In China, some business applications can be complicated. Then of course there is the language-and then again the nuances of law that determine the huge difference in operational quality between the so-called "cookie-cutter" applications and those in which time and attention have been spent. Here we identify some of the common mistakes we are asked regularly to fix when clients have either been badly advised, or simply were not aware of the full application and structural procedures when making an investment in China.
Applications-Commonly Missing Documents
When arranging office premises with the landlord, you must ensure he has a certificate giving him permission to rent commercial property to foreign entities. This document is a requirement of all representative office applications and without it your application cannot proceed. However, this also places the landlord in a higher tax bracket, so many do not obtain the required certificate. If you sign a contract and pay a deposit without ensuring the documents are all in place you may lose the deposit as well as lose time on the application.
Grade-A building status
Most (but not all cities) require that the office is in a Grade-A building. This certificate is issued by the Ministry of Commerce, and a copy is required as part of the application. Fortunately, most cities now have a large number (and varying qualities) of Grade A buildings so it is not as much of a choice or cost problem as before.
It was only 10 years ago that representative offices were freed from having to be---by compulsory order---all situated in five-star hotels. This is why many hotels, even today, have a business floor with working offices in them. Representative offices in China were originally housed in hotels.
Premises ownership certificate
This needs to be provided by the landlord and with the company seal.
Landlord's business license
This is also required with the company seal.
Residents certificate of representative offices is issued by the property management company responsible for the building.
New Shanghai regulations
Shanghai has recently introduced some new regulations that may prove inconvenient to applicants with licenses pending. The main new procedure affects the lease agreement as follows:
Notarized lease agreements-Shanghai
Additionally, in Shanghai, a fairly recent additional requirement has been for all representative office applications to require the regional lease record certificate, which has to be obtained from the real estate authority. This document should be notarized as a true copy. An original copy of this also needs to be provided to the pertinent local Shanghai tax bureau and also the Administration of Industry and Commerce.
Shanghai is also unique in that all applications for business licenses must go via government agents. This adds another layer of cost and administration, as of course they also require payment for their services. It also means applications are effectively taken out of the hands of professional services firms and can be held up---if for example a smaller or cheaper agent is used and then goes on holiday or is lazy or simply overworked. Larger professional services firms tend to obtain better results when dealing with Shanghai's government agents due to the volume of business they put through them and it is prudent to note this. Cheaper does not mean better service in Shanghai (or anywhere else in China, for that matter).
Historic Note: Compradors
Indeed, it is of interest to note that back in the 1930s, when Shanghai was last a trading center of note, it was common practice for foreign companies to hire "compradors"-local Chinese nationals who made things happen, secured licenses, managed the business and so on. The going rate was usually 10 percent, sometimes higher. It is hardly surprising to note that the practice hasn't necessarily died out, with some Chinese still regarding it as their right to skim money from the business. You need to either accept this, or put in the checks and balances to ensure you're not being skimmed off without even knowing it.