January 12, 2011

For more information, please contact: Neal Stender Hong Kong; Beijing [email protected] Elizabeth Cole Shanghai [email protected] Orrick, Herrington & Sutcliffe LLP is a global law firm with more than 1,100 lawyers in 23 offices in Asia, Europe and North America.  Orrick's China team of over 90 legal professionals in our Beijing, Hong Kong, Shanghai and Taipei offices has an almost 40 year track record in advising Chinese and international clients on domestic and cross-border matters.

China Visits & Subsidiary Governance;
Tax Planning & Liability Limitation

From making China visits to structuring and operating subsidiaries, the China tax and other liabilities of foreign companies and their employees are subject to increasingly detailed regulations and strict scrutiny.  The tax risk that continues to be most surprising to foreign companies is how easily China visits by their employees can trigger an expensive investigation, and deemed creation, of a China permanent establishment. The other risk that continues to be most surprising, to both foreign investors and their China subsidiary officers, is how easily those officers may be deemed to have broad powers and liabilities.

A key recent change is China's issuance of detailed tests to determine whether a foreign company's secondment of an employee to a China subsidiary will be recognized, or will be rejected and deemed to create China-source income and China-located business activities. These tests will affect more foreign companies because of the recently narrowed availability of a representative office as an alternative to establishing a China subsidiary.

The above changes, risks, and related precautions are discussed in the following newly updated articles that are reprinted on our website:

From China Visits to Tax-Efficient Subsidiaries
This article is forthcoming in the 2011 edition of the
China Business Handbook, under the title "Tax Planning".

Win-Win Corporate Governance in China
This article is forthcoming in the 2011 edition of the
China Business Handbook, under the title "Legal Representation".