How foreign companies can transition to the digital era of doing business in China

In years past, regulatory procedures for entities in China involved trips to various governmental offices, not to mention extensive paperwork. More recently, administrative procedures have migrated to an online administrative system, which has accelerated the ease of business.

Corporate documents and seals, which legally bind a company to a contract or are required for corporate identity confirmation/authentication in carrying out governmental procedures, have also been moving to a digital ecosystem, increasingly fostering a new, streamlined digital era in doing business in China. 

Presently, procedures related to tax and company administrative filings are conducted through a “one-stop online channel”. A company’s legal entity USB key is used as an authorisation tool to conduct procedures online. For foreign-invested companies, it was and still is, essential to safeguard the use and protection of such USB key in order to minimise misuse where damages might result.

For example, for shareholders who reside abroad, the handling of the USB key can be problematic in two ways. Firstly, where the USB key remains in the company’s office, it becomes vulnerable to mishandling, and without a strict procedure, could be easily misplaced or misused. Secondly, where the USB key remains with an overseas shareholder, online procedures can only be conducted once the shareholder(s) visits China with the USB key.

At Horizons, we advise clients to transition to an electronic business license and corporate seals as a solution for safeguarding these all-important tools. For foreign nationals caught outside of China under the temporary suspension of foreign nationals entering China, we offer activation services that allow personnel to remotely manage the company in China and retrieve the governance of the business license and corporate seals from abroad.

Introduced from 1 January 2020, the electronic business license and corporate seals (including company corporate seal, finance seal, invoice seal and legal representative seal) are gradually replacing the legal entity USB key. In practice, these changes shift government procedures from requiring paper-based documents affixed with the corporate seal or hard-copy business license to a new digital ecosystem that allows flexibility in accessing online governmental regulatory services.

For foreign companies, the digital shift permits corporate documents and seals to be mobile, therefore safeguarding against certain restraints. However, the new digital ecosystem requires new employee procedures to utilise the electronic business license and corporate seals correctly to prevent misuse.

Implementing the electronic business license and corporate seals in your company

Electronic business license
The electronic business license is utilised to authenticate corporate identity via the one-stop online governmental portal. The electronic business license allows holders to access and utilise user registration, real-name verification, identity authentication and single sign-on services. As a result, repeated online registration and verification are a thing of the past, and governmental procedures related to tax, social insurance and so forth can be conducted quickly with ease.

Electronic corporate seals
Digital certificates and digital signature keys used to verify digital corporate seals can be stored on a smartphone. Digital corporate seals may be used as a digital signature tool for electronic documents serving governmental procedures related to tax, social insurance, the provident fund and so forth.

As administratively doing business in China increasingly moves fully into the digital era, foreign companies need to keep themselves abreast of ongoing changes and their effects. Implementing regular changes should be carefully planned to ensure a smooth company transition and to mitigate risk.

If you have questions or concerns related to corporate digital governance and associated digital tools or other corporate matters, please contact Horizons at +86 21 5356 3400 or to schedule a consultation session. From RMB 1,500 per session, Horizons can provide insight, expertise and the right solutions for you. 

Horizons Corporate Advisory helps clients solve complex problems, thrive and be inherently responsible in their business activities worldwide. The countries and special administrative regions we operate in include Belarus, Brazil, Bulgaria, China, Colombia, Cyprus, Egypt, France, Germany, Hong Kong SAR, Indonesia, Italy, Kazakhstan, Macau SAR, Malta, Mexico, Mongolia, Morocco, The Netherlands, Nigeria, Portugal, Russian Federation, Serbia, Spain, Switzerland (French and German-speaking cantons), Turkey, United Kingdom, United States of America and Zambia.