agent; free trade zone basic work process; free trade zone business consulting service.
   
2. After 2004, newly established foreign commercial/ trading companies in Waigaoqiao are legally qualified with import/export rights (distribution rights excluded), which allow export, but restrain sales into the domestic market in their own names.

For companies in both categories (a) and (b), distribution rights can be obtained after application to the relevant government department.

After obtaining distribution rights, the amended business scope reads as “(commodity) wholesale, import/export, commission agent and related services; international trade, transit trading, free trade zone trading, trading agent; free trade zone basic work process; free trade zone business consulting service ”.

References (Laws & Policies):

• 2004 Measures for the Administration on Foreign Investment in the Commercial Sector
• 2006 Company Law
• 2006 Administrative Regulations of the People’s Republic of China for the Registration of Companies
• 2006 Implementing Rules of Administrative Regulations of the Registration of Foreign Invested Enterprises