Understanding Liquidated Damages under Chinese Law: Key Points for Foreign Enterprises
In international business contracts governed by Chinese law, liquidated damages clauses are a common fixture. They set out pre-agreed compensation for breaches, helping both sides clarify rights and obligations while adding certainty to transactions. However, Chinese law places strict rules and judicial oversight on these clauses—rules that often differ from those in overseas common law or civil law systems. To help foreign businesses steer clear of pitfalls in cross-border deals, this article breaks down the key rules, statutory limits, court adjustment practices, and special scenarios for liquidated damages under Chinese law.
1. The General Rule for Liquidated Damages: Compensation-Oriented with Supplementary Punishment
The governing rule for liquidated damages in China is established by Article 585 of the Civil Code, which defines their primary purpose as compensating the non-breaching party for actual losses incurred due to a breach of contract. Punishment is explicitly characterized as a secondary, supplementary function. This compensation-oriented foundation distinguishes China’s legal approach from common law systems, where parties may independently agree upon high punitive liquidated damages.
In practice, this principle requires that the contractually agreed amount of liquidated damages bears a reasonable relationship to the foreseeable or actual loss. Should the stipulated sum of liquidated damages be judged substantially excessive or overly low compared to the proven loss, the court is empowered by law to adjust it upon request. This judicial discretion serves to prevent outcomes where the non-breaching party obtains a windfall gain from liquidated damages, or where the breaching party bears a liability disproportionate to the harm caused.
Consequently, when drafting or enforcing contracts within China’s jurisdiction, parties should focus on establishing a credible pre-estimate of potential loss. Well-structured liquidated damages clauses that demonstrate this compensatory intent are more likely to be upheld and enforced by Chinese courts.
2. Liquidated Damages: Understanding the 30% Statutory Cap for “Excessively High” Claims
When navigating contract disputes involving liquidated damages in China, grasping the judicial benchmarks governing liquidated damages is critical for drafting enforceable contracts and resolving disputes effectively.
According to the Supreme People’s Court’s Minutes of the National Court Work Conference on the Implementation of the Civil Code, liquidated damages are generally deemed “excessively higher than the losses caused” if they exceed 30% of the actual losses defined under Article 584 of the Civil Code. This 30% threshold serves as a core reference for adjusting liquidated damages: courts or arbitration tribunals are empowered to reduce any portion of aliquidated damages claim that surpasses this cap. This rule delivers critical clarity for liquidated damages clauses in contract drafting and dispute resolution, safeguarding legal interests while upholding the enforceability of contract terms tied to liquidated damages.
It is important to note that the “actual losses” used to evaluate liquidated damages include expected benefits that would have been secured upon full contract performance, but shall not exceed the scope of losses foreseeable by the breaching party at the time of contract conclusion. This definition directly shapes how liquidated damagesare calculated and adjusted in practice.
For disputes involving late payments or contracts with financing elements (e.g., cross-border loans, equity repurchase agreements, investment valuation adjustment mechanisms), courts typically set aside the 30% rule and instead use private lending interest rate benchmarks to adjust liquidated damages.
Currently, the widely accepted standard for such liquidated damages adjustments is four times the one-year Loan Prime Rate (4xLPR) announced by the National Interbank Funding Center, translating to an annual rate of approximately 14.4%-15% in 2026. For contracts signed prior to August 20, 2020, some cases may still reference the old 24% annual benchmark. Critically, the total sum of liquidated damages, interest, service fees, and other related charges cannot exceed this upper limit—and any excess amount already paid can be claimed back by the affected party.
3. Judicial Adjustment of Liquidated Damages: Key Factors & Binding Rules
The judicial adjustment of liquidated damages follows the principle of party-initiated application, but courts are not entirely passive in practice. Even if the breaching party does not file a request to adjust liquidated damages, if the court determines that the agreed liquidated damages are excessively high, it may take the initiative to adjust liquidated damages ex officio. A representative case is (2022) Yue 01 Min Zhong No. 6068, where the Guangzhou Intermediate People’s Court adjusted the agreed daily liquidated damages rate of 3% (equivalent to an annualized rate of over 1000%) to the Loan Prime Rate (LPR) plus 50%—even in the absence of the defendant. This ruling fully reflects the judicial logic governing the adjustment of liquidated damages.
When adjusting liquidated damages, courts will comprehensively assess multiple core factors:
Progress of contract performance: For example, partial performance of the contract will lead to a corresponding reduction of liquidated damages;
Degree of fault of the breaching party: Malicious breach may not warrant a reduction of liquidated damages;
Industry practices and transaction background: These contextual factors help courts determine a reasonable level of liquidated damages aligned with market norms.
Additionally, a critical reminder: Even if parties include a clause in the contract stating they “waive the right to adjust liquidated damages,” such an agreement may be deemed invalid by courts. Judicial practice consistently supports adjusting liquidated damages based on actual circumstances to balance the legitimate interests of both parties.
4. Burden of Proof Allocation for Liquidated Damages
The party claiming that liquidated damages are excessively high and requesting a reduction bears the primary burden of proof. Specifically, this party must demonstrate that the agreed-upon liquidated damages exceed the scope of actual losses caused by the contract breach.
When the non-breaching party argues that the stipulated liquidated damages are reasonable, it is also required to provide corresponding evidence to verify the amount of its losses. Such evidence may include capital occupation costs, rights protection expenses, expected interest losses, and other quantifiable losses that support the reasonableness of the set liquidated damages.
If neither party can fully adduce sufficient evidence to substantiate their claims regarding liquidated damages, the court will exercise discretion to determine a reasonable amount of liquidated damages based on the specific facts of the case and prevailing industry standards.
5. Conclusion: Professional Guidance to Mitigate Liquidated Damages Risks in Foreign-Related Transactions
When conducting foreign-related transactions, liquidated damages risks stand as a major threat to your business’s financial security and legal rights—and navigating these risks requires targeted professional support.
China’s liquidated damages system diverges significantly from frameworks in other jurisdictions. Inadequate drafting of liquidated damages clauses, paired with limited familiarity with Chinese judicial practices around liquidated damages, can easily result in unintended rights erosion and substantial financial losses.
Our team specializes in foreign-related contract disputes, with deep mastery of the critical differences between Chinese and international liquidated damages rules. We offer full-cycle professional assistance: from crafting enforceable liquidated damages clauses to providing strategic guidance during dispute resolution, we help you avoid legal pitfalls tied to liquidated damages and robustly safeguard your core commercial interests.
If you have questions about liquidated damages in foreign-related transactions or need tailored legal support to mitigate associated risks, feel free to contact us at any time.
Contacts:
Saway Wang
Tel: +86 18017682422
Email: sawaywang@billionslawyer.com
Read More
Comprehensive Guide to Company Seals in China
In China’s business environment, the company seal (公章) is far more than a mere administrative tool—it serves as the legal representation of a company’s will, carrying significant binding force in commercial transactions and official procedures. Unlike many Western countries where signatures are primary, Chinese law recognizes the company seal as the ultimate proof of a company’s intent, making its management a critical aspect of corporate compliance. This guide outlines the functions, standard features, and legal risks associated with company seal to help businesses navigate related obligations.
1. Functions and Legal Effects of Company Seal
The company seal is the core instrument for a business to exercise its legal rights and assume obligations. Its primary functions include:
- Validating Contracts and Agreements: Most commercial contracts (e.g., sales, investment, employment) require the company seal to be legally enforceable, especially for high-value or complex transactions.
- Authorizing Official Documents: Official correspondence, financial statements, tax filings, and regulatory submissions (e.g., with the Market Regulation Bureau or Tax Bureau) must bear the company seal to be recognized by authorities.
- Certifying Corporate Actions: Decisions approved by the board of directors or shareholders, such as mergers, acquisitions, or asset disposals, often require the company seal to confirm their validity.
Legally, the company seal is presumed to reflect the company’s true intent under the Civil Code of the People’s Republic of China and Company Law. Even if an individual uses the seal without proper authorization, third parties acting in good faith may still hold the company liable for actions validated by the company seal—a principle known as “apparent authority.”
2. Standard Appearance and Specifications
Company seal in China are strictly regulated by authorities, with standardized features to ensure authenticity:
- Shape and Dimensions: Most are circular with a diameter of 4.2 cm (for limited liability companies) or 4.5 cm (for joint-stock companies). Special entities like state-owned enterprises may use larger sizes (4.8 cm).
- Design Elements: The company seal typically includes the full legal name of the company (in Chinese) arranged in a circle, with a 五角星 (five-pointed star) at the center. Below the star, the phrase “公章” (official seal) may appear in some cases.
- Material and Anti-Counterfeiting Features: Modern company seal are often made of copper or plastic, embedded with a unique 13-digit registration code (similar to an ID number) issued by the Public Security Bureau. Many also include microtext or laser-engraved patterns to prevent forgery.
3. Legal Risks and Prevention Measures
Mismanagement of company seal can lead to severe legal consequences, including financial losses and reputational damage. Key risks include:
(1) Unauthorized Use or Forgery
If a company seal is stolen, forged, or used by employees beyond their authority (e.g., signing fraudulent contracts), the company may be held liable for resulting debts or legal disputes. Under Criminal Law, forging a company seal can constitute a crime punishable by up to three years in prison.
(2) Ambiguity in Company Seal Usage
Failing to distinguish between different types of seals(e.g., official seal vs. financial seal) may lead to invalid transactions. For example, using a financial seal to sign a sales contract could render it unenforceable.
(3) Inadequate Record-Keeping
Lack of documentation for company seal usage (e.g., no log of who used the company seal, when, and for what purpose) makes it difficult to trace responsibility in case of disputes.
(4) Preventive Strategies
Appoint a dedicated company seal keeper (separate from financial or legal teams) and implement a formal approval process for company seal usage.
Store the company seal in a secure location (e.g., a locked safe) with access limited to authorized personnel.
Regularly audit company seal usage records and conduct surprise checks to detect misuse.
In case of loss or theft, immediately report to the Public Security Bureau and publish a public notice to invalidate the company
4. Practical Recommendations for Businesses
(1) Develop a Company Seal Management System
Draft clear rules outlining company seal usage procedures, approval hierarchies, and storage protocols, and include these in the company’s internal bylaws.
(2) Train Employees on Company Seal Risks
Ensure staff understand the legal significance of the company seal and the consequences of improper usage.
(3) Regularly Update Anti-Counterfeiting Measures
Coordinate with official company seal-making agencies to adopt the latest anti-forgery technologies (e.g., digital watermarks).
Need help drafting a company seal management policy?
Contact us for customized templates and legal guidance tailored to your industry.
Email: sawaywang@billionslawyer.com
Tel/Whatsapp: +86 18017682422
Comprehensive Guide to China’s Five Insurances and One Fund for Foreigners
Understanding China’s Mandatory Employee Benefit System
China’s social security system is built around the mandatory framework known as “Five Insurances and One Fund” (五险一金), a cornerstone of social protection in Mainland China. This statutory requirement consists of five social insurance programs and the Housing Provident Fund, forming a comprehensive social security package designed to safeguard employees.
All businesses operating in China—including foreign-invested enterprises—must comply by enrolling eligible Chinese and foreign employees who hold valid work permits. Failure to participate in China’s social security system may lead to serious penalties, such as fines equivalent to 100%–200% of overdue payments and additional legal consequences.
Employers should ensure full adherence to the Five Insurances and One Fund to avoid non-compliance risks and contribute effectively to China’s social security framework.
1. The Five Social Insurances: Coverage and Contributions
(1) Pension Insurance (养老保险)
A key component of China’s social security system, the Five Insurances and One Fund (五险一金), includes Pension Insurance (养老保险), which is mandatory for most employees. Here’s what employers and workers need to know:
- Purpose
Pension Insurance provides retirement pensions and survivor benefits to eligible participants.
- Contributions
-Employer: Contributes 16% of the employee’s monthly salary (based on the national baseline; rates may vary by province, e.g., 14% in Guangdong).
-Employee: Contributes 8% of their monthly salary.
- Eligibility for Foreign Employees
Foreign nationals working in China with valid permits must enroll. Upon permanent departure from China, employees can apply to withdraw the balance of their personal account, which consists of their personal contributions (8%) plus any accrued interest. The portion contributed by the employer (16%) enters the national social pooling fund and is non-refundable.
（2）Medical Insurance (医疗保险)
- Coverage: Hospitalization, outpatient services, chronic disease treatment, and designated drug costs.
- Contribution:
- Employer: 6–10% of salary (varies by city; e.g., Beijing: 9.8%, Shanghai: 10%)
- Employee: 2% + fixed fee (e.g., ¥10/month in Shanghai)
- Critical Note: Foreign employees leaving China may transfer medical insurance to home country systems if a bilateral social security agreement exists (e.g., with Germany, South Korea). Absent such agreements, only personal account balances are refundable.
(3) Unemployment Insurance (失业保险)
- Benefits: Up to 24 months’ living allowance post-involuntary termination (amount = local minimum wage × 70–90%).
- Contribution:
- Employer: 0.5–1.5% (e.g., Shanghai: 0.5%)
- Employee: 0.5%
- Foreign Employee Access: Benefit eligibility typically requires ≥1 year of contributions. Few foreign nationals claim this due to visa-linked employment termination.
(4) Work-Related Injury Insurance (工伤保险)
- Coverage: Medical costs, disability compensation, and survivor pensions for occupational injuries/illnesses.
- Contribution: 0.2–1.9% of salary (employer-only; industry-risk adjusted).
- Claim Process: Employers must report injuries to the HRSSBwithin 30 days. Foreign employees enjoy equal claim rights.
(5) Maternity Insurance (生育保险)
- Benefits: 98–128 days paid leave (region-dependent), prenatal care, and delivery cost coverage.
- Contribution: 0.8–1.2% of salary (employer-only).
- Foreign Employee Eligibility: Applies regardless of nationality. Male employees’ spouses may claim partial benefits.
2. Housing Provident Fund (住房公积金)
- Purpose: Facilitates home purchases, construction, renovations, or mortgage/rent payments.
- Contribution:
- Employer and Employee: Each contribute 5–12% of employee’s monthly average salary(locally capped; e.g., Shanghai 2024 cap: ¥31,068/month).
- Foreign Employee Policy:
| City | Enrollment Requirement | Contribution Basis |
| Shanghai | Mandatory | Actual salary |
| Beijing | Mandatory | Actual salary |
| Shenzhen | Voluntary | Negotiated (min. 5%) |
| Suzhou | Mandatory | Actual salary |
- Withdrawal for Departing Foreigners: Full account balance (employee + employer contributions + interest) is withdrawable upon permanent departure after presenting:
- Cancelled work permit
- Exit-entry administration departure record
- Tax clearance certificate
3. Critical Compliance Deadlines & Procedures for Foreign Employees
- Enrollment Timeline: Employers must register employees within 30 daysof work permit issuance.
- Pension Withdrawal Process:
[Step 1]: Cancel work permit/residence permit
[Step 2]: Obtain tax clearance certificate
[Step 3]: Submit withdrawal application + original passport at local Social Security Bureau
[Step 4]: Funds transferred within 15 working days (avg.)
- Medical Insurance Personal Account Refund: Requires separate application at Medical Insurance Management Center.
- Penalties for Non-Compliance:
- Late contributions: 0.05% daily interest on arrears
- Evasion: Fines up to 3× underpaid amounts (Social Insurance Law, Art. 86)
4. Practical Recommendations for Employers
For foreign nationals enrolled in China’s social security system—specifically the Basic Pension Insurance as part of the Five Insurances and One Fund—who permanently leave China (ceasing both work and residence), certain provisions allow for the withdrawal of their pension contributions. Below is a structured overview of the process and key considerations:
- Eligibility and Process
Qualified individuals may apply to withdraw the accumulated balance from their personal pension account, which includes their individual contributions plus any interest earned.
Required documents usually include:
– Valid passport
– Proof of termination of employment in China
– Evidence of permanent departure (e.g., cancellation of work permit/residence permit, or exit visa)
It is important to note that the portion of contributions made by the employer cannot be withdrawn and remains in the national social pooling fund.
- Key Practical Tips:
– Verify Local Policies: Contribution bases, rates, and withdrawal procedures can vary by city. Always consult the local Human Resources and Social Security Bureau (e.g., via 12333.gov.cn)for updated rules.
– Check Bilateral Social Security Agreements: To prevent dual social security contributions, confirm whether a totalization agreement exists between China and the employee’s home country (e.g., Germany, South Korea, Japan).
– Retain Contribution Records: Keep full records of all social security contributions for at least 15 years, as this is the standard statutory audit period in China.
Understanding these rules is essential for any foreign employee participating in China’s social security system and complying with the Five Insurances and One Fund requirements.
Email: sawaywang@billionslawyer.com
Tel/Whatsapp: +86 18017682422
File Your Labor Case Now: Understand Key Process & Timeline of Labor Dispute
For foreign employees and foreign-invested enterprises in China, labor disputes are a common occurrence. Understanding China’s unique labor dispute resolution mechanism is crucial for safeguarding your rights. Unlike in other countries, China employs a mandatory “Arbitration-First and Two-Trial Finality” system for labor disputes, which dictates that cases must start with labor arbitration. Should either party be dissatisfied with the awards of labor arbitration, they have the right to initiate a labor litigation in court. Labor litigation follows the same procedures as ordinary litigation, adhering to a two-instance final trial system. This article will clearly explain the core steps, timeline, and legal basis of this process.
1. The Mandatory Pre-Litigation Step: Labor Arbitration
According to Article 5 of China’s Labor Dispute Mediation and Arbitration Law, labor arbitration is a mandatory prerequisite for litigation. Courts will not accept labor litigation which has not gone through the prior labor arbitration.
(1) Jurisdiction of Labor Arbitration
The labor arbitration shall be governed by the District Labor Dispute Arbitration Commission (LDAC) either by the place where the labor contract is performed or where the employer is registered.
Nevertheless, in certain cities (for instance, Shanghai), the jurisdiction over labor arbitration for foreigners falls under the municipal labor arbitration committees. Hence, it is advisable to verify with the labor arbitration committee prior to initiating labor arbitration.
(2) Statute of Limitations
- General Rule
The labor arbitration must be filed within 1 year from the date the employee knew or should have known their rights were infringed.
- Important Exceptions
– wage disputes during the employment relationship are not subject to the one-year limitation period.
– If the employment relationship has terminated, labor arbitration (including wage disputes) must be filed within one year from the termination date.
- Interruption of Limitation
– Claims against the other party
– Request for relief from the authority
– The other party agreeing to perform its obligations
- Suspension of Limitation
– Force majeure
– Other legitimate reasons
(3) Required Filing Materials
- Arbitration Application (clearly stating claims, facts, and reasons)
- Identity Documents (for both employee and employer representative)
- Proof of Employment Relationship (e.g., labor contract, wage records/slips, termination letter)
- Other relevant evidence.
(4) Processing Timeline:
- Decide whether to accept the case within 5 days of receiving the application.
- Close the case within 45 days upon acceptance (can be extended with approval, but the extension cannot exceed 15 days).
(5) Final Awards
If either the employee or the employer is not satisfied with the award, they may file a lawsuit with the people’s court within 15 days from the date of receiving the award; otherwise, the award will take effect.
- Exceptions:
Labor arbitration awards shall be final and legally binding from the date of issuance under the following circumstances (however, the employee retains the right to file a case in court if dissatisfied with the awards):
(i) Claims for labor remuneration, work-related medical expenses, economic compensation, or damages not exceeding twelve times the local monthly minimum wage;
(ii) Disputes arising from compliance with national labor standards regarding working hours, rest periods, holidays, and social insurance.
2. First Instance Litigation: From Filing to Judgment
If dissatisfied with the arbitration award, either party may file a lawsuit with the Basic People’s Court within 15 days of receiving the award.
（1）Jurisdiction
Basic People’s Court at the place of the employer’s domicile or where the labor contract is performed.
（2）Essential Documents
- Civil Complaint(detailing claims, facts, and reasons against the arbitration award)
- Original Arbitration Award
- Identity Documents
- Evidence Materials
（3）Court Fee
RMB 10 for each labor dispute case.
（4）Procedure & Timeline
- Filing: After submitting the filing documents, we must wait for the court’s formal acceptance. The waiting period varies among different regional courts, as they handle varying volumes of cases. For example, in Shanghai, some courts may require a waiting period of 2-3 months due to their heavy caseloads.
- Payment of court fees: Upon formal acceptance, the court will issue a payment notice for the court fees. It is essential to settle the court fees promptly; failure to do so may result in the case being considered withdrawn. Subsequently, you will need to wait for the assignment of a judge.
- Summons: In the next step, the judge will schedule a court hearing and issue a summons to both parties, along with providing the complaint and evidence to the defendant.
- Court hearing and judgment: In a summary procedure, the case will be concluded within three months, whereas the ordinary procedure will be concluded within six months.
3. Second Instance Appeal: The Final Remedy
(1) Appeal period
If dissatisfied with the first-instance judgment, a party may appeal to the higher-level (Intermediate) People’s Court within 15 days of the judgment being served. For foreign party without domicile in China , the appeal period for both judgments and rulings is 30 days.
(2) Form
Generally, the court will hold a court hearing. However, it may render a judgment based on the case files (“paper review”) if no new facts or evidence are submitted.
(3) Time Limit
Will be concluded within 3 months from appeal acceptance.
(4) Legal Effect
The second-instance judgment takes effect immediately upon service. Parties cannot appeal further.
4. Conclusion
Foreign individuals and companies involved in a labor dispute in China should seek advice from professional lawyers promptly to navigate the complexities, ensure strict compliance with procedures and deadlines, and maximize the protection of your rights.
Note: This guide is based on Chinese laws and regulations as of July 2025. Subsequent legal revisions or policy adjustments may occur. Always consult with professional lawyers or refer to the latest official sources for the most current information.
Saway Wang
Email: sawaywang@billionslawyer.com
Tel/Whatsapp: +86 18017682422
Understanding Registered Capital in China: A Guide For Foreign Investors
Introduction
For foreign businesses establishing a company in China, navigating the registered capital (注册资本) system is a fundamental compliance requirement with far-reaching implications. As a legal cornerstone under China’s Company Law, registered capital serves dual purposes: it demonstrates a company’s financial credibility to regulators and commercial partners, while also defining shareholders’ liability thresholds and governance rights. This guide clarifies key aspects of China’s registered capital framework for international investors, including: its definition, compliance requirements, and liabilities and implications for shareholders.
1. Definition of Registered Capital
Under the Company Law of the People’s Republic of China (PRC), registered capital refers to the total amount of capital subscribe by all shareholders (or promoters) and registered with the State Administration for Market Regulation (SAMR). It serves as the company’s foundational equity and is recorded in its business license.
2. Five-Year Contribution Rule: Core Changes and Transitional Arrangements
China’s revised Company Law (effective July 1, 2024) introduces significant changes to the registered capital regime, emphasizing capital adequacy and creditor protection.
(1) Mandatory Five-Year Cap
Under Article 47 of the revised Company Law, shareholders of LLCs must fully pay their subscribed capital within five years of incorporation, replacing the previous flexible subscription system. This reform aims to curb “shell companies” and strengthen market trust by ensuring capital adequacy.
Key Impacts:
- Startups: Entrepreneurs must now rigorously assess financial capacity and operational plans before incorporation.
- Existing Companies: Transitional rules under Article 266(2) require companies registered before July 1, 2024, to gradually adjust contribution schedules to comply with the five-year limit.
(2) Early Contribution Demands by Creditors
Article 54 empowers creditors to demand accelerated capital payments if a company defaults on debts, even if the shareholder’s contribution period has not expired. This prioritizes creditor rights over shareholder flexibility.
Example: A tech startup fails to repay a supplier; the creditor may force shareholders to pay contribution ahead of schedule.
3. Legal Requirements for Registered Capital
(1) Minimum Registered Capital
China abolished the general minimum registered capital requirement in 2014, except for some specific industries such as:
- Financial institutions: Minimum thresholds apply (e.g., RMB 1 billion for commercial banks).
- Insurance companies: at least 200 million, and must be paid-in monetary capital
- For Foreign-invested enterprises (FIEs): No uniform minimum, but capital must align with business scope and scale.
(2) Contribution Timeline
Shareholders must specify the amount and payment schedule in the company’s Articles of Association.
Under the 2023 Company Law amendment, shareholders must fully pay subscribed capital within 5 years from incorporation, unless exempted by special laws.
(3) Forms of Contribution
Capital may be contributed in:
- Cash: freely convertible currency;
- Non-monetary assets: e.g., intellectual property, real estate, equity, creditor’s right, provided their value is appraised and transferable.
4. Shareholder Liability and Risks Concerning Registered Capital
Limited Liability Principle: Shareholders’ liability is generally limited to their subscribed capital. However, exceptions exist:
(1) Failure to Fully Pay Capital
Shareholders are liable for unpaid amounts, and shall compensate for the losses incurred by its failure of full payment (Article 49 of Company Law)
(2) Asset Undervaluation
If non-monetary contributions are overvalued, shareholders must compensate for the shortfall (Article 50 of Company Law)
(3) Piercing the Corporate Veil
Courts may hold shareholders jointly and severally liable for company debts if they abuse the corporate structure (e.g., commingling assets).
(4) Equity Forfeiture Process (Article 52, Company Law)
If a shareholder fails to meet capital contribution deadlines stipulated in the Articles of Association, the company may issue a written payment demand with a grace period of at least 60 days from the notice date. Should the shareholder still default after the grace period, the board of directors may pass a resolution to issue a written notice of equity forfeiture. Upon delivery of the notice, the shareholder immediately loses rights to the unpaid portion of their equity.
(5) Creditor Recourse Against Defaulting Shareholders (Article 13, Judicial Interpretation III)
Creditors may pursue supplementary compensation from shareholders who fail to fulfill or partially fulfill capital contributions. Specifically, shareholders are liable for unpaid capital (including accrued interest) to cover the portion of company debts that the company cannot repay.
Key Considerations:
Creditors can bypass the company and directly claim against shareholders’ personal assets within the unpaid capital scope.
This rule reinforces creditor protection, particularly in insolvency scenarios, by holding shareholders accountable for unmet commitments.
(6) Capital Reduction
A company may reduce registered capital via shareholder resolution, but creditors must be notified and allowed to claim repayment or security. Failure to follow statutory procedures may expose shareholders to liability.
5. Practical Considerations for Foreign Investors
- Balancing Flexibility and Risk: While the subscription system offers flexibility, over-subscribing capital may increase shareholder liability.
- Industry-Specific Rules: Verify sector-specific requirements (e.g., minimum capital for construction or logistics).
- Documentation: Clearly define capital contribution schedules and valuation methods in shareholder agreements.
China’s registered capital regime balances flexibility with accountability, enabling foreign investors to optimize capital deployment while safeguarding creditors’ interests. By understanding the legal nuances and proactively managing obligations, businesses can build a solid foundation for long-term success in the Chinese market.
Suggestions
(1) Determine the registered capital as per the industry characteristics.
Different industries have different capital requirements. For example, the manufacturing industry usually requires high registered capital to purchase equipment and raw materials, while the Internet industry can start with relatively low registered capital.
(2) Combined with their own financial strength and business plan.
Entrepreneurs in determining the registered capital, should fully consider their own financial strength and the company’s business plan. Avoid the registered capital is too high or too low, affecting the normal operation of the company.
(3) Reasonable arrangement of capital contribution.
The contribution of registered capital can be in the form of money, in kind, intellectual property rights and so on. Entrepreneurs can choose the appropriate way of capital contribution according to their own situation.
For tailored advice on structuring your investment or resolving capital-related disputes, consult a qualified PRC corporate lawyer to align capital structure with business needs and regulatory expectations.
Saway Wang
Email: sawaywang@billionslawyer.com
Tel/Whatsapp: +86 18017682422
All About Legal Risks in Import/Export Trade
With the acceleration of globalization, the international trade environment has become increasingly complex, and Chinese import/export enterprises face diversified legal risks in cross-border transactions. Due to insufficient awareness of potential legal risks at various stages of import/export operations, some enterprises fail to adopt effective preventive measures or handle risks professionally, leading to significant financial losses. This article outlines key legal risks for Enterprises engaged in import/export trade in China, aiming to help mitigate such risks.
1. Enterprise Qualification Risks
(1) Qualifications for Import/Export Trade
i. Customs Registration for Import/Export Entities
Enterprises must complete the Customs Registration for Consignors/Consignees of Import/Export Goods to obtain a Customs registration code before conducting import/export activities.
Note: Under the latest simplified procedures, enterprises no longer need to apply for the Foreign Trade Operator Registration Certificate.
ii. Electronic Port Card (a digital certificate for China’s customs clearance system)
Enterprises must apply for an Electronic Port Card to conduct online customs declarations.
iii. Trade Foreign Exchange Enterprise List Registration
Starting from June 1, 2024, the State Administration of Foreign Exchange (SAFE) has optimized trade foreign exchange management. The Trade Foreign Exchange Enterprise List Registration, previously approved by SAFE, will now be directly processed by commercial banks.
iv. Export Tax Refund Registration with Tax Authorities
Requirements and procedures for export tax refund registration will be covered in a separate article. Stay tuned for updates.
(2) Special Industry Licenses
–Food Import/Export: Enterprises must complete food-related business qualifications on the China International Trade Single Window platform. enterprises selling imported food domestically also require a Food Business License.
–Hazardous Chemicals: A Hazardous Chemicals Operation License is mandatory.
–Pharmaceuticals: Enterprises must obtain a Pharmaceutical Business License.
Note: We need to pay attention to the expiry date of the above qualification. Expired or non-compliant licenses may result in cargo detention or return.
(3) Destination Country Certification Requirements
–EU: CE certification
–Japan: PSE certification
–USA: UL certification
–Saudi Arabia: SASO certification
2. Import/Export Restriction Policies
(1) Prohibited Goods
China’s Ministry of Commerce and General Administration of Customs annually update the Prohibited Import/Export Goods Lists. For example, the Prohibited Export Goods List (8th Edition) bans exports of:
-Decabromodiphenyl ether
-Perfluorooctane sulfonic acid (PFOS) and its salts
-Short-chain chlorinated paraffins
-Dechlorane Plus isomers
Other countries also enforce similar prohibitions. Better pre-verify policies to avoid cargo seizures.
(2) Goods Subject to Quotas
China imposes export quotas on minerals, fertilizers, and other goods to limit export volumes.
(3) Goods Requiring Licenses
i. Export Licenses(e.g., under the Export License-Managed Goods Catalog (2025)):
-Wheat, corn, rice, beef, pork, chicken
-Rare earths, tungsten products
-Automobiles (including complete knock-down (CKD) kits), motorcycles
ii. Import Licenses(e.g., under the Import License-Managed Goods Catalog (2025)):
-Cranes, papermaking machinery, power equipment, agricultural machinery, ships, toner cartridges
(4) Goods Subject to Additional Tariffs
Some countries impose high import/export tariffs on specific goods to restrict their cross-border trade. For example:
–USA Trade War(April 2025): USA imposes 145% additional tariffs on most Chinese goods, and China imposes 125% additional tariffs on American goods.
3. Intellectual Property (IP) Risks
(1) Trademark Infringement
Unauthorized use of registered trademarks may lead to claims.
(2) Patent Infringement
Exporting goods with unlicensed patents exposes Enterprises to liability.
(3) Copyright Infringement
Unauthorized use of images, designs, or advertising materials violates copyright laws.
(4) Territoriality of IP Rights
IP protection varies by jurisdiction. Enterprises shall verify IP status in target markets to avoid disputes.
4. Settlement Risks
(1) Payment Risks
–Cash on Delivery (COD) / Deposit Sales: Risks include delayed payments, cargo rejection, or commercial fraud.
–Foreign Exchange Controls: Political or economic instability may block fund transfers.
–Quality Disputes: Buyers may withhold payment citing quality issues.
(2) Letter of Credit (L/C) Risks
–Document Fraud: Sellers may forge or alter documents to receive payments before cargo delivery under letters of credit fraudulently, which results in the bank paying the seller for the goods without the buyer actually receiving the goods.
–Bank Insolvency: Financial crises or bank liquidity problems may lead to default or bankruptcy of the issuing bank, affecting the settlement of payments.
(3) Exchange Rate Risks
Currency fluctuations between contract signing and settlement may reduce profits or cause losses.
5. Transportation Risks
(1) Cargo Damage/Loss
Risks arise from improper handling, equipment failure, or extreme weather.
(2) Freight Forwarder Risks
Unreliable agents may cause disputes due to informal operations.
(3) Abandoned Cargo at Destination Ports
When no one picks up the goods at the port of destination, if the export enterprise chooses to ship the goods back, it will face the costs of re-declaration of customs, return shipment and taxes, etc.; if selling them locally, it may face the discount of the price, which will lead to losses.
6. Tax Risks
(1) Customs Duty Risks
Enterprise shall do the customs declaration in accordance with the actual price and quantity, otherwise the tax evasion reaching a certain amount may constitute smuggling crimes.
(2) Export Tax Refund Fraud
Fabricating exports, falsifying invoices, overstating tax rates or prices (falsely declaring low tax rebate rate commodities as high tax rebate rate commodities or falsely declaring the prices of the goods) or recycling goods to claim refunds may lead to export tax refund fraud crimes.
7. Policy Change Risks
(1) Tariff Adjustments
Sudden tariff hikes or anti-dumping measures impact costs.
(2) Trade Agreement Revisions
New or terminated agreements alter market access rules.
(3) Non-Tariff Barriers
Technical standards, environmental rules, or quotas may restrict market entry.
(4) Political Instability
Conflicts or legal uncertainties may disrupt transactions.
Conclusion
Enterprises must comprehensively assess and scientifically manage these risks to ensure stable operations in international trade.
Saway Wang
Email: sawaywang@billionslawyer.com
Tel/Whatsapp: +86 18017682422
Do You Really Know about Legal Representative?
1. What is a Legal Representative?
A legal representative（法定代表人）is the externally authorized representative of a company and the person responsible for executing corporate affairs on behalf of the company. They not only exercise civil rights on behalf of the company externally but are also responsible for internal daily management and major decision-making.
2. Who Can Serve as a Legal Representative?
The legal representative shall be a director or manager of the company. If the appointed director or manager resigns, they are deemed to have simultaneously resigned from the position of legal representative. The company must appoint a new legal representative within 30 days after the resignation.
3. What Does a Legal Representative Do?
(1) Representing the Company in Corporate Affairs
The legal representative may conduct business activities and handle legal matters in the company’s name, and the legal consequences of such actions are borne by the company.
The representative authority of the legal representative derives from statutory law and does not require authorization via a power of attorney from the company. Their representative authority is comprehensive rather than limited to specific matters. Their representative actions are not restricted to civil legal acts.
For example, unauthorized borrowing activities conducted by the legal representative are still legally binding on the company, requiring the company to assume liability for the borrowing. However, after the company fulfills its liability, it may seek recourse against the legal representative if they acted with fault.
(2) Signing Authority
The legal representative has the right to sign critical corporate documents, including contracts, agreements, powers of attorney, capital contribution certificates, corporate bonds, and other legal instruments. Additionally, when applying for changes to corporate registration, the legal representative must sign the application for registration changes, resolutions, or decisions.
(3) Participation in Litigation
The legal representative has the right to represent the company in litigation and arbitration proceedings, appear in court or mediation, sign and submit legal documents, and cooperate with enforcement actions. Even if the company’s official seal is lost or improperly controlled by others, the legal representative, as the fundamental embodiment of the company’s will, may initiate litigation on behalf of the company without the seal.
(4) Management Authority
– Implementing Decisions: Executing business plans in accordance with the company’s articles of association or resolutions from governing bodies (e.g., shareholders’ meetings, board of directors).
– Daily Operations: Deciding routine operational matters (e.g., personnel appointments, fund usage) within authorized limits.
(5) Statutory Duties for Specific Matters
– Compliance Obligations: Ensuring the company’s operations comply with laws and regulations (e.g., environmental protection, workplace safety, taxation).
– Reporting Obligations: Reporting major incidents (e.g., safety accidents, bankruptcy) to relevant authorities.
4. What Restrictions Apply to a Legal Representative?
(1) Restrictions Under Articles of Association or Internal Rules
The company’s articles of association or resolutions from shareholders’ meetings/board of directors may impose restrictions on the legal representative’s authority (e.g., requiring board approval for contracts exceeding a specified amount).
(2) Prohibition on Ultra Vires Representation
If a legal representative acts beyond their authority and the counterparty is not acting in good faith (i.e., aware of the overreach), the company may invalidate the act. However, if the counterparty is a bona fide third party (unaware and with no reasonable duty to know of the overreach), the act remains valid.
For example, if a legal representative exceeds their authority to borrow funds, and the third party is bona fide, the borrowing is valid, and the third party may demand repayment from the company. If the third party knowingly collaborates with the overreach, the company may invalidate the borrowing.
5. What Liabilities and Risks Does a Legal Representative Face?
(1) Civil Liability for Causing Losses to the Company
A legal representative who intentionally or through gross negligence causes losses to the company must compensate the company.
(2) Civil Liability for Harm to Third Parties
If a legal representative causes harm to others while performing duties, the company assumes civil liability. After compensating the injured party, the company may seek recourse against the legal representative if they were at fault, per law or the articles of association.
(3) Civil Liability When the Company Becomes a Judgment Debtor
If the company becomes a judgment debtor, its legal representative will face restrictions on high-consumption activities (e.g., travel, luxury purchases) and may be subject to exit bans or judicial detention as enforcement measures.
(4) Administrative and Criminal Liability
If the company engages in serious illegal acts (e.g., tax evasion, environmental pollution, illegal business operations), the legal representative may face administrative penalties or criminal prosecution.
Conclusion
The legal representative is the external face of a limited liability company, playing a critical role in corporate operations. While Chinese law grants the legal representative broad powers to ensure smooth execution of corporate affairs and protection of company interests, they must strictly comply with legal and statutory obligations to prevent abuse of authority, illegal operations, or harm to the company. Ensuring the legal representative’s compliance, effectiveness, and accountability under necessary oversight is fundamental to the company’s long-term stability.
Saway Wang
Email: sawaywang@billionslawyer.com
Tel/Whatsapp: +86 18017682422
Essential Steps After Experiencing Domestic Violence
Domestic violence is a serious social issue that threatens the safety and dignity of victims, while also disrupting family harmony and social stability. The law strongly condemns and penalizes acts of domestic violence.
At the civil law level, the Supreme People’s Court addressed this issue by passing the Provisions on Several Issues Concerning the Application of Law in Handling Cases of Personal Safety Protection Orders on June 7, 2022 (the “Provisions”).
These Provisions, effective August 1, 2022, ensure the thorough implementation of the Anti-Domestic Violence Law and provide comprehensive protection for the legal rights and interests of domestic violence victims in marriage.
1. Definition of domestic violence
(1) What kind of behaviors constitute domestic violence?
Article 2 of China’s Law on Combating Domestic Violence defines domestic violence as both physical and mental aggression among family members.
This includes actions such as beating, binding, maiming, restricting personal freedom, frequent verbal abuse, and intimidation. Article 3 of the Provisions further clarifies domestic violence by including behaviors like freezing, starvation, frequent insults, slander, threats, stalking, and harassment.
(2) What are the boundaries or restrictions concerning domestic violence?
Violence can occur between spouses, between parents and minor children, between adult children and elderly parents, and between individuals living together outside the immediate family, such as daughters-in-law, sons-in-law, in-laws and others.
2. What to do when experiencing domestic violence
(1) Seeking relief
(i) Who are the eligible parties to seek relief?
In addition to the victim’s right to seek help, their legal representatives and close relatives are also entitled to report the situation and seek assistance. Furthermore, when domestic violence involves minors, schools, medical institutions, residents’ committees, and their staff have a mandatory obligation to report the abuse.
(ii) There are three primary methods to seek assistance after encountering Domestic Violence.
(a) Reporting to the police
To report domestic violence, call 110 or visit the nearest police station. For minor incidents, law enforcement may issue a warning or provide education to the aggressor. In more serious cases, the police will enforce public security management penalties according to the law. If the violence is especially severe and constitutes a crime, authorities will pursue criminal charges.
(b) Filing for a personal protection order from the court.
If someone has experienced domestic violence or is in immediate danger, they can apply to the court for a personal safety protection order. The court will issue or reject the application within seventy-two hours, or within twenty-four hours in urgent cases.
(c) Filing complaints with relevant organizations.
Complaints, reports, or requests for assistance can be made to the parties’ workplaces, residents’ committees, villagers’ committees, women’s associations, and other organizations. Upon receiving a complaint or request for help related to domestic violence, these units are obligated to provide assistance and address the situation.
(iii) Retain evidence of domestic violence.
(a) Medical records
After experiencing domestic violence, it’s crucial to visit a hospital and keep all medical documentation, such as diagnostic reports, medical records, hospitalization and discharge summaries, and medical bills. It’s also important for the doctor’s diagnostic records to detail the extent of the injuries and, if possible, specify the cause, such as “struck by an external force.”
(b) Evidence gathered following the report.
However, medical records alone may not be enough to prove that an injury resulted from domestic violence. To build a stronger case, it is advisable to keep police records, receipts, and notification materials. If possible, take photos of the victim’s and abuser’s interrogation transcripts from the police. Additionally, retain any warning letters or public security management penalty decisions issued by law enforcement.
Additionally, if law enforcement conducts an assessment of the victim’s injuries, it is important to retain the injury assessment report.
(c) Additional evidence.
This includes, but is not limited to:
① the abuser’s letter of apology or confession;
② records of requests for help and mediation from the village (neighborhood) committee, women’s federation organizations, anti-domestic violence groups, and the employers of both parties;
③ electronic evidence such as surveillance footage, video, and audio recordings; and
④ witness statements.
3. Personal Protection Order
(1) Do I need to file a civil lawsuit first to apply for a personal protection order?
Victims of domestic violence can seek a personal safety protection order directly from the People’s Court to promptly and effectively ensure their safety, without requiring the filing of a divorce lawsuit, such as divorce, as a prerequisite.
(2) Who can apply for the Personal Protection Order?
(i) The victim themselves.
(ii) Close relatives, public security authorities, women’s associations, residents’ committees, villagers’ committees, and relief organizations may apply for a protection order on behalf of the victim in cases where the individual is incapacitated, has limited civil capacity, is coerced or intimidated, or is elderly, disabled, or seriously ill, thus unable to apply independently.
(3) In which court should one apply to for a personal protection order?
File the application with the Basic People’s Court in the jurisdiction where either the applicant or the respondent resides, or where the domestic violence took place.
(4) What level of proof is necessary for granting a Personal Protection Order?
If there is a reasonable belief that the applicant is at risk of domestic violence or facing immediate danger, a personal safety protection order can be issued under the law without the need to establish a “high likelihood”. This approach reduces the burden of proof on the parties involved.
(5) How long does it take to issue a Personal Protection Order?
Upon receiving an application for a protection order, the People’s Court generally issues a ruling within 72 hours. In urgent cases, this ruling is expedited to within 24 hours.
(6) What does a Personal Protection Order include?
The measures may encompass one or more of the following options simultaneously, depending on the applicant’s request :
(i) Issuing an order to prevent the respondent from committing domestic violence.
(ii). Ordering the respondent to refrain from harassing, stalking, or contacting the applicant and their close relatives.
(iii) Directing the respondent to maintain a distance from the applicant’s residence, school, workplace, or other frequented locations
(iv) Directing the respondent to vacate the applicant’s residence.
(v) Additional measures aimed at ensuring the applicant’s personal safety.
(7) How long does a Personal Protection Order last?
The People’s Court sets the duration of the personal safety protection order based on the applicant’s request and the circumstances of domestic violence, typically up to six months. If continued protection is needed beyond this period, the applicant may request an extension of the order’s validity.
(8) Do applicants need to cover court costs for a Personal Protection Order application?
The People’s Courts accept applications for protection orders without requiring payment of litigation fees.
(9) What are the legal ramifications of breaching a Personal Protection Order?
(i) If the violation of a protection order is not severe and does not yet constitute a criminal offense, the People’s Court generally issues a warning. Depending on the seriousness of the case, they may also impose a fine of up to 1,000 yuan or a detention period of up to 15 days.
(ii) If the respondent violates a protection order to a degree that meets the criteria for the “crime of refusing to execute a judgment or ruling” as defined in Article 313 of the Criminal Law, they may face criminal penalties, including imprisonment for up to three years, criminal detention, or a fine. In cases deemed exceptionally serious, the punishment may range from three to seven years of imprisonment, along with a fine.
(10) What happens if the respondent is found to have violated a Personal Protection Order?
If the respondent violates the protection order, the applicant has the option to report the breach to either the People’s Court or the public security authorities.
4. Relationship between domestic violence and divorce
(1) Can domestic violence serve as a legitimate basis for divorce?
Domestic violence serves as a legal justification for establishing that the marriage has irreparably deteriorated and warrants a divorce. As stipulated in Article 1079 of the Civil Code, the court will grant a divorce upon substantiated evidence of domestic violence.
(2) It is not appropriate for the abusive party to directly care for the child.
In cases involving an abusive party, the court often recognizes the potential danger of domestic violence and deems it inappropriate for that party to have primary custody of the child. Therefore, unless the couple agrees otherwise on custody arrangements, the injured party typically receives custody of the child.
(3) Domestic violence constitutes legal misconduct, and if it leads to divorce, the innocent party has the right to seek compensation.
In cases of divorce resulting from domestic violence, the innocent party may pursue damages from the party at fault.
(4) The division of property in divorce is based on the principle of taking care of the party not at fault, and the abusive party may be given a smaller share of the property.
In cases of divorce related to domestic violence, the court may, depending on the specifics of each case, choose to allocate a smaller portion of the property to the abuser as a form of penalty, prioritizing fair treatment for the innocent party.
If you have any other questions, please feel free to contact us.
Saway Wang
Email: sawaywang@billionslawyer.com
Tel/Whatsapp: +86 18017682422
Get to Know Custody and Alimony of International Divorce in China
Divorce can be a complex and emotionally taxing process, especially for expatriates in China. Understanding the complexities of custody and alimony laws is crucial for ensuring a fair and smooth resolution. This article aims to provide expatriates with essential insights into the custody and alimony issues that may arise during a divorce in China, helping them navigate this challenging period with greater confidence and clarity.
Part 1. Who does custody of the child belong to after divorce ?
Chinese law prioritizes children’s welfare in custody decisions. Article 1058 of the Civil Code grants both parents equal rights and responsibilities for their upbringing. Custody arrangements consider factors like stability, care giving abilities, and the child’s preferences when applicable.
Here are key circumstances where custody may be granted to either parent.
(1) Who gets custody if the children are under the age of two?
If children are under two, the mother typically has custody. However, the People’s Court may grant custody to the father if the mother is in specific circumstances such as:
(i) If the mother is suffering from long-term contagious disease or serious illness making it unsuitable for the children to live with her.
(ii) If the mother is able but unwilling to fulfill her support obligations, and the father requests custody.
(iii) If other factors, such as economic or living environment issues, make it unsuitable for the child to live with the mother then the court may grant guardianship to the father.
Additionally, the courts often favor the father’s custody of children under two if both parents agree it’s best for the child’s well-being.
(2) What about Children who have reached the age of two and have not yet reached the age of eight?
For a child aged two or older, custody should be decided by mutual agreement. If both of the parents cannot agree on child support, the court will consider each parent’s ability and circumstances to support the child, prioritizing the child’s healthy development.
In cases where both parents seek direct custody, Article 46(I) of the Judicial Interpretation of the Marriage and Family Codification (I) (the “Interpretation”) outlines the following criteria for the court to prioritize guardianship in the child’s best interest:
(i) If either of the parent is sterilized or otherwise unable to have children.
(ii) If the child has lived with one parent for a long time, changing their living environment would clearly be detrimental to the child’s healthy development.
(iii) One of the parents has no other children, while the other parent does.
(iv) The child lives in a healthy environment with one parent, while the other parent has a serious illness or conditions harmful to the child’s health, making it unsuitable for them to live together.
(3) Who gets custody for Children aged eight and older ?
If the child’s parents cannot agree on custody for a child aged eight or older, the child may choose the parent he/she wishes to live with based on their own judgments and choices.
However, children over the age of eight are not entirely free to choose which parent to live with. The child’s wishes are given consideration only if both parents are willing and able to take on the responsibility of support. This balanced approach provides assurance that the child’s preferences are respected while also guaranteeing that environment will also benefit to their development.
(4) What other specific cases may influence the decision of custody?
(i) If both parents are capable and willing to care for the child, but the child has lived with a grandparent who is willing and able to continue care, the court may consider this in custody decisions. The stable living arrangement and emotional bond with the grandparent can influence custody prioritization.
(ii) In a divorce between a biological parent and a stepparent, custody reverts to the biological parent if the stepparent opts out of raising the stepchildren. The stepparent can choose to provide financial support voluntarily, but it is not legally required.
(iii) Adopted children have the same rights and responsibilities as biological children, so the same provisions apply. However, if one spouse consistently opposed the adoption, custody after divorce goes to the adopting parent.
(iv) When determining custody for multiple children, courts prioritize mutual parental agreement, pursued through litigation if needed. If children are no longer breastfeeding, the court aims to assign custody fairly, considering financial obligations, child development, and parental capabilities. For breastfeeding infants, decisions prioritize the child’s best interests, often leading to equal custody division.
(v) In unusual case if both parents agree to switch guardianship responsibilities, the court may allow it if it benefits the children’s well-being.
Part 2. Change of Child’s Guardianship
(1) Are parents allowed to change arrangements of custody by agreement after divorce?
Yes, both parents have the ability to modify child support arrangements through a mutual agreement. If one parent fails to uphold the terms of the agreement, the other parent can seek legal action to enforce the changes to the child support arrangement as agreed upon.
(2) Any changes in specific circumstances that may lead to change of custody?
In certain circumstances either of the parent can seek the change custody under the following conditions:
(i) The parent with whom the child currently resides is unable to continue caring for them due to arisen of significant illness or disability.
(ii) If the custodial parent neglects their duty to care for the child, engages in child abuse, or if their lifestyle negatively affects the child’s physical or mental well-being.
(iii) An eight-year-old child expresses a desire to reside with the other parent, who is fully capable of providing for their needs.
(iv) There are additional legitimate grounds for requesting modification.
Part 3. How is Alimony calculated by the court?
(1) What is generally included in the alimony?
The alimony primarily includes the costs for the child’s living expenses, education, and medical care.
(2) How is the alimony support assignment to custodial and non custodial parent?
Upon divorce, the non-custodial parent is required to contribute to child support financially. The amount and duration of these payments are either mutually agreed upon or determined by the court if no agreement is reached but most importantly, even if the custodial parent changes the child’s surname without consent, the non-custodial parent remains obligated to pay support.
(3) Under what circumstances can a child request an increase of the original alimony amount?
In the following situations, a child may ask the parent with the financial means to provide additional support.
(i) The initial alimony is inadequate to maintain the local standard of living.
(ii) The child’s actual needs have surpassed the original amount due to illness or educational expenses.
(iii) Other valid reasons to justify the increase.
(4) What are the criteria for alimony in practice?
(i) Parents with a fixed income: child support is generally 20% to 30% of their gross monthly income. If supporting two or more children, this may increase but usually does not exceed 50%.
(ii) Parents without a fixed income: alimony is typically based on their annual income or industry average, usually 20% to 30% of their average annual earnings or the previous year’s local cost of living.
(iii) In rare cases, alimony may be adjusted up or down by mutual consent or court decision.
(iv) Child support is based on a percentage of the parents’ income, the child’s needs, parents’ financial capabilities, and local living standards. Support should meet basic needs if the parent’s income is low and cover regular expenses if the parent’s income is higher, without being excessive. The aim is to benefit the child without misusing funds for asset redistribution.
(5) What are the payment methods of alimony?
The alimony should be paid regularly or as a lump sum if feasible. In unusual cases where there is no income generated by the parent or the whereabouts of the custodian or non custodian parent are unknown, the child’s maintenance may be deducted from their assets.
(6) How long is the typical duration for alimony?
(i) Usually until the child turns 18.
(ii) Parents may cease alimony payments for children aged 16 to 18 if their main source of income is from employment.
(iii) Under certain circumstances, adult children who are not yet self-sufficient may receive essential support. This includes those still pursuing education up to high school level or below, or those having lost the ability to work due to reasons beyond their control, preventing them from maintaining a normal standard of living.
(7) What are the consequences if maintenance payments are not made on time?
If alimony payments are not made in due time, the recipient can seek court enforcement, compelling the defaulting party to fulfill their obligations. In response, the court may freeze bank accounts, real estate and other assets. The court can restrict their travel on high-speed trains and airplanes, and potentially limit their ability to leave the country.
If you would like to know more about the custody and alimony of divorce in China, please feel free to contact us.
Saway Wang
Email: sawaywang@billionslawyer.com
Tel/Whatsapp: +86 18017682422
Find Out How to Divide Assets in International Divorce Lawsuit in China
Exploring the complexities of asset divisions in international divorce cases often proves contentious and intricate.
In this second part of our International Divorce article, we cover extensively regarding asset division and ownership of foreigners and their spouse in the divorce process in China.
1.What property belongs to the personal property of one of the spouses in the event of divorce?
Article 1063 of the Civil Code clearly outlines the personal assets of an individual spouse, which, upon marriage, remain separate and do not become shared property with the other spouse.
(i) Premarital property, defined as assets owned by an individual prior to marriage registration, retains its status as personal ownership unless otherwise specified by mutual agreement.
(ii) Personal Injury Compensation: Any damages or compensation received by either party for bodily injury sustained by an individual, directly associated with the injury, is considered personal property.
(iii) Property designated in a will or gift agreement as belonging exclusively to one party.
(iv) Household items set aside for personal use by an individual, like clothing and personal care items, are typically regarded as personal property.
(v) The law also offers a broad guideline to encompass other instances of clearly personal property and to accommodate the varied aspects of social life. When determining the allocation of property, an asset can only be classified as personal property if it doesn’t fit into the first four categories mentioned above but exhibits distinct personal exclusivity. If the classification of the property is ambiguous, it is treated as shared property.
2．What property belongs to the joint property of husband and wife?
The Civil Code and the Interpretation on the Application of the Marriage and Family Part of the Civil Code specify that the following assets constitute the shared property of the spouses.
i) Earnings, bonuses, and compensation for work performed.
ii) Income generated from production, business activities, and investments.
(iii) Income derived from intellectual property rights.
(iv) Inherited or donated assets, excluding those specifically designated in a will or gift contract as belonging solely to one party.
(v) Profits obtained from investments made by one of the parties using their personal assets.
(vi) Housing subsidies and housing funds received or entitled to be received by both spouses.
(vii) Basic pension and bankruptcy resettlement compensation received or eligible for both parties.
(viii) Other assets that are designated for joint ownership
3. Can the spouses agree that property acquired during the marriage and pre-marital property shall belong to each of them?
Yes. Indeed, both parties should sign a written agreement, or the assets acquired during the marriage will be deemed joint property of the spouses unless otherwise provided in laws. We strongly recommend notarizing the relevant property agreement to guarantee its validity and recognition by the court in the event of any disputes.
4. How is the joint property of husband and wife distributed by the Chinese court in case of divorce?
In principle, assets are typically distributed equally, following a 50/50 division. However, Chinese courts have the discretion to allocate a larger portion to the party responsible for childcare, the woman, or the innocent party, based on the specific circumstances of the property.
5. How is the property purchased for both parties at the expense of one parent to be distributed in the event of divorce?
If the house was bought by the parents of one party of the spouses before their marriage, it shall be deemed as the gift to their own child unless expressly stated by the parents that the gift belongs to the spouses. If the house was bought by the parents of one party of the spouses after their marriage, it follows the agreement made by the couple regarding the house at that time. If there is no agreement or the agreement is ambiguous, unless the parents explicitly intended the gift for only one of the spouses, the property is considered a gift to the spouses and thus becomes joint marital property.
Question & Answers
(1) Can the spouse who has contributed more to the family ask for compensation from the other spouse?
In accordance with Article 1088 of the Civil Code, a spouse who has taken on more significant responsibilities such as child-rearing, elderly care, or supporting the other spouse in their endeavors, holds the right to seek compensation from the other party in the event of divorce. However, the Civil Code does not define specific criteria for this compensation, often resolved through negotiation between the spouses or by the court’s decision.
(2) In the event of a divorce, if one of the parties is cheating on his/her spouse, how can the other party maximize his/her interests in the division of property?
As per Article 1091 of the Civil Code, if one spouse cohabits with another individual, leading to divorce, the innocent party is entitled to seek compensation from the party at fault.
Article 1091 of the Civil Code grants the innocent party the right to seek compensation in cases where circumstances leading to divorce are attributable to the fault of the other party.
(i) Bigamy
(ii) Living together with someone else.
(iii) Family violence
(iv) Abuse or abandonment of family members
(v) Other major faults.
(3) What should be done if one of the spouses is found to have transferred property during the divorce?
If one of the spouse is found to have concealed, transferred, sold, damaged, or recklessly spent shared marital assets, or attempted to incur joint debts deceitfully to seize the other spouse’s property, the court may, during the divorce asset division process, allocate a reduced or no share of the marital assets to that spouse. If such misconduct is discovered by the other party after the divorce, they have the right to petition the court for a reconsideration of the division of the couple’s shared assets.
(4) What debts are shared by both spouses?
(i) Debts jointly signed and acknowledged by both spouses.
(ii) Debts accumulated by one spouse, for which the other spouse subsequently acknowledges joint responsibility.
(iii) Debts accumulated by one spouse in their own name during the marriage to cover the family’s everyday necessities (excluding debts exceeding these needs.
(5) How are joint debts to be paid by both spouses?
Both parties are responsible for payment.
If you have any queries, please feel free to contact us
Saway Wang
Email: sawaywang@billionslawyer.com
Tel/Whatsapp: +86 18017682422
