The other day I was discussing with some young European entrepreneurs the regulatory steps for the opening of a restaurant in China. One of the main issues is that the investor has to lease the restaurant premises before commencing the setting up process of the company engaged in the restaurant business.
Therefore, it is crucial that the chosen premises are suitable (in term of regulatory requirements) for a restaurant. Otherwise, the risk for the investor is being trapped (after having paid, for instance, a two months’ deposit and three months’ rent in advance) in the lease agreement of a location that cannot be used for a restaurant.
Special Approvals and Licenses
In China, opening a restaurant requires some special licenses in addition to the usual approvals and registrations needed to set up a foreign-invested company.
The usual steps for the setting up of a foreign-invested company are:
- name approval (the local Administration of Industry and Commerce (AIC) will issue a “Notice of Company Name Reservation” (企业名称预先核准通知书);
- project approval by the local department of the Ministry of Commerce (the relevant documents are an approval letter (审批意见) followed by an approval certificate (批准证书);
- registration with the AIC and issue of the company business license (营业执照);
- post-business license registration (e.g.: tax registration, foreign exchange registration, etc.).
When a company’s business scope (i.e. the activities that the company is authorized to carry out) includes “restaurant services” (餐饮服务), the following additional approvals and licenses are also needed:
- approval by the local Environmental Protection Bureau (环保局审批报告). The environmental approval is a pre-requisite to obtaining the project approval from the local department of the Ministry of Commerce;
- license from the Hygiene Bureau (公共场所卫生许可证);
- license for restaurant services from the AIC (餐饮服务许可证);
- license for the sale of alcoholic drinks (酒类经营许可证).
Restaurant Lease Agreement
One of the main issues is that the investor has to sign the lease agreement of the restaurant before starting the company approval process. This involves some risks because the relevant authorities may find that the chosen location is not suitable for a restaurant. For instance, the rented premises do not have a license for the disposal of waste water (废水排污许可证).
Therefore, it is very important to conduct some preliminary checks on the premises to try to ensure that they meet the regulatory requirements. Some of these checks are:
- reviewing the premises ownership certificate to ascertain (among other things) the ownership of the premises and their usage;
- conducting consultations with the officials at the competent Environmental Protection Bureau, Hygiene Bureau, local department of the Ministry of Commerce and the AIC to try to obtain informal assurances that the premises fulfill the regulatory requirements for the issue of the approvals and licenses. If the officials are familiar with the location, they will usually be able to make their assessment based on the location address. If they are not, they will likely make a site inspection.
Sometimes the restaurant approval and registration process may last longer than expected even if the authorities’ preliminary informal checks were successful. This is because the authorities may request certain renovation or construction works in order to grant their approvals or licenses.
To deal with such delays in obtaining the company business license, it is also advisable that the foreign investor negotiate with the landlord:
- a fairly long rent-free period (at least one to two months);
- the provision of grounds for termination of the lease contract if the approvals cannot be obtained within a certain deadline because the leased premises do not meet the regulatory requirements. (It is advisable to select a location which has already been used for a restaurant and is not in a residential building. Neighboring residents may complain about noise, smells, fumes and other emissions and cause the local authorities to revoke the restaurant license or, more likely, to request the investor to relocate the restaurant.)
In my conversation with these young and enthusiastic entrepreneurs, I told them to keep in mind that they might need at least two to three months to find the premises, negotiate the lease contract, and get informal clearance from the authorities. Another two to three months might be needed to obtain authorization and various licenses to start the business.