In this entry I would like to expose briefly the procedure for setting up a foreign-invested travel agency. I have already illustrated the content of the Regulations adopted in 2009 (
http://blawg.lehmanlaw.com/wordpress/?p=1921
), i.e. “The Travel Agency Regulations 2009” (available in English at:
http://ebookbrowse.com/cnta-regulation-on-travel-agencies-pdf-d432289434
) which allow the establishment of a foreign-invested travel agency, and today to conclude the theme it is necessary to specify the steps.
Step One:
The investor applies to the local agency of State Administration for Industry and Commerce (“SAIC”) for a preapproval letter for the name of the contemplated travel agency. In general, the valid period of a preapproval letter for the name will be six months and subject to extension for another six months.
Step Two:
The investor supplies the CNTA (the China National Tourism Administration or “CNTA”
http://en.cnta.gov.cn/about/Forms/AboutCnta/CNTAInBrief.shtml
) with the following documents in order to obtain a permission opinion letter concerning foreign investment in travel agency business:
-
The establishment application letter containing the name of the contemplated travel agency; address of the contemplated travel agency; company form (
e.g.
, wholly foreign-owned, Sino-foreign equity joint venture, or Sino-foreign cooperation joint venture); name of investor(s); amount of registered capital to be contributed and contribution method (
e.g.
, in cash or in kind); the full name of the approval authority in charge; and the date of the application. -
The resume and the identity document (
e.g.
, the photocopy of a passport) of the contemplated legal representative of the contemplated travel agency. - The articles of association of the contemplated travel agency.
-
The document in connection with the capital contribution verification issued by a competent entity (
e.g.
, an accounting firm). -
The document proving the availability of the business office (
e.g.
, a lease agreement if rented or a real estate ownership certificate if self-owned). - The ownership documentation in connection with the business facilities.
- The preapproval letter for the name of contemplated travel agency issued by the SAIC’s local agency.
The capital contribution verification document is not usually required during the name preapproval process in the establishment of a foreign-invested company because such foreign exchange account is usually allowed to be opened only after issuance of the approval certificate by Ministry of Commerce (“MOFCOM”) mentioned in Step Three below. Based on consultations with CNTA, MOFCOM’s local agency, and the State Administration of Foreign Exchange (“SAFE”), foreign investor will apply to SAFE’s local agency to open a temporary foreign currency bank account and contribute registered capital into this temporary bank account for issuance of a registered capital verification document to fulfill this requirement. However, none of the authorities consulted have accepted an application based on the Travel Agency Regulations, and the process of obtaining the verification document may be subject to differing interpretations.
Step Three:
The investor applies to MOFCOM’s local agency for the approval certificate for the establishment of foreign-invested enterprises with the following application documents:
- The permission opinion letter concerning foreign investment in travel agency business.
- The articles of association of the contemplated travel agency.
- The equity joint venture contract or the cooperation joint venture contract in case of a Sino-foreign joint invested travel agency.
- Other required documents.
Step Four:
The investor goes back to CTNA to obtain a travel agency business operation permit.
Step Five:
The investor registers with SAIC’s local agency for issuance of the business license.
Operation of Travel Agencies
The Travel Agency Regulations establish administration procedures for the daily business operation of travel agencies and require travel agencies to provide tourists with truthful and reliable information and forbid false statements in their marketing brochures.
Performance Bond
The Travel Agency Regulations maintain the requirement that travel agencies post a performance bond by depositing funds at banks designated by the CNTA, as in the 1996 Regulations, but give additional flexibility by permitting travel agencies to substitute a bank guaranty in the same amount instead of such performance bond. Such performance bond could be used in the following two circumstances:
- Travel agencies breach the tourist contracts and infringe the legal rights and interests of tourists as determined by the CNTA or its local agencies; or
- Customers lose their advance payments to travel agencies as a result of the bankruptcy or dissolution of the travel agency or other reasons. The people’s court may allocate amounts from the performance bond if the travel agency refuses to pay or is unable to pay the amount determined by the court to be owed to the customer.
The amount of the performance bond depends on the type of tourism business and the number of branches of the travel agency. Travel agencies undertaking domestic tourism business and inbound tourism business must deposit RMB 200,000 into designated banks and another RMB 50,000 for each branch that undertakes domestic tourism business and inbound tourism business. Travel agencies undertaking outbound tourism business must deposit an additional RMB 1,200,000 into the designated banks and RMB 300,000 for each branch that undertakes outbound tourism business. Such deposits will be reduced in half if such travel agency has not been found to have infringed the rights and interests of its tourists for a period of three years and has not been fined by the CNTA for such conduct. However, if such travel agency was subsequently punished for infringing the rights and interests of its tourists, it must once again have the full amount on deposit. In addition, a travel agency must “top up” such deposit if any amount was used to compensate any of its tourists for any loss.
Allocation of Liabilities Between Travel Agency and Local Agent
Travel agencies seldom have branches in every locality where they arrange travel packages. Instead, travel agencies usually coordinate with local travel agents to provide the necessary travel services at each stop. The Travel Agency Regulations specify that when a travel agency outsources its services to another travel agency, it must select a qualified local travel agency with the agreement of the tourists and must pay such local travel agency fees no less than the actual reception and service costs of such local travel agency. The travel agency shall be liable to the tourists for any damages caused by breach of the tourism contract by the local outsourcing agent, although the travel agency can make a claim against its local outsourcing agent after paying the compensation to the tourists. If the local travel agency caused damage to the tourists deliberately or due to gross negligence, it shall be jointly and severally liable with the travel agency to the tourist.
Additional Requirements and Obligations of a Travel Agency in China
The Travel Agency Regulations require travel agencies to carry travel agency liability insurance. Travel agencies not having such liability insurance will be ordered to rectify such misconduct and may have their travel agency business operation permit revoked if such misconduct persists.
In addition, travel agencies are required to report if any of their tourists illegally stay in China. Failure to report, combined with assistance in providing information to such tourist to facilitate his or her illegal stay, may subject the travel agency to fines ranging from RMB 20,000 to RMB 100,000 and suspension of operations for one to three months up to revocation of its travel agency business operation permit.
Cristiano Rizzi