This entry is dedicated to the description of the procedures to open a travel agency, in fact it seems that an increasing number of foreign operators are interested in entering this market.
The Travel Agency Regulations and the China National Tourism Administration
The State Council of the People’s Republic of China and the China National Tourism Administration (the “CNTA”
http://en.cnta.gov.cn/about/Forms/AboutCnta/CNTAInBrief.shtml
) adopted and promulgated new Regulations on Travel Agencies (the “Travel Agency Regulations”), which came into effect on May 1, 2009. The Travel Agency Regulations comprehensively revised the prior Regulations on the Management of Travel Agencies, promulgated in 1996 (the “1996 Regulations”) and fulfills China’s commitment to the World Trade Organization (“WTO”) to permit the establishment of wholly foreign-owned travel agencies and lift restrictions for setting up branches for foreign-invested travel agencies. In addition, the Travel Agency Regulations lowered the threshold for the establishment of travel agencies and their branches as well as strengthened protection of tourists and imposed stricter penalties for travel agency misconduct. This is the basis, however a new Law, namely the “Tourism Law of the People’s Republic of China (Adopted at the 2nd session of the standing committee of the 12th National People’s Congress on April 25, 2013 and available at the following web-site:
http://en.cnta.gov.cn/html/2013-6/2013-6-4-10-1-12844.html
) should also be considered. In fact this new Law complements the content of the mentioned regulations. This law shall come into effect on October 1, 2013.
(Tourism policies and regulations adopted by the CNTA, are available at the following web-site
http://en.cnta.gov.cn/html/fgzlm/index.html
).
The main scope of the “Travel Agency Regulations” is to strengthen the administration of travel agencies, protect the legitimate rights and interests of tourists and travel agencies, stabilize the tourism market, and promote the healthy development of the tourism industry.
Content of the Travel Agency Regulations
The Travel Agency Regulations establish three types of tourism businesses in which travel agencies may engage:
1) Domestic tourism—services for Chinese mainland citizens to travel within the territory of mainland China.
2) Inbound tourism—services for foreign tourists and tourists from Hong Kong, Macau, and Taiwan to travel within the territory of mainland China.
3) Outbound tourism—services for Chinese mainland citizens or foreign residents of China to travel overseas or to Hong Kong, Macau, and Taiwan.
According to the Travel Agency Regulations, travel agencies can engage in the domestic tourism and inbound tourism businesses upon their establishment. However, the outbound tourism business is restricted to travel agencies established for at least two years that have not been found to have infringed on the legal rights and interests of tourists.
“Travel agency business” is defined to include soliciting for, organizing, and serving tourists and providing other tourism services such as planning for accommodations, food and beverage, sightseeing, leisure entertainment and vacation, tour guide service, and tourism consultation and tourism activities planning services. Travel agencies can also book transportation tickets, reserve hotels, and apply for visas on behalf of tourists; manage the transportation, lodging, food, and conference requirements for all kinds of entities; and provide other tourism services.
Establishment of Foreign-Invested Travel Agencies
In light of China’s WTO commitments, the Travel Agency Regulations permit the establishment of wholly foreign-owned travel agencies(substantially a WFOE) and lift the previous restrictions for foreign-invested travel agencies to set up branches. Furthermore, the Travel Agency Regulations eliminated the previous qualification requirement that only foreign travel agencies with annual revenue above US$40 million and membership in the travel agency association of their own countries are qualified to invest in domestic travel agencies. As a result, any foreign investor is now allowed to engage in the domestic and inbound travel agency business in China with the same registered capital requirements as domestic entities.
Legal Requirements for Establishment of a Foreign-Invested Travel Agency
The Travel Agency Regulations eliminates the different threshold requirements for the establishment of foreign-invested travel agencies and domestic travel agencies. According to the Travel Agency Regulations, an investor must fulfill the following legal requirements to set up a travel agency in China:
- Having a fixed business office suitable for the business operation of the travel agency with a lease of at least one year if such office is rented.
- Having necessary business facilities, including more than two fixed-line telephones, one fax machine, one copy machine, and computer(s) that can access the internet.
- Having at least RMB 300,000 as registered capital.
The regulations also rendered it possible for foreign travel management companies to own more than 51 percent of a Chinese travel agency and open up more branches. The new rules also significantly reduced entry capital requirements to operate the travel agency. As stated above the minimum capital required to start a travel agency now is 300,000 RMB, down from 2.5 million RMB.
China also removed a requirement for Chinese agencies to increase registered capital for every branch office. Previously, international tourism branches needed 750,000 RMB and domestic branches needed 150,000 RMB.
Outbound Tourism Business Restriction for Fore
ign-Invested Travel Agencies
Consistent with China’s commitment to the WTO, the Travel Agency Regulations prohibit foreign-invested travel agencies from engaging in outbound tourism services for Chinese citizens to travel overseas or to Hong Kong, Macau, and Taiwan, and any violation of such restriction will result in confiscation of such illegal income. If the illegal income is more than RMB 100,000, a fine of up to five times the illegal income can be imposed; otherwise, a fine ranging from RMB 100,000 to RMB 500,000 will be imposed if the illegal income is less than RMB 100,000. In the event of serious violation, the travel agency business operation permit of the violator may be revoked.
It is a fact that very often foreign investors want to set up a travel agency to be engaged in outbound travel business, taking Chinese tourists to their home countries, however considered the content of the regulations it would be difficult to obtain the license to operate the travel agency.
To do inbound travel, you don’t have to set up joint venture with Chinese partner, you can go for WFOE. But if you are eyeing the opportunity to do outbound travel it is advisable to set up a joint venture with Chinese partner. The Chinese partner does not have to be a Chinese travel agency, though it is better to partner with Chinese travel agency of course. There is no restriction on shareholding of the foreign investors in the joint venture. You can take up the majority stake.
Branches, Service Networks, and Liaison Office of Foreign-Invested Travel Agencies
The Travel Agency Regulations remove the restrictions on foreign-invested travel agencies to set up branch offices. Foreign-invested travel agencies may now set up branches via registration with the local AIC (the registration authority of enterprises) directly and file with the local CNTA for record purposes. As a branch of the travel agency, the business scope of the branch must not exceed that of the travel agency.
Foreign-invested travel agencies may also establish service networks by registration with the AIC in the municipality where such travel agency is located and file with the local CNTA for record purposes. According to the Travel Agency Regulations, a service network can solicit tourists and can also enter into tourism contracts with tourists in the name of the travel agency.
Neither the branches nor the service networks are considered to be separate legal entities, and all the liabilities arising from the activities of the branches and service networks shall be borne by the travel agency itself. Furthermore, service networks can only be set up in the municipality where the travel agency is located and are not permitted to be established in the municipalities where a branch of the travel agency is located.
In addition, a foreign-invested travel agency can also set up liaison office/representative office, and such offices are strictly restricted from undertaking any travel agency operational businesses. The Travel Agency Regulations are not clear as to what activities such a liaison office/representative office may engage in, but we believe market research and liaison activities that do not generate any revenue should be within the permitted scope of activities.
This is the basis. In the next entry I will expose the necessary steps to open a travel Agency in China.
Cristiano Rizzi