In order to promote the multinationals to invest in China, introduce advanced foreign technology and administrative experience, and perfect the functions of investment companies, the Provisional Regulations Concerning Establishment of Investment Companies by Foreign Business Entities promulgated by the Ministry of Foreign Trade and Economic Cooperation ("MOFTEC") on April 4, 1995 are supplemented as follows:
1. An investment company is permitted to provide relevant technology training for the domestic distributors and agencies that sell or distribute the products manufactured by its invested enterprises and domestic company and enterprise that entered into technology transfer agreement with an investment company and/or its parent company.
2. An investment company is permitted to establish company limited by shares with foreign investment in a capacity as a sponsor or to hold the non-listing, non-transferable legal person stock of the company limited by shares with foreign investment. The investment company shall be deemed as the overseas sponsor of the company limited by shares under such circumstances.
3. An investment company is permitted to purchase the products manufactured by its invested enterprises and then sell them within and outside China after system integration. In case the products manufactured by its invested enterprises caní»t satiate the requirements for system integration, the investment company is permitted to purchase the matching products for system integration within and outside China, provided, however, that the value of the purchased matching products for such system integration shall not exceed 50% of the value of the total products required by such system integration.
4. Before the enterprise invested in by the investment company is put into production or the new products of the enterprise invested in by it are put into production, an investment company is permitted, upon approval by the original examining and approval department and for the market exploration purposes, to import and effect a trial sale inside China a small quantity of non-import quota controlled products identical or similar to the products manufactured by its invested enterprises.
5. An investment company shall employ the spot exchange contributed by its investor to the registered capital, foreign currency profit of its own or overseas foreign currency loan to import the above-mentioned matching products for the system integration or the products for a trial sale. The above-mentioned annual accumulative value of import shall not exceed 20% of the spot exchange contribution of its registered capital. The remaining value of import of current year which does not exceed 20% of its spot exchange contribution of the registered capital shall not be transferred to next year for use.
6. Where an investment company is intending to carry out the business activities set out in Section 1, 3 and 4 of these Regulations it shall submit application documents, including its amended Contract and Articles of Association to MOFTEC for approval according to the regulatory procedures and shall comply with the following conditions:
1) The registered capital of the investment company has been paid up in accordance with the schedule stipulated in the Contract and Articles of Association and the actual contribution of the registered capital is not less than US$ 30 million.
2) Conducting business lawfully and have no record of breaking the law in operation.
7. An investment company shall report and file the status of its own investment and operation each year with MOFTEC according to the required contents and format within the first three months of next year. The above-mentioned document shall be regarded as one of the requisite documents submitted by the investment company for the United Annual Inspection.
8. Should there be any discrepancy between these regulations and those provisions in the Interpretation of Certain Issues of the Provisional Regulations Concerning Establishment of Investment Companies by Foreign Business Entities issued by MOFTEC on February 16, 1996, these Regulations shall prevail.
9. These Regulations shall come into force as of the date of its promulgation.
This translation, together with any explanatory material, is provided courtesy of Lehman Tax & Accounting.