Choosing Your China Legal / Tax Consultant

September 2, 2014 Posted by China Briefing Reading Time: 6 minutes

Op-Ed Commentary: Chris Devonshire-Ellis

With the emergence of a significant Chinese middle class consumer base, many companies around the world are looking to penetrate the China market. China attracted a record US$117.6 billion in foreign direct investment last year, underlining the desire of companies to get into the market and begin to sell and even manufacture products in the country. While the emergence of alternative Asian destinations is now having an impact on where some of that FDI goes, there is no doubt that for the longer term, businesses with an eye on selling to China will continue to be attracted to the country.

Hand in hand with that of course is obtaining sensible and credible advice. The emergence of the internet, and savvy marketing techniques has made the ability for executives based in the United States, Europe or anywhere else around the world be able to access free information about China’s rules and regulations, “do’s and don’ts” at the click of a button. There are many websites, blogs and China consultants out there – it is a highly competitive industry.

Yet for all the internet China noise of consultants all vying for your attention and hard earned cash, there are surprisingly only a small percentage of such firms who have actually gone to the trouble of investing in China and set up their own legal entities themselves. In this article we give pointers as to how to sift out the pretenders from the real China consultants. The internet, after all, is capable of creating a lot of hype. Here is a Guide as to how to identify a Bona-Fide China consultant.

1) Check their website

It sounds like an obvious thing to do, but does the practice website list China based addresses and phone numbers under the firm’s own name? It is an offense to misrepresent oneself by indicating to have an office in a jurisdiction where one is not registered. So check to see if they have a legitimate office. Saying “we have lawyers in China” is not enough – it is double-speak for “I rent lawyers from another firm.” It is important that your consultants have their own registered offices in China. After all, if they are not prepared to invest in the country they are selling advice about, then why should you trust them?

2) Ask to see their China business license

Foreign firms registered in China have their original name, in English, on their China-issued business license. If the license is purely in Chinese characters, this is a local firm. It is common yet unfortunate double-speak to suggest an office exists, only for that to be a local firm and not a bona fide branch of the foreign practice. If so, it means your work is effectively being subcontracted, and your local practice is acting as a middle man, adding their fees on top of the China based firm. For obvious reasons this is not ideal, the work is carried out one step removed, it is more expensive than necessary and any insurance policies to cover you from malpractice are void.

3) For law firms, check the Chinese Ministry of Justice

All foreign law firms in China must be registered with the Chinese Ministry of Justice in order to practice and advise on matters of Chinese law. Helpfully, they provide a list of such firms here. When having contracts drafted it is important to use a firm that is registered and authorized by the Chinese Ministry of Justice to do so. Using an unlicensed firm based in the US or elsewhere to draft and sign off on a contract intended for use under Chinese law is a huge risk. You wouldn’t use a China based firm to draft up a US contract. Don’t use a US based firm to draft up a Chinese one.

Again, using unlicensed firms for China work invalidates any insurance cover you may have against malpractice as it is your responsibility to check the credentials of the firm you are using. Common sense, and not online blog marketing techniques is the watchword here. Use firms physically registered in China for China law work or be content with running the risk of obtaining and paying for unauthorized legal advice.

4) Combined business registrations and tax advice

China differs from the United States and Europe in that it allows certain China licensed consulting practices to provide both legal administrative services, such as corporate registration and tax advice to be provided by the same firm. While purely legal services as court and litigation procedures can only be handled by law firms, business registration can be handled by consultants as a legal administration process, as well as carried out by accounting and tax firms. This is useful to know, as tax planning especially is a major part of getting the China legal structure correctly in place and properly preparing the requisite financing and that this is fully understood. Using firms that are China licensed and can provide these services jointly saves time, money and communications issues. There is no need to hire separate law and accounting firms in China; it is better to find a practice who can accommodate both.

5) China published material

The more substantial firms in China have published their own China legal and tax material. Anyone can write a blog or make comment on a website, or even be quoted in the media. Very few can go to the extent of publishing material as this requires a huge amount of resources and as the content needs to be thoroughly vetted and be 100% correct. It makes sense to ask to see if the practice has published any detailed China legal or tax material under its own name – well aside from normal blog or online content.

6) Other regional offices

China based firms are limited to one area of expertise – China. In today’s competitive business environment, it makes sense to look at firms who are not just tied to one country but can provide informed advice about alternative destinations as well. This is especially relevant for businesses looking to manufacture and sell products beyond the China market. Vietnam for example is now capable of providing lower cost manufacturing facilities than China, while the India consumer market is also beginning to gain traction.

Getting your regional legal structure right is another issue – should you invest in China directly from your home country or use an alternative jurisdiction as an Asian base from which to later develop your business? Hong Kong, Singapore or the BVI? These are strategic and tax based issues – firms with an Asian presence will be able to provide a far greater depth of knowledge and assistance than those purely concentrating on China – if your future business development plans potentially include a wider geographic scope than just China alone.

Summary

Some simple and smart due diligence will educate you as to which consultants are the real China players out there and who are the wannabes. There are many firms, some cleverly marketed, who purport to be something they are not. If your potential consulting firm has not themselves been prepared to invest in or commit to China – then why should you chose their services? It is a simple question to ask, and even simpler to evaluate. All it takes is a few clicks of a button to see beyond any online hype and get to China consultants who actually are the real deal.

Chris Devonshire-Ellis is the Founding Partner of Dezan Shira & Associates – a specialist foreign direct investment practice providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam, in addition to alliances in Indonesia, Malaysia, Philippines and Thailand, as well as liaison offices in Italy, Germany and the United States. For further information, please email china@dezshira.com or visit www.dezshira.com.

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