CHINA Law and Practice Contributed by: Qiang Ma and Yan Feng Liu, Jingtian & Gongcheng
9.2 Withholding Tax Withholding taxes apply to royalty payments (includ - ing franchise fees) and technical service fees made by Chinese franchisees to overseas franchisors. The franchisee is legally obligated to withhold the tax at source before remitting payment abroad. The normal withholding earned income tax rate for non-resident enterprises is 10% for income from a Chinese source, including dividends, interest, royal - ties and capital gains. 9.3 Foreign Currency Controls China maintains a system of foreign exchange con - trols, administered by the State Administration of Foreign Exchange (SAFE). For routine payments like franchise fees and royalties, businesses generally do not need to obtain prior approval from SAFE or the central bank (People’s Bank of China) for each transaction. However, the franchisee’s commercial bank will process the outward remittance. The bank is responsible for conducting a routine review of the underlying commercial documents to ensure authen - ticity and compliance. 10. Execution Formalities 10.1 Authentication, Notarisation, Witnessing, Etc A franchise agreement must be in writing. For archival filing, a foreign franchisor must have its identity certification documents (eg, certificate of incorporation) notarised by a notary public in its home country and then authenticated by the Chinese embassy or consulate in that country. China is a member of the Hague Convention Abolish - ing the Requirement of Legalisation for Foreign Public Documents. If the foreign franchisor is from another member country, the often simpler apostille process replaces the traditional consular authentication one.
10.2 Electronic Signatures Article 14 of the Electronic Signature Law of the People’s Republic of China specifies that a “reliable electronic signature” has the same legal effect as a handwritten signature or seal. An electronic signature is deemed reliable if it simultaneously meets the fol- lowing conditions: • when the electronic signature creation data is used for electronic signature, it belongs exclusively to the electronic signatory; • at the time of signing, the electronic signature creation data is controlled solely by the electronic signatory; • any alteration to the electronic signature after sign - ing can be detected; and • any alteration to the content and form of a data message after signing can be detected. 10.3 Stamp Duties Stamp duty is governed primarily by the Stamp Tax Law of the People’s Republic of China. Several types of documents common in a business franchising rela - tionship may be subject to stamp duties. The types of documents include documents for intellectual proper - ty licensing, sales contracts, leasing contracts, techni - cal contracts and business account books.
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