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JAMES D BROWN
DIRECTOR, MURGITROYD [email protected]
JOHN MCLEOD
PARTNER, MAZARS [email protected]
JAMIE WATT
PARTNER, HARPER MACLEOD [email protected]
JAMES BRODIE
DIRECTOR – SCOTLAND, CBBC [email protected]
EXPANDING THROUGH CHINA:
TOP TIPS FOR SUCCESS
JAMES D BROWN
DIRECTOR - PATENTS UK AND EUROPEAN PATENT ATTORNEY
PRESENTATION STRUCTURE
• IP issues when trading in China
• IP issues to consider when gaining backing from Chinese investors
IP ISSUES WHEN TRADING IN CHINA – PART I
• IP Protection and Enforcement
IP ISSUES WHEN TRADING IN CHINA – PART 2
• Dispelling Some Myths
“Chinese IP laws are unsophisticated, so protecting IP in China is a
waste of time and money”
– China’s IP laws have been modelled on the German/European system and are very comprehensive
“IP rights in China are of poor quality”
– Patents issued to foreigners are handled by most experienced Examiners and quality has definitely improved, particularly over the last 5 years.
• Dispelling Some Myths (cont’d)
“My technology will be stolen, copied and sold cheaply, possibly by my Chinese partner”.
– Many companies in China are skilled and prolific counterfeiters – correct
– There is nothing you can do about it – wrong
“Laws and enforcement mechanisms favour domestic interests”
– Supreme Courts in larger cities are handing down sophisticated judgments - EU judges providing training
– German bus manufacturer was awarded $3M damages and an injunction against Chinese infringer in 2009
– Consistency of judgments outside major cities is a recognised problem. 60% of judges have no IP training. This is being addressed
“Foreign businesses cannot succeed in litigation in China”
– 90% foreign companies litigating in China win their case compared to, e.g. 30-40% for
foreign companies litigating in US; and at much lower cost
IP ISSUES WHEN TRADING IN CHINA – PART 2
ADAPTING YOUR IP STRATEGY
• Manufacturing
• Sourcing of parts and components
• Selling your technology in China
• R&D
• Partnering with Chinese companies – either in China or at home
• All demand knowledge of local IP environment and a suitably tailored IP strategy.
DIFFERENT IP STRATEGY FOR CHINA?
• What if UK/Western company doesn’t have much/any CN Patent protection?
• Consider utility model applications to cover minor improvements/changes made to products
• Protect not just English brand names – but CN transliterations too
• Remember design patents to protect the shape/appearance of new products
CHINA - TRADE MARKS
• ‘First-to-file’ system – applying to register
is very important as China grants vast
majority of trade mark rights on first to
register – not use
• Plan ahead - get rights on file as soon as
possible
• Register yourselves – don’t leave it to
local agent
TRANSLITERATION OF TRADE MARK
TRANSLITERATION OF TRADE MARK - 2
• Coca Cola = “Ke Kou Ke Le” which means “allowing the mouth to rejoice.”
• Pepsi Cola = “Bai Shi Ke Le” which means “everything makes you happy.”
SUMMARY
• Chinese IP laws are well established and comprehensive
• Enforcement problems are recognised and will improve over time
• Remember: an Invention Patent has a 20 year term and IP environment is sure to improve markedly within that period – and Trade Marks can last indefinitely
• Utility Models and Registered Designs
• File your Trade Marks early
• Give careful consideration to Transliterations
WHAT ARE CHINESE INVESTORS LOOKING FOR?
• A strong business plan with realistic assumptions.
• Financial forecasts that support the business plan.
• A management team in which investors should
have confidence.
• What is the likely exit route for investors?
• Specialist knowledge or contacts in European
market
• Technological synergies or relevance to Chinese
market
• IP protection for intellectual assets that are central
to your business plan and understanding of 3rd IP
rights.
Doing business in china
Some ‘accountants’ thoughts from Mazars
Mazars in China
• A fully integrated division of the Mazars international partnership
• Specialist China Desk at London office to facilitate introductions
14 offices 83 partners 1,800 staff
Doing Business in China
Some ‘accountants’ thoughts from Mazars
1 Setting up a Chinese entity
2 Finance and cash extraction
3 Employment issues
4 Can UK companies attract investment from China?
5 Accounting and management control
Setting up a Chinese Entity
1 Wholly Foreign Owned Enterprise (WFOE)
• Limited liability company
• Minimum capital requirement determined based on business plan and
feasibility study
• Historically restricted to certain sectors but becoming less so
2 Joint Venture
• Can be a limited Liability Entity or a Co-operative JV
• Chinese partner offers local market familiarity
• Can be used where WFOE is not permitted
3 Branch Office
• Rarely approved for trading in China
4 Representative office
• Only used to facilitate market entry
• Cannot carry on business transactions or provide services to other entities
Setting up a Chinese Entity – Business regulation
Regulation and foreign business restrictions
• Foreign businesses regulated by Ministry of Commerce
• 4 categories: Encouraged, Permitted, Restricted & Prohibited
• But does President Xi’s speech at Davos last week signal further
liberalisation?
Accounting audit and taxation
• All Foreign Invested Entities must have their accounts prepared and audited
by a Chinese registered CPA firm
• Financial year end is 31 December for all companies
• In general, financial reporting is under IFRS
• Corporate Income tax at 25% - quarterly instalment payments required
Investment incentives
• Sometimes available for key sectors and in less developed areas
• Corporate income tax reduced to 15%
• 150% tax enhancement for Research and Development expenditure
Finance and cash extraction Bank regulation in China
trade payments and receipts generally allowed but capital transactions are heavily
regulated
‘blunt instruments’ used to manage levels of debt in economy and overseas cash flows
problematic for group treasury management
Capital investment
bank borrowing is possible - but possible credit crunch in 2017
own funds can be imported - but ensure you don’t need them back in a hurry!
Cash extraction
reasonable management charges are allowed
royalty payments are generally allowed ( but apply for permission)
dividends are generally permitted but sometimes delayed
20
Employment issues
Initial requirements
• Work visas – regulations change frequently – tailored advice required
• Tax registration from date of arrival
Tax returns & payroll
• payroll tax deductions similar to UK PAYE
• employer also required to deduct for social security (rates vary)
• ex-pat tax rules vary depending on length of stay
• different rules for ‘senior management’
• deductions available for certain ex-pat expenses
21
Mazars’ Global Mobility team can offer detailed advice on this very important area.
Can UK companies attract investment from China?
• Yes – but don’t believe the hype!
Chinese companies also subject to foreign currency transaction controls
- outward bound investment was ‘slowed down’ in the last quarter of 2016
Permissions granted based on business sector - and policies change….
- broadly – will China benefit from acquired know how!
• As an illustrative guide to current policy positions, we understand the following
22
YES
Health technology
Wind power
Solar
NO
Overseas property
Hotel & leisure
Insurance
Accounting and management control - the UK angle Is your existing central resource sufficient?
Accounting systems
can they generate the information that management and
directors need?
multi-company?
foreign currencies?
Do you need to upgrade your team?
more compliance
foreign currencies
more reconciliations
consolidation
23
Accounting and management control - the overseas angle
The options
24
Travel Employ locally Remote control
…or outsource
Accounting and management control - the overseas angle An over-view of financial outsourcing
• immediate access to local accounting and tax compliance expertise
• reliable
• scalable
• bespoke
• minimise costs of set up (or switch off)
…and with our cloud-based technology and client portals there is no loss of
control
In Control?
http://www.mazars.com/Home/Our-expertise/Outsourcing-and-accounting-
services/inControl-Global-Compliance-Made-Easy
25
Expanding into China / Seeking Chinese
Investment
Legal Issues
Jamie Watt
Harper Macleod LLP
24 January 2017
Fundamentals
• Core contracts
• Simplicity
• Deliverables
• Milestones
• Payments
• Risk and title
• IP
• Enforcement
• Choice of laws
Information
• Information requirements
• Provision – how, when
• Risk
• Approvals
• Regulation
• Resilience
Cross border issues
• Taxes and duties
• Importer of record / consignee
• Risk and title
• Insurance
• Delivery
Relationships
• Agents
• Distributors
• Manufacturers
• Local knowledge
• Empowerment
Investment
• Approvals
• Notifications
• Sector restrictions
• Building relationships
• Timescales
Example 1, Medical Devices
• Outsourced manufacture
• Requirements for placing on market in Europe
• Information flow
• CE marking
• Regulatory investigation
• Disputes and consequences
Example 2, Education
• Brand management
• Student interaction
• Local support centres
• Personnel exchange
Key points
• Importance of relationships
• Importance of face to face interaction
• Contracts and rights, in reserve
• Know the landscape if you have to take action
Key Considerations for Doing Business in China
www.cbbc.org 建议 Advice Ι 支持 Support Ι 网络 Networking
24th January, 2017
James Brodie Director, Scotland China-Britain Business Council
Straightforward
Clever &
Farsighted
Decisive & Full
of Stratagem
Honest &
Sedate
Forthright &
Generous
Reasonable &
Loyal
Open & Direct
Upright
Unhurried
Warm hearted
Stereotypes
www.cbbc.org 建议 Advice Ι 支持 Support Ι 网络 Networking
China – Macro Picture
"In order to defuse problems and risks, avoid falling into the 'middle income trap',
and achieve modernization, China must rely on development, and development requires
an appropriate growth rate. At the same time, China's economic development has
entered a 'new normal'"
Government Policies & Planning
www.cbbc.org 建议 Advice Ι 支持 Support Ι 网络 Networking
10 Key Sectors -Integrated circuits and professional equipment -High-end numerical-control machine tools and robotics -Aviation and aerospace equipment -Marine engineering equipment and high-tech ships -Advanced rail transit equipment -Low-energy and new-energy cars -Electronic equipment -Agricultural machinery -New materials -Biopharmaceuticals and high-performance medical equipment 5 Key Projects -Manufacturing innovation centres -Smart manufacturing projects -Strong industrial bases -Green manufacturing projects -High-end equipment manufacturing projects
Order in relationships
No relationships, no order
Beijing
Shenyang
Qingdao
Xi’an
Nanjing
Shanghai
Hangzhou
Wuhan
Changsha
Chengdu
Chongqing
Shenzhen Guangzhou
The CBBC Network
Fujian
www.cbbc.org 建议 Advice Ι 支持 Support Ι 网络 Networking
James Brodie Director, Scotland
JAMES D BROWN
DIRECTOR, MURGITROYD [email protected]
JOHN MCLEOD
PARTNER, MAZARS [email protected]
JAMIE WATT
PARTNER, HARPER MACLEOD [email protected]
JAMES BRODIE
DIRECTOR – SCOTLAND, CBBC [email protected]
