(Adopted on April 12 , 1986 at the Fourth Session of the Sixth National Peoples Congress)
Article 1 With a view to expanding economic cooperation and technological exchange with other countries and promoting the development of its national economy, the People's Republic of China permits foreign firms, other economic entities or individuals (hereinafter referred to as foreign investors) to set up enterprises exclusively with foreign capital in China ( hereinafter referred to as wholly-owned foreign enterprises)and protects the lawful rights and interests of the enterprises so established.
Article 2 As referred to in the present law, wholly-owned foreign enterprises are those established in China by foreign investors exclusively with their own capital in accordance with the relevant Chinese laws. The term does not include branches set up in China by foreign investors.
Article 3 Enterprises to be established exclusively with foreign capital shall be conducive to the development of China's national economy. Such enterprises shall use advanced technology and equipment or market all or most of their products outside China. Provisions regarding the lines of business which the State forbids wholly-owned foreign enterprises to engage in or on which it places certain restrictions will be made by the State Council.
Article 4 The investments made by a foreign investor in China, the profits he earns and his other lawful rights and interests shall be protected by Chinese laws. The wholly-owned foreign enterprise must abide by Chinese laws and statutes and must do nothing detrimental to China's public interests.
Article 5 Except under special circumstances, the State shall not nationalize or expropriate wholly-owned foreign enterprises. Should it prove necessary to do so in the public interest, legal procedures will be followed and reasonable compensation will be made.
Article6 The application to establish an enterprise exclusively with foreign capital shall be submitted for examination and approval by the department under the State Council which is in charge of foreign economic relations and trade or by other authorities entrusted with such powers by the State Council. The department or said authorities shall, within 90 days from the date when such application is received, make a decision on whether or not to grant approval.
Article 7 Within 30 days after receiving a certificate of approval, the foreign investor should apply to the authorities in charge of the administration of industry and commerce for registration and a business license. The date of issue of the business license shall be deemed to be the date of establishment of the enterprise.
Article 8 The wholly-owned foreign enterprise which meets the conditions for being considered a legal person under Chinese laws shall be so considered.
Article 9 The wholly-owned foreign enterprise must make investments in China within the period approved by the department in charge of examination and approval. If it fails to do so, the authorities in charge of the administration of industry and commerce may revoke the business license. The authorities in charge of the administration of industry and commerce shall inspect and monitor the investment situation of a wholly-owned foreign enterprise.
Article 10 In the event of a separation, merger, transfer or other major change, the wholly-owned foreign enterprise must report to and seek approval from the authorities in charge of examination and approval, and register the change with the authorities in charge of the administration of industry and commerce.
Article 11 The production and business programs of the wholly-owned foreign enterprise shall be reported to the competent authorities for the record. The wholly-owned foreign enterprise shall be free from interference in its operations and management so long as these are conducted in accordance with the approved articles of association.
Article 12 The wholly-owned foreign enterprise shall employ Chinese workers and administrative staff under contracts concluded according to law. These contracts shall include provisions relating to employment, dismissal, remuneration, welfare, occupational safety and workers insurance.
Article 13 Workers and administrative staff in the employment of the wholly-owned foreign enterprise may set up their trade union in accordance with the law, and the trade union may conduct activities to protect the lawful rights and interests of the employees. The enterprise shall provide necessary facilities for the activities of the trade union.
Article 14 The wholly-owned foreign enterprise shall set up account books in China, conduct independent auditing and, in conformity with the regulations, submit its fiscal reports and statements to the financial and tax authorities for supervision. If the enterprise refuses to maintain account books in China, the financial and tax authorities may impose a penalty on it, and the authorities in charge of the administration of industry and commerce may order it to suspend operations or revoke its business license.
Article 15 Within the scope of operations approved, the wholly-owned foreign enterprise may purchase, either in China or from the world market , raw and semi-finished materials, fuels and other materials it needs. When these are available from both sources, preference should be given to Chinese sources.
Article16 The wholly-owned foreign enterprise shall apply to insurance companies in China for such kinds of insurance coverage as are needed.
Article 17 The wholly-owned foreign enterprise shall pay taxes in accordance with relevant State regulations. It may enjoy preferential treatment for reduction of taxes or exemption from them. If the wholly-owned foreign enterprise reinvests a portion of its after-tax profits in China, it may, in accordance with relevant State regulations, apply for a refund of the income tax paid on the reinvested amount.
Article 18 The Wholly-owned foreign enterprise shall handle its foreign exchange matters in accordance with relevant State regulations. The wholly-owned foreign enterprise shall open an account with the Bank of China or with a bank designated by the Chinese authorities in charge of foreign exchange control. The wholly-owned foreign enterprise should take care to balance its foreign exchange receipts and payments. If, with the approval of the competent authorities, the enterprise markets its production in China and consequently experiences an imbalance in foreign exchange, the said authorities shall be responsible for helping it to eliminate the imbalance.
Article 19 The foreign investor may remit abroad profits legitimately earned from the enterprise, as well as other lawful earnings and any funds left over after the enterprise is liquidated. Wages, salaries and other legitimate income earned by foreign employees in the enterprise may be remitted abroad after the payment of personal income tax in accordance with Chinese law.
Article 20 The foreign investor should apply for and secure approval of the duration of operations of its enterprise from the authorities in charge of examination and approval. When an extension of the duration of operation is desired, application must be made to the said authorities 180 days before the duration of operations expires. The authorities in charge of examination and approval shall, within 30 days from the date of receipt of such application, make a decision on whether or not to grant approval.
Article 21 When terminating operations, the wholly-owned foreign enterprise shall give timely notification and proceed with liquidation in accordance with relevant legal requirements. Pending the completion of liquidation, a foreign investor may not dispose of the assets of the enterprise except for the purpose of the liquidation.
Article 22 At the termination of operations the wholly-owned foreign enterprise should nullify its registration with the authorities in charge of the administration of industry and commerce and return its business license.
Article 23 In accordance with the present law, detailed rules and regulations for the implementation of this law shall be formulated by the department under the State Council which is in charge of foreign economic relations and trade and shall go into effect after approval by the State Council.
Article 24 The present law comes into force on the date of its promulgation.
This translation, together with any explanatory material, is provided courtesy of Lehman Tax & Accounting.