Software as a Service in China: Legal Requirements and Solutions for U.S. Software Businesses

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Software as a service (“SaaS”) or cloud computing is an important software delivery model for many business applications. The software and required data are hosted centrally and accessed with a web browser over the Internet. This delivery model emerged in the U.S., led by Salesforce.com, and has become part of the business model of all major software companies. The other software delivery model is on-premise software that is installed on a server on a business' computer network.

Cloud computing has been made possible by the wide-spread availability of greater bandwidth, particularly wireless bandwidth, more powerful processors and inexpensive network storage. In cloud computing, computing resources are made available to the user as needed rather than a business paying for and operating an under-utilized server farm loaded with expensive software.

China is a very large potential SaaS market for basic business applications such as accounting, HR and manufacturing related applications. The U.S. is the world leader in software and China is an important market with enormous potential revenue. Cloud computing will be an important part of China’s next generation information industry.

However, Since SaaS is deemed as a value-added telecommunications service in accordance with telecommunications regulations of China, for operating the business in China, an ICP license from the applicable government telecommunications authority must be obtained. This article is about the legal requirements and solutions for U.S. software businesses to operate SaaS in China.

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