You may inquire about the business scope of Chinese companies registered with China’s company registration authority, and then assess whether the Chinese company transacts with you beyond its business scope.
This post was first published in CJO GLOBAL, which is committed to providing consulting services in China-related cross-border trade risk management and debt collection.We will explain how debt collection works in China below.
For instance, if you intend to import masks from a Chinese company, but this company’s business scope excludes mask sales, and import/export of masks (or goods in general), the Chinese company is probably committing fraud.
This is because a Chinese company engaged in the import and export business will generally not undertake any business beyond its registered business scope.
Under Chinese laws, items required in registering a market entity include its business scope. You can get to know about the entity’s business scope from its registered information. For more information on how to inquire about the registered information, please refer to our previous post, “How Do I Know If A Chinese Company Is Legitimate and Verify It?”.
For Chinese companies engaged in domestic business, if they carry out business with other entities beyond their business scope and enter into contracts, Chinese courts will not determine such contracts invalid, unless the involved business is legally restricted, prohibited or subject to franchise requirements. As a result, many Chinese companies may practically carry their business beyond their registered business scope.
However, it’s a different story when it comes to Chinese companies engaged in the import and export business, as the international trade business they are actually engaged in will usually be recorded in their business scope.
Under Chinese laws and regulations relating to import and export, if the Chinese company intends to engage in the import/export of goods or technologies, it must register with China’s Ministry of Commerce (MOFCOM) as a foreign trade operator. For the registration, MOFCOM requires that the business scope of such Chinese company cover the import/export of goods or technologies.
Therefore, if a Chinese company engages in the import and export business, its business scope must include the wording, import and export.
Pursuant to China’s tax-related laws and regulations, when a Chinese company files a tax return, its tax-related business shall be within its business scope. If the Chinese enterprise is engaged in sales of specific products, sales of such products shall be included in its business scope.
In other words, if a Chinese company is engaged in the import and export of a certain type of commodity, its business scope must cover that commodity.
In conclusion, if a Chinese company wants to export masks to you in a legal way, please check whether its business scope contains the wording, “masks” and “import and export”.
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Contributors: Meng Yu 余萌