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Foreign
Investment in China:
Rules,
Regs and Proceedures
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by Lic. Steve
Saemmler Klein
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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. 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. 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.
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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