Are advertising companies required to get a special license in the Shanghai Free Trade Zone (FTZ)?

On September 26, 2013, China’s State Administration of Industry and Commerce (AIC) issued Suggestions on Supporting the Construction of the Shanghai Free Trade Zone (Suggestions) which, among other things, removed certain restrictions regarding the establishment of foreign-invested advertising enterprise in the FTZ as stipulated under the Administrative Regulations for Foreign-Invested Advertising Enterprises (Regulations).

Under the Regulations, foreign companies are required to meet certain shareholder qualifications and obtain a special license engage in advertising. This means that they have to first seek approval from the Advertising Department under the AIC and submit proof that they meet the relevant requirements. More specifically, for a foreign investor to enter into a joint venture or wholly foreign-owned advertising enterprise with a Chinese company, the Regulations require that the foreign investor be themselves engaged in the advertising business and have three years or more experience doing so.

Foreign shareholders of WFOE are required to provide at least three years’ of audit reports showing that revenue from advertising occupied more than 50 percent of total revenue. If the shareholder is from Hong Kong, he or she might apply to the HK Trade and Industry Department for a Closer Economic Partnership Agreement Certificate providing that the shareholder is an advertising provider in HK, in which case it is no longer necessary to provide three years’ of audit reports. If the application is approved, a license titled the Examination Opinion for Project Proposal of a Foreign-Invested Advertising Enterprise will be granted which should then be submitted to the Ministry of Commerce (MOFCOM) to obtain an Approval Certificate.

To establish branches, the foreign-invested advertising enterprise should have paid its registered capital in full, and have an annual advertising business turnover of not less than RMB 20 million. These requirements have been removed under the Suggestions for advertising companies set up in the FTZ. This means that companies set up in the FTZ simply need to file a record for advertising projects and branch establishment, and the authorities do not have the right to examine applications for approval. Note: FTZ can also provide a virtual office with RMB 20,000 to 30,000 per year for registration purposes.

In addition, foreign-invested advertising enterprises in the FTZ no longer need to submit separate applications for the following items and can instead conduct record-filing and directly apply for changes to their registration:

• Change of joint venture partners;
• Share transfer; and
• Change of advertising business scope or registered capital.

This change may indicate a trend in which a number of special licenses are cancelled in the future. However, this all depends on China’s national policy.