China’s evolving legal landscape for foreign law firms

China has implemented significant regulatory changes affecting foreign law firms in August-September 2025, signaling both liberalization in select areas and enhanced compliance requirements. The most significant development is Shanghai’s groundbreaking foreign legal advisor pilot program, launched August 27, 2025, which allows Chinese domestic law firms to directly employ foreign lawyers for the first time. sh Combined with streamlined administrative procedures from earlier State Council reforms and the upcoming Arbitration Law revision, these changes represent a measured opening of China’s legal services market while maintaining strict regulatory controls.

The regulatory environment reveals a dual approach: expanding operational models for foreign legal practitioners through innovative pilot programs, while simultaneously strengthening compliance obligations in anti-money laundering, data security, and tax administration. Foreign law firms must navigate this evolving landscape carefully, balancing new opportunities with increasingly complex regulatory requirements that demand immediate action on several fronts.

Shanghai pioneers foreign legal advisor employment model

Shanghai’s Municipal Justice Bureau and Talent Work Bureau issued Administrative Regulations for Foreign Legal Advisors (Document No. 沪司行规〔2025〕5号) on August 27, 2025, effective September 30, 2025, establishing China’s first framework allowing domestic law firms to directly employ foreign lawyers. Guangdong Provincial Governmentsh This pilot program represents a fundamental shift beyond the traditional representative office model that has governed foreign legal services in China since 1992.

Eligible Shanghai law firms must be partnership firms established for at least three years with minimum 20 full-time practicing lawyers and no administrative penalties or disciplinary actions in the past three years. Guangdong Provincial Governmentsh Foreign lawyers require at least two years of overseas legal practice experience, must maintain active bar membership in their home jurisdiction, and cannot simultaneously serve as representatives of foreign law firm representative offices. Guangdong Provincial Governmentsh The program limits foreign lawyers to maximum 10% of Chinese lawyers or 20 people per firm, whichever is lower, with mandatory two-year minimum employment contracts. sh

The expanded business scope permits foreign legal advisors to provide consultation on foreign law where qualified, advise on international treaties and practices, collaborate with Chinese lawyers on cross-border legal services, and offer representation services excluding litigation. sh However, they remain prohibited from practicing Chinese law, investing in law firms, or engaging in Chinese legal affairs. sh All foreign advisors must obtain Chinese work permits, register with Shanghai Municipal Justice Bureau, and maintain professional liability insurance at levels equivalent to domestic lawyers. sh

State Council streamlines foreign law firm establishment procedures

The State Council’s November 2024 revision to the Foreign Law Firms’ Representative Offices Administration Regulations, implemented January 20, 2025, significantly simplified documentation requirements for establishing representative offices. Ministry of Ecology and Environment of China +2 The revised Article 8 now recognizes Hague Convention authentication procedures, eliminating the previous requirement for dual consular authentication from countries party to the convention. Ministry of Ecology and Environment of China +3

Ministry of Justice Announcement No. 7, published August 11, 2025, approved two new foreign law firm representative offices: Korean JAEYU Law Firm in Haikou with Chief Representative CHOI PILJAE and Representative KANG MYUNG GU, and Polish KUBAS Law Firm in Shenzhen with Chief Representative PAWEL SIKORA and Representative DOMINIK GALKOWSKI. Ministry of Justice These approvals demonstrate continued geographic diversification beyond traditional centers in Beijing and Shanghai, with Haikou representing expansion into China’s newest free trade port.

The foreign work permit system underwent major integration with social security cards effective December 1, 2024, discontinuing physical work permit cards in favor of electronic social security cards containing work authorization information. Aaalawfirm +2 Foreign legal professionals now obtain work permit notifications before entry, then register for electronic social security cards post-arrival, with existing valid permits maintaining “no change, no replacement” status until renewal or modification. Tj +2

Enhanced compliance obligations under new AML and data security laws

China’s amended Anti-Money Laundering Law, effective January 1, 2025, explicitly designates law firms as “specific non-financial institutions” subject to AML compliance when handling real estate transactions, fund/securities management, bank account management, corporate fundraising activities, and M&A transactions. WilmerHale +5 Foreign law firms must implement comprehensive beneficial ownership verification, enhanced client due diligence procedures, suspicious transaction reporting to the People’s Bank of China, and detailed record-keeping systems. The critical deadline of November 1, 2025 requires all entities established before November 1, 2024, to file beneficial ownership information. LexologyCMS

The People’s Bank of China’s data security measures, effective June 30, 2025, impose new obligations on legal services involving PBOC-regulated business areas including payment services, anti-money laundering activities, and cross-border RMB transactions. Law firms must classify business data into general, important, and core categories, maintain comprehensive data catalogues, and conduct risk assessments annually for important data handlers. Clifford Chance +4 The PBOC’s cybersecurity incident reporting requirements, effective August 1, 2025, mandate immediate adoption of disposal measures for security incidents, timely client notification, complete incident reporting, and emergency drills annually for important data handlers. Clifford Chance

Cross-border data transfer regulations received clarification in April 2025 China Administration of Cyberspace guidance, extending security assessment validity from two to three years, allowing single subsidiaries to file for entire multinational corporation groups, and automatically applying free trade zone “negative lists” across all FTZs. arnoldporterArnold & Porter The Network Data Security Management Regulation, effective January 1, 2025, strengthened data localization requirements and personal information protection standards for all legal service providers. Wuhan +2

Arbitration law revision expands foreign institution access

The National People’s Congress passed comprehensive Arbitration Law revisions on September 12, 2025, taking effect March 1, 2026, marking China’s most significant arbitration reform in decades. ShASIALLIANS The revision permits foreign arbitration institutions to establish business operations in Free Trade Zones, Hainan Free Trade Port, and other State Council-designated areas, representing the first legal framework for foreign arbitration institution operations in mainland China. shLexology

The new law introduces an “arbitration place” system aligned with UNCITRAL Model Law principles, with arbitration location determining applicable procedures and court jurisdiction. ASIALLIANS Ad hoc arbitration becomes permitted for foreign-related disputes in designated zones with mandatory three-day registration requirements with arbitration associations. sh +4 The revision explicitly supports Chinese arbitration institutions establishing overseas offices while allowing processing of international investment arbitration cases pursuant to bilateral investment treaties.

CIETAC issued Asia-Pacific’s first AI usage guidelines for arbitration on July 18, 2025, establishing that AI can support but not replace human decision-making, with mandatory disclosure requirements for AI use in proceedings and specific risk management protocols for data breaches. Pinsent Masons The 2024 CIETAC Rules implementation showed 74 purely international cases representing 19.35% growth, with 41% of total cases demonstrating international elements, indicating robust growth in foreign-related dispute resolution. Cietac

Tax and administrative changes impact legal service operations

State Administration of Taxation Announcement No. 7, issued August 22, 2025, refined VAT policies for legal services maintaining the 6% rate while establishing differentiated refund policies. Legal services qualify for 60% VAT refund for amounts up to 100 million RMB and 30% for larger amounts, contingent upon maintaining Grade A or B tax credit ratings with no fraudulent refund history in the preceding 36 months. China Briefing

New tax treaties with Brazil and Cameroon, effective January 1, 2026, establish withholding tax rates of 5-15% for dividends from Brazil and 10% from Cameroon, with interest and royalties at 10-15% from Brazil and 10% from Cameroon. Both treaties implement Principal Purpose Test anti-abuse measures and extended construction project permanent establishment thresholds affecting legal service providers with cross-border operations. China Briefing

Hainan Free Trade Port substantive operations criteria, extended through 2027, require firms with fewer than 10 employees to maintain minimum three staff in Hainan, those with 10-99 employees to maintain 30% minimum presence, and larger firms to maintain at least 30 staff members. Gzns All key personnel must maintain 183+ days annual residency with fixed premises, main activities, local bank accounts, and accounting records within the FTP. China Briefing

Professional conduct standards emphasize political compliance

The All China Lawyers Association maintains strict professional conduct requirements under the Lawyers’ Practice Code of Conduct, emphasizing political loyalty requirements to “support Chinese Communist Party leadership and socialist rule of law.” WikipediaChina Law Translate Foreign practitioners face prohibitions against attacking the socialist system, engaging in activities endangering national security, inciting disruption of social order, or hyping individual cases using lawyer identity. China Law Translate

Professional ethics standards require maintaining confidentiality of state secrets and commercial secrets, following facts and law in all representations, avoiding conflicts of interest, and respecting court proceedings and judicial personnel. China Law Translatewaizi Disciplinary mechanisms operate through local lawyers associations with penalties ranging from warnings and public criticism to practice suspension, license revocation, and monetary penalties of 100,000-500,000 RMB for reporting violations. China Law Translate

Mandatory training requirements include continuing education through ACLA-organized programs, required attendance at political education sessions on Party policies and socialist law, annual assessments covering professional ethics and political compliance, and mandatory ACLA membership for all practicing lawyers China Legal Experts including foreign legal advisors in the Shanghai pilot program.

Conclusion

China’s August-September 2025 legal regulatory updates demonstrate strategic market opening through controlled pilot programs while significantly enhancing compliance obligations across data security, anti-money laundering, and tax administration. The Shanghai foreign legal advisor program marks the most significant liberalization in decades, offering foreign lawyers direct employment opportunities beyond traditional representative office limitations. Simultaneously, the November 1, 2025 beneficial ownership filing deadline and enhanced AML obligations create immediate compliance imperatives requiring urgent action. Lexology +2Foreign law firms must balance these opportunities against heightened regulatory complexity, particularly in data protection, cybersecurity incident reporting, and political compliance requirements. waiziAdvantlaw The upcoming Arbitration Law implementation in March 2026 will further reshape dispute resolution landscapes, potentially positioning China as a more attractive arbitration venue for foreign-related disputes. Success in this evolving environment requires sophisticated compliance infrastructure, strategic partnership approaches leveraging pilot programs, and careful navigation of political sensitivities while maintaining professional standards. The regulatory trajectory suggests continued selective liberalization coupled with strengthened oversight, demanding adaptive strategies that embrace innovation while ensuring comprehensive regulatory compliance.