New rules for intellectual property transactions in China

Article written by: Harriet Tregonning    |   Wednesday 13th November 2013

China has recently changed its rules regarding making foreign currency payments for intellectual property transactions.  The changes should result in intellectual property-related business in China becoming faster and easier.

Old Rules

Under the old rules, businesses and individuals required registration certificates from the Ministry of Commerce or the State Intellectual Property Office to convert renminbi to foreign currencies.  Delays or failures to obtain the registration certificates were common, leaving licensors, sellers and technical service providers unable to receive payments.

In many cases, businesses and individuals were forced to amend contracts to meet the strict requirements of the Chinese authorities in relation to registration certificates, which was inconvenient for them.

The New Rules

The new rules simplify the registration process for transactions involving patents, copyright (including copyright in software), trade marks, know-how and technical services.  A registration certificate is no longer required for foreign exchange transactions and payments of US$50,000 (approximately NZ$60,500 at current exchange rates) or less, with no documentation now being required under the new rules.

For payments exceeding US$50,000, Chinese payers must still provide evidence of the relevant intellectual property transfer and pay taxes ahead of the cross-border payment being made, but registration certificates are no longer required. 

However, the original (stricter) requirements still remain for certain restricted import/export categories (as determined by the Ministry of Commerce).

Doing Business in China

The changes to the rules, which took effect on 1 September, should make selling and licensing intellectual property into China quicker and easier, as local Chinese purchasers or licensees can now more readily make royalty, transfer and service fee payments to foreign companies.  As a result, intellectual property transactions in China should become more attractive as transactions should be effected more quickly and with a higher degree of certainty of payment.

In relation to tax, the Chinese tax authorities’ stance on royalty payments has historically been very cautious, often treating these payments as a means to intentionally move profits overseas.  The authorities are known for having their own rule of thumb for establishing what are “reasonable” royalty rates (beyond which registrations may be difficult to obtain), and having the ability to audit royalty payments for up to a decade after the transaction was completed. It will be interesting to see if the relaxation of the registration requirements for intellectual property transactions also heralds a shift in the approach to taxing royalty payments.

If you would like to talk about licensing or selling your intellectual property in China or elsewhere, please contact us.

 



This article is intended to summarise potentially complicated legal issues, and is not intended to be a substitute for individual legal advice. Please contact a Baldwins attorney or other IP professional before acting on any information contained in this publication.

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