China -  Chinese law firm

Provisional Regulations Concerning Investment In and Establishment of Investment Companies by Foreign Business Entities - 1995

(Promulgated by the Ministry of Foreign Trade and Economic Cooperation on, and effective from, April 4, 1995.)

 

In order to promote investment in China by foreign investors and to attract advanced foreign technology and management experience, foreign investors are permitted to establish investment companies in China in accordance with the foreign investment laws and regulations of China and these Regulations.

Article 1. For the purposes of these Regulations, the term "investment companies" shall mean companies that engage in direct investment and are established in China by foreign investors in the form of wholly foreign-owned enterprises or equity joint ventures with Chinese investors. The corporate form shall be that of a limited liability company.

Article 2. To apply for approval to establish an investment company, the following conditions shall be met:

1 a) the foreign investor's creditworthiness is good; the investor has the economic strength necessary for the establishment of the investment company; its total assets during the year immediately preceding the application are not less than US$400 million; the investor has established (a) foreign investment enterprise(s) in the People's Republic of China and the amount of paid-up contributions to the registered capital thereof exceeds US$10 million and, in addition, the project proposals for at least three of the investor's proposed investment projects have been approved; or

b) the foreign investor's creditworthiness is good; the investor has the economic strength necessary for the establishment of the investment company; and the investor has established at least 10 foreign investment enterprises in the People's Republic of China that are engaged in production or infrastructure construction, and the total amount of paid-up contributions to the registered capital thereof exceeds US$30 million;

2. if the investment company is to be established in the form of an equity joint venture, the Chinese investor's creditworthiness shall be good; it shall have the economic strength necessary for the establishment of the investment company and its total assets shall not be less than RMBŁ¤100 million; and

3. the registered capital of the investment company is not less than US$30 million.

Article 3. To apply for approval to establish an investment company, the investor shall submit the following documents to the Ministry of Foreign Trade and Economic Cooperation for examination and approval, after the same have been examined and approved by the authorities for foreign economic relations and trade of the province, autonomous region, municipality directly under the central government or municipality with independent development plans in which the proposed investment company is to be located:

1. if the investment company is to be established in the form an equity joint venture: the project proposal for the investment company, and the feasibility study, contract and articles of association signed by the investing parties; if the investment company is to be established in the form of a wholly-owned company: the project proposal, wholly foreign-owned enterprise application form, feasibility study and articles of association signed by the foreign investor;

2. documents in support of the creditworthiness of each investing party, and (photocopies of) the registration certificates and (photocopies of) the legal person representative certificates of each investing party;

3. (photocopy of) the approval certificate and (photocopy of) the business license of, and (photocopy of) the investment verification report issued by a Chinese registered accountant for, each enterprise already invested in by the foreign investor;

4. balance sheets of each investing party for the past three years; and

5. other documents required by the Ministry of Foreign Trade and Economic Cooperation.

All of the above-mentioned documents shall be originals, except for those that have been specified to be photocopies.

Documents that are not signed by the legal representative shall require the submission of a power of attorney from the legal representative.

If a lawfully established intermediary organization is entrusted with carrying out the application procedures on behalf of the applicant, a power of attorney signed by the investor's legal representative shall be submitted.

Article 4. The foreign investor must make its contribution to the registered capital of the investment company in freely convertible currency. The Chinese investor may make its capital contribution in Renminbi. The entire capital contribution shall be made in full within two years after the date of issuance of the business license.

Article 5. Following approval, an investment company may engage in part or all of the following business:

1. to invest in sectors such as industry, agriculture, infrastructure, energy, etc. in which foreign investment is encouraged or permitted by the state;

2. upon written entrustment by enterprises invested in by it (with the unanimous approval of their boards of directors), an investment company may furnish the following services to such enterprises:

i. assisting the enterprises invested in by it with, or acting as such enterprisesĄŻ agent for, (i) the purchase in and outside China of machinery, equipment and office equipment for such enterprisesĄŻ own use and raw materials, components and parts to be used in such enterprisesĄŻ production, and (ii) the sale in and outside China of products produced by the enterprises invested in by it, and providing after-sales service;

ii. balancing foreign exchange revenue and expenditure among the enterprises invested in by it, with the consent and under the supervision of the exchange control authorities;

iii. assisting the enterprises invested in by it with the recruitment of personnel and providing technical training, market development and advice; and

iv. assisting the enterprises invested in by it with the obtaining of loans, and providing guarantees; and

3. to act as consultant to its investors.

Article 6. For the purposes of item (2) of Article 5 hereof, an enterprise shall be deemed invested in by an Investment Company if:

1. the enterprise is invested in directly by the investment company or jointly by the investment company and (an)other foreign investor(s) and/or (a) Chinese investor(s), and the capital contribution of the investment company or of the investment company and the other foreign investor(s) accounts for at least 25 percent of the registered capital of the enterprise invested in and established;

2. the investment company has acquired part or all of the equity of enterprises already established in the People's Republic of China by the investors in the investment company or affiliates thereof and by (an)other foreign investor(s), thereby causing the capital contribution of the investment company and the other foreign investor(s) to account for at least 25 percent of the registered capital of the said enterprises already established.

Absent special approval from the Ministry of Foreign Trade and Economic Cooperation, an investment company may furnish the services specified in item (2) of Article 5 hereof only to those enterprises invested in and established by it as defined above.

An investment company may not act as a trade intermediary in China in place of any of its investors.

Article 7. Subject to the approval of the People's Bank of China, an investment company may provide financial support to the enterprises invested in and established by it.

Article 8. The term of operation of an investment company shall be examined and approved in accordance with state regulations concerning the term of operation of foreign investment enterprises, on the basis of the nature of the projects that the investment company intends to establish.

Article 9. Enterprises to be invested in and established by an investment company shall be separately submitted for approval in accordance with the limits of authority and procedures for the examination and approval of foreign investment enterprises.

Article 10. If, when an investment company invests in and establishes an enterprise, the foreign exchange investment of the investment company or of the investment company and (an)other foreign investor(s) accounts for not less than 25 percent of the registered capital of the enterprise invested in and established by it, the enterprise invested in by it shall be treated as a foreign investment enterprise and be issued a foreign investment enterprise approval certificate and foreign investment enterprise business license.

Article 11. A foreign investor that meets the conditions set forth in item (1)(i) of Article 2 hereof may contribute capital to and establish an investment company in the name of its wholly-owned subsidiary.

Article 12. An investor that applies for approval to establish an investment company must issue a letter to the examination and approval authority in which it guarantees the contribution of registered capital and the transfer of technology by such investment company when it invests in the People's Republic of China.

The parent company of an investment company to be established in the name of a wholly-owned subsidiary must issue a letter to the examination and approval authority in which it guarantees (i) the completion by its subsidiary of the contribution of capital to such investment company upon such conditions as approved by the examination and approval authority and (ii) the contribution of registered capital and the transfer of technology by such investment company when it invests in the People's Republic of China.

Article 13. The investment activities inside the People's Republic of China of an investment company shall not be restricted by its place of registration.

Article 14. The taxation of investment companies shall be handled in accordance with the relevant laws and regulations of China.

Article 15. An investment company shall conscientiously implement its project investment plan and shall report each year's investments during the first three months of the next year to the Ministry of Foreign Trade and Economic Cooperation for the record.

Article 16. An investment company and the enterprises invested in and established by it shall be legal persons or entities that are independent from each other, and the business dealings between them shall be conducted on an arm's length basis.

Article 17. An investment company and the enterprises invested in and established by it shall abide by the laws and regulations of China and may not evade control or taxation by any means.

Article 18. These Regulations may be applied to the investment in and establishment of investment companies in the mainland by investors from Taiwan, Hong Kong and Macao.

Article 19. The Ministry of Foreign Trade and Economic Cooperation shall be responsible for the interpretation of these Regulations.

Article 20. These Regulations shall be implemented as from the date of promulgation.




This translation, together with any explanatory material, is provided courtesy of Lehman Tax & Accounting.


RSS Feeds