- 1Are Companies with Foreign Investment wishing to decrease their registered capital required to publically declare their intention in a newspaper? If so, how long after posting such declaration can they apply to decrease their capital?
Such enterprises are required to post such declarations and may apply to register their intended decrease in capital 45 days after the declaration’s posting.
- 2Are Foreign-funded Investment Companies with equity investment included in their business scope allowed to set up a new wholly owned subsidiary to carry out business in real estate development? Also, are such enterprises allowed to acquire real estate companies via means of purchasing equity? Please also advise whether such Foreign-funded Investment Companies must first apply for examination and approval or file records with the relevant commercial administrative departments before attempting to engage in either or both activities?
According to the provision No 3. “Commercial administrative departments across the country shall perform examining and approving tasks strictly pursuant to all provisions on the establishment of Investment Companies by foreign investors, and shall not examine and approve any Investing Company involved in the operating business of real estate development” under “Notice of the General Office of the Ministry of Commerce on Strengthening the Approval and Filing Administration of Foreign Investment in the Real Estate Sector” (Letter No. 1542  of the General Office of the Ministry of Commerce), as a result, Foreign-funded Investment Companies are expressly prohibited from carrying out any business in the real estate sector.
- 3If the registered capital of a Financial Leasing Company is set by installment upon the company’s establishment and remains unpaid, will the said company be allowed to apply for a capital increase? If so, can the amount of such a capital increase still be paid in installments?
Companies are only allowed to apply for a capital increase after their original registered capital has been fully paid-up. Financial Leasing Companies making such applications must also provide detailed and precise explanations and produce the status of the Financial Leasing Company’s current operations and businesses plus the precise purposes the capital increase will be used for and relevant information. Applicants for such increases must also make a down payment of no less than 20% of the additional registered capital when applying to register the alteration. The remaining 80% must then be paid within two years.
- 4Let’s say two overseas enterprises (Company A and Company B) team up to establish a third enterprise (Company C) in Qianhai. If Company A is a shareholder in Company B and wishes to transfer its equity to Company B will the two entities be allowed to determine the consideration of such equity upon mutual agreement between themselves? Also, will there be any requirements on such transfers between Related Companies?
Determining considerations upon agreement is prohibited. Considerations must be determined through an appraisal via an Asset Evaluation Institutions. There are, however, no specific requirements governing transfers between related companies.
- 5If a Solely Foreign-owned Financial Leasing Company intended to add an additional Chinese shareholder and to increase its capital of US$20 million to US$50 million would it first need to report to the Ministry of Commerce? Also, would the Chinese shareholder be allowed to make a contribution in RMB within China and how long be required to repay any increased capital?
There is no need to report any such changes to the Ministry of Commerce. The Chinese shareholder would be allowed to make contribution in RMB within China; and any increased capital must be repaid within two years.
- 6Are Foreign-funded Enterprises required to register when altering records with the Economy and Trade Commission should they change their legal representative(s)?
Foreign-funded Enterprises will only need to register such alterations with the Market Supervision Administration when changing the legal representative(s) for newly established enterprises. Those changing legal representative(s) for shareholders of Foreign-funded Enterprises must register any alteration with the Economy and Trade Commission.
- 7What are the provisions regarding irregular contribution made by Wholly Foreign-Owned Enterprises?
The schedule for contribution payments by foreign investors must be specified on the Application for Establishing a Foreign-funded Enterprise and Articles of Association for a Foreign-funded Enterprise. While foreign investors are allowed to make their contributions by installments, the last installment must be fully paid within three years of the Business Certificate’s date of issuance. Within any such installment arrangement, the first installment must be no less than 15% of the contribution subscribed by such foreign investors, and must be paid within 90 days of the date of the Business Certificate for Foreign Invested Enterprises’ date of issuance. Should a foreign investor fail to pay the first installment within the period specified, any Certificate of Approval for Establishment of Foreign-funded Enterprises granted shall automatically become null and void. In such cases, an Foreign-Invested Enterprise must apply for de-registration with the administrative departments for industry and commerce and surrender its Business Certificate when de-registering. Should an Foreign-Invested Enterprise fail to apply for de-registration and not surrender its Business Certificate, any certificate granted previously shall be suspended by the administrative departments for industry and commerce and said termination shall then be publicly announced. Foreign investors must also settle all other installments subsequent to the first installment as scheduled. Foreign investors failing to pay their contributions within 30 days of their falling due date without sufficient reason shall be dealt with pursuant to the provision of Paragraph 2 of Article 30 under “the Rules for the Implementation of the Law of the People's Republic of China on Foreign-capital Enterprises”. Should a foreign investor request the deferring of contributions for any reason, the request must first be approved by the relevant examining and approving authorities and then be forwarded to the administrative departments for industry and commerce for filing.
- 8Please provide contact information of Qianhai International Liaison Services Ltd.
The address of Qianhai International Liaison Services Ltd is as follows:Qianhai International Liaison Services LtdUnit B02, 29/F, Tower 1, Admiralty Centre18 Harcourt Road, AdmiraltyHong KongE-mail：[email protected]Tel: +852 3462 9822Fax: +852 3590-8680Mobile: +852 9624-3580
- 9Below are the relevant provisions for the Board of Directors and legal representative(s) for Enterprise with Foreign Investments.
Type of Business
Board of Directors
Should the legal representative be the Chairman or an Executive Director?
Sino-Foreign Equity Joint Ventures
Must establish a Board of Directors
The legal representative must be the Chairman
Sino-Foreign Co-operative Joint Ventures
Must establish a Board of Directors or a Joint Managerial Institution
The legal representative must be the Chairman or the Director of the Joint Managerial Institution
Wholly Foreign-Owned Enterprises
Does not necessarily need to set up a Board of Directors, but must appoint one Executive Director
The legal representative must be the Chairman, an Executive Director or a Manager
- 10Can enterprises apply to increase their total investment without increasing their registered capital?
No. Where increments in total investment are not accompanied by an increase in registered capital, companies will only be allowed to increase the registered capital.
- 11If an enterprise decides to increase its registered capital as well as its total investment, can it still apply for different amounts for the two increments?
Yes, however, the company’s total investment and registered capital must maintain a certain proportion. Please refer to the “Notice of the Ministry of Foreign Trade and Economic Cooperation, the State Administration for Industry and Commerce, concerning the Relevant Provisions and Procedures Governing the Adjustment of Total Investment and Registered Capital by Foreign-funded Investment Enterprises” and the “Interim Provisions of the State Administration for Industry and Commerce on the Proportion of the Registered Capital and the Total Investment of Chinese-foreign Equity Joint Ventures” for full details.
- 12What is the minimum registered capital for Foreign-invested Venture Capital Investment Enterprises ?
According to the “Provisions on the Administration of Foreign-invested Venture Capital Investment Enterprises”, the minimum total contribution subscribed for investors of Foreign-invested Venture Capital Investment Enterprises that have not been established under a legal-person system, is US$10 million. The minimum total contribution subscribed for investors of Foreign-invested Venture Capital Investment Enterprises under a corporate system is US$5 million.
- 13If a Company with Foreign Investment makes a contribution past the permitted contribution schedule will its application still be processed?
Yes, but only if the enterprise settles the overdue contribution within one month and applies to register the alteration of its paid-in capital within one month. In cases where enterprises pay their overdue contribution within one month and yet fail to apply for registration alteration of their paid-in capital within one month, or settle their overdue contribution after one month, such enterprises must first also obtain legally based directions from the sub-bureau General Department of the jurisdiction where they are located and only apply for registration alterations after any restrictions have been lifted.
- 14Can Companies with Foreign Investment apply to extend their duration of operation in advance and if so, by how many days?
Yes, such companies should apply for any extension at least 180 days before its expiry date.
- 15If an enterprise is a Limited Company with Foreign Investment established by either sponsorship or offerings, must all of its sponsors be foreign shareholders?
No, but there must be at least one foreign shareholder among the sponsors.
- 16In cases where registered capital is to be paid in installments, must shareholders’ contribution to each installment first be determined based on the percentage of their respective contributions?
- 17What particular areas are most likely to impact an investment company established with foreign investment which plans to apply to engage in additional distribution activities?
The following areas will be of most importance for an investment company established with foreign investment which plans to apply to engage in additional distribution activities:1) If the investment company wishes to distribute products from enterprises in which it has not invested, it should apply to add the activity to its business scope pursuant to Measures for the Administration on Foreign Investment in Commercial Fields and amend relevant contracts and the Articles of Association accordingly.2) If the investment company wishes to pay its registered capital in installments, it must first satisfy the provision of Article 8 under “the Establishment of Companies with an Investment Nature by Foreign Investors Provisions”.3) Distribution scope of investment companies includes products or similar products of multinational companies and/or related holding companies without restrictions on their regional HQ’s marketing activities. They must complete the Application for Expanding the Product Scope for Distribution of Investment Companies/Regional Headquarters (downloadable from http://www.fdi.gov.cn/1800000121_23_65371_0_7.html );4) Where an investment company wishes to set up retail stores to market products manufactured by enterprises in which is not a shareholder, it must first satisfy the provisions under the Measures for the Administration on Foreign Investment in Commercial Fields.
- 18What materials must existing Non-financing Guarantee Companies submit when applying to become Financing Guarantee Companies?
Provisions under the Detailed Implementation Rules of “Interim Measures for the Administration of Financing Guarantee Companies” for Shenzhen (No. 37  of the Shenzhen Municipality) state that Non-financing Guarantee Companies wishing to become Financing Guarantee Companies must first submit relevant forms and documents. They include the Application of Alteration for Financing Guarantee Companies in Shenzhen, the Letter of Commitment for Financing Guarantee Companies in Shenzhen, the Application of Qualifications for Directors, Supervisors and Executives of Financing Guarantee Companies, the Directory of Contributors (Legal Person Enterprises), the Directory of Contributors (Natural Persons), and the Directory of Contributors (Social Organizations). Please log on to the Municipal Service Center of small and medium-sized enterprises’ website at (http://www.szsmb.gov.cn) for full details.
- 19Are Foreign-funded Enterprises intending to add advertising to their Business Scope required to obtain ex ante approvals?
According to “the Provisions on the Administration of Foreign-invested Advertising Enterprises” (Order of the State Administration for Industry and Commerce and the Ministry of Commerce No. 35 ), all enterprises wishing to alter their Business Scope must apply for examination and approval. Such applications should be made after the company in question obtains the “Opinion on the Examination and Approval of the Foreign-funded Advertising Enterprise Project” from the relevant industrial and commercial registration authorities.
- 20What filing matters regarding foreign-invested companies must be examined and approved?
Economy, Trade and Information Commission’s examination and approval is required for: any amendment to the Articles of Association involving registration; any alternation on total investment; any equity pledge, the number and constitution of the Board of Directors; any change to the elective method for the legal representative; and any change to the percentage of sales within the domestic market against overseas market(s).
- 21Where must equity transfers do not involve any state-owned assets be notarized or witnessed?
Such transfers should either be notarized at a notary office or be witnessed at the Shenzhen Innovated Technology Property Exchanged.
- 22If the license of a legal person shareholder’s in a foreign investment enterprise is suspended, how can the company process its equity transfer?
The liquidation committee of the suspended shareholder’s company is entrusted with executing shareholders’ right to apply for equity transfers in certain foreign-funded company for - and on behalf of - said company.
- 23How will a share price be determined in cases where an Enterprise with Foreign Investment carries out an equity transfer or equity acquisition?
Enterprises making an equity transfer will be subject to the latest capital verification report issued by an accountant registered in the PRC and his/her accounting firm. The consideration of an equity acquisition, meanwhile, will be determined with reference to the content of the latest auditor’s report provided that the transaction in question meets market fair value. Please refer to the “Decision of the Ministry of Commerce on Amending the Provisions on the Merger or Acquisition of Domestic Enterprises by Foreign Investors” for details.
- 24Are there any detailed provisions governing contributions by Enterprise with Foreign Investment’s applying for equity transfer?
Any enterprise may apply for equity transfer provided that it has settled the initial amount of contribution (pursuant to provisions under Company Law) or has paid off the registered capital in a lump sum and has not exceeded its contribution schedule.
- 25What provisions on the prices stipulated in the Equity Transfer Agreement to be notarized?
Any consideration for the transferring of foreign-funded equity should be determined with reference to net assets in the auditor’s report of the said company.
- 26What does the term “willingness exchange settlement” mean when used in conjunction with foreign exchange capital for Enterprise with Foreign Investment?
It applies to the amount of foreign exchange capital which contribution interests are confirmed by its local Administration of Foreign Exchange within an Enterprise with Foreign Investment’s capital account that can be used to apply for settlement at a bank in accordance with the actual operating needs of said enterprise. Please refer to “the Notice on Pilot Reform of the Administrative Approach Regarding the Settlement of the Foreign Exchange Capitals of Foreign-Invested Enterprises in Certain Areas” (No. 36  issued by the State Administration of Foreign Exchange) for details.
- 27Can a company whose percentage of foreign contribution is lower than 25% be treated as an Enterprise with Foreign Investment?
Yes, it can. The percentage of contribution from foreign investors within the registered capital of any Chinese-foreign Equity Joint Ventures (or any Enterprise with Foreign Investment under a Sino-foreign partnership) should not be lower than 25%. Unless otherwise stated under relevant laws and administrative regulations, should the percentage of contribution made by foreign investors in any enterprise fall below 25%, said enterprise must be examined, approved and registered pursuant to the prevailing registration procedures for establishing Enterprise with Foreign Investment . A Foreign Investment Enterprise Approval Certificate with a remark indicating “the (company’s) percentage of foreign capital (is) under 25%” will be issued to enterprises which satisfy the examining and approval processes. Those successfully obtaining the registration shall receive a Foreign Investment Enterprise Operation License with a remark indicating “the (company’s) percentage of foreign capital (is) under 25%” after the “Type of Business”. Please refer to “the Notice concerning the Relevant Issues on Strengthening the Approval, Registration, Foreign Exchange Control and Taxation Administration of Foreign-funded Enterprises” (No. 575  Issued by the Department of Treaty and Law under the MOFTEC) for full details.
- 28What is required to establish a Sino-foreign Joint-Venture Financial Leasing Company? Also, are there any mandatory qualifications for domestic-funded and foreign-funded shareholders?
Sino-foreign Joint-Venture Financial Leasing Company must have a registered capital greater than US$10 million and obtain a Certificate of Approval issued by the Economy, Trade and Information Commission. In the case of Sino-foreign Equity Joint Ventures, the proportion of foreign capital should be over 25%. For full details, please refer to the Measures for the Administration of Foreign-capital Lease Industry, order of the Ministry of Commerce, No.5 .
- 29How can a partnership involving a natural person of Hong Kong and a citizen of the Mainland become a Sino-foreign Equity Joint Venture?
Such registered partnerships must first be de-registered and then established as a new company.
- 30What’s the longest extension of the contribution period that may be applied for? Is it enough to simply amend and alter the Articles of Association of the company?
Altering the contribution schedule under the Articles of Association is generally sufficient to delay any injection of registered capital. The longest extension is two years.