| Foreign
Investment in China: |
| Rules,
Regs and Proceedures |
| By Lic. Steve Saemmler
Klein |
| Shanghai,
the worlds' 5th largest city with over 22 million people had no building
with more than seven floors in 1992. Today it is the home of 2500 high
rise buildings, including the third largest building on earth. The GDP
in Shanghai is seven times the one of the rest of China and far above the
average of most countries in Latin America or Mexico. The rules how
to start your investment in China and especially booming regions like Shanghai
are sometimes confusing.
However,
if advised properly this is the path to take. China is the market of the
future!
The Promulgated
Rules and Regulations to Follow: |
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The Provisional
Regulations Regarding Investment by Foreign Investment Enterprises (“FIEs”)
in the People’s Republic of China (The Order [2000] No. 6)
-
Provisional Regulations
Regarding Investment by Foreign Investment Enterprises (“FIEs”)
in the People’s Republic of China (The Order [2000] No. 6)
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I. ELIGIBLE
ENTITIES AND SCOPE OF INVESTMENT
FIEs are allowed
to invest further in the PRC. The investment activities
are to be governed under the PRC Company Law as well as relevant rules
and regulations governing foreign investment. |
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| Under the
Order, the FIEs are allowed to establish new enterprises or to acquire
the equity interests of the other enterprises (“the investee enterprises”)
in the PRC. The investee enterprises should take the form of either
a joint stock company or a limited liability company.
The Order does
not cover the investment in China by foreign funded investment companies
established under the Provisional Regulations of the Ministry of Foreign
Trade and Economic Cooperation on Foreign Invested Holding Company (“Holdco
Regulations”). The major difference between this Order and the
Holdco Regulations is that the FIE under the Order is viewed as a domestic
enterprise whilst the Holdco is always viewed as a foreign investor.
As a result, there is no minimum investment threshold for FIE under this
Order. However, if the FIE invested jointly with a foreign enterprise
(“FE”), the share of the FE’s equity should not be less than 25%
of the registered capital of the investee enterprise. |
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FIEs in the
PRC should meet the following requirements for investment:
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The investment
should be in compliance with the “Provisional Regulations on Guidance
of Foreign Investment Direction” and the “Guiding Catalogue of Foreign
Investment Projects”;
The investing
FIEs should meet the following requirements to qualify for further investment:
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The registered
capital has been fully paid up;
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The company has
become profitable; and
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The company has
no records of violating the laws and regulations.
The accumulated
amount of investment in the PRC should not exceed 50% of the net asset
values. However, the 50% limit does not apply to investment through
profit reinvestment. |
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| II. APPROVAL
AND REGISTRATION AUTHORITY
The specific
approval and registration procedures may vary depending on the category
of the investment as set out in the Guiding Catalogue of Foreign Investment
Projects. If the investee enterprise falls within the Encouraged and
Permitted categories, the investing FIE should lodge an application with
the registration authority where the investee enterprise locates for approval.
The following documents should be submitted for assessment:
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The Resolution
of Board of Director by the investing FIE
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Copy of Approval
Certificate and Business License of the investing FIE
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The Capital Verification
Report on fully payment of registered capital issued by the statutory capital
verification institute
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Audited Balance
Sheet of the investing FIE
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The EIT payment
certificate or the approval documents for EIT
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exemption/reduction
status, if any
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Other documents
required by the relevant laws and regulations
If the investee
enterprise falls within the Restricted categories, format application
should be lodged with the provisional MOFTEC where the investee enterprise
locates for approval. Comments from the state or provincial level of industry
authorities would be required. The required documents are as follows:
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Documents are
required for Encouraged/Permitted projects. Articles of Association (“AOA”)
of the investee enterprise, which should include:
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Name and address
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Business scope
and domestic/export sales ratio
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Registered capital
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Name of the investor
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Right and obligation
of the investor
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Amount and form
of the investment
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Condition for
the transfer of investment
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Organization and
regulation
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Legal representative
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Precondition of
dissolution and method of liquidation
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Other items considered
necessary by investor
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The AOA should
be stamped and signed by the investor.
FIEs are not
allowed to invest in the industries falling within the prohibited category.
If the investee enterprise is also a FIE, the approval procedure should
follow the “Regulations on the Change of Equity Interest of FIEs”.
The Order further stipulates that prior approval from the original approving
authority will be required if the investing FIEs use fixed assets to invest
such that the original operation scale or business scope will be affected
(reduced).
If the investment
took the form of acquisition of the equity interests of another enterprise,
similar approval and/(or) registration process as mentioned above should
be performed depending on the category of the investee enterprises’ approved
business scope (i.e. encouraged, permitted or restricted).
III. INVESTMENT
IN THE CENTRAL WESTERN REGIONS
Investment
in the Central and Western regions may be qualified for FIE treatments
even if direct foreign investment falls below 25% of the total registered
capital of the investee enterprise.
Nevertheless, indirect foreign investment should not fall below 25%. Formal
application documents (detailed as follows) should be lodged to
the provisional approval authority where the investee enterprise locates
and the approval process is similar to the establishment of FIEs. Documents
as required for Encouraged/Permitted projects:
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The name and address
of the investee enterprise
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The contract and
AOA of the investee enterprise
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The Project Proposal
and the Feasibility Study Report, if the business scope of the investee
enterprise falls within the Restricted projects
Investment
falling within the Restricted category would require comments from the
state or provincial level of industry authorities. Moreover, when the
total investment exceeds the approval authority at the provincial level,
the application would be subject to the final discretion of the State MOFTEC.
The Order
further stipulates that for enterprises with investment by FIEs, which
has been established in accordance with the relevant regulations before
the promulgation of the Order, they should be able to enjoy FIEs preferential
treatments provided that they comply with the requirements as set out in
the Order and additional procedures are carried out properly by
reference
to the Order. |
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Index ~ China
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