The regulatory regime governing foreign invested enterprises (“FIEs”) in China (more precisely the People’s Republic of China, “the PRC”) has been changing rapidly in recent years and the newly enacted Foreign Investment Law marks a new milestone. In order to attract more foreign investment, legislative changes have been aimed at simplifying the procedures for foreign investors in relation to most of their investment activities in China. The new Foreign Investment Law, which will become effective on 1 January 2020 and provides a 5-year transition period (2020-2024), is replacing China’s existing three-decade old FIE laws and regulations, abolishing the long-standing three FIE types, and unifying and harmonizing FIEs and domestic Chinese companies from business organization format and corporate governance perspectives as well as from other far-reaching aspects. However, in practice setting up an FIE in China is still a demanding process, as the legal requirements and administrative conditions are complex and quite different to European practice.
This Guideline aims to provide SMEs with a complete picture of the formation process for incorporating FIEs in China taking into account the forthcoming Foreign Investment Law and its implications. It features checklists of documents needed to establish an FIE, details the approval and/or record filing requirements administered by governmental authorities, and forecasts immediate changes to be brought by the new Foreign Investment Law.
Disclaimer
This document is provided for general information purposes only and does not constitute legal, investment or other professional advice on any subject matter. Whereas every effort has been made to ensure that the information given in this document is accurate, the EU SME Centre accepts no liability for any errors, omissions or misleading statements, and no warranty is given or responsibility accepted as to the standing of any individual, firm, company or other organisation mentioned.
Publication as well as commercial and non-commercial transmission to a third party is prohibited unless prior permission is obtained from the EU SME Centre. The views expressed in this publication do not necessarily reflect the views of the European Commission.
Special attention should be drawn to the newly published Foreign Investment Law which will come into effect on 1 January 2020 and the following five years (2020-2024) will be a transition period. China’s foreign investment regime is undergoing significant transformation and numerous implementing regulations and rules will be enacted in due course to replace and/or harmonize the existing rules and regulations.
Additionally, the relevant catalogues and negative lists contained in this document are as of the date of the finalization of this document. Afterwards, on 30 June 2019, the National Development and Reform Commission and the Ministry of Commerce released the following three documents on, effective from 30 July 2019:
– the Special Administrative Measures (Negative List) for the Access of Foreign Investment (2019);
– the Special Administrative Measures (Negative List) for the Access of Foreign Investment in Pilot Free Trade Zones (2019); and
– the Catalogue of Industries Encouraging Foreign Investment (2019).
Attention should be drawn to the new lists and catalogue after 30 July 2019.
Key Contents
1. Overview
2. Types of FIEs in China.
3. Pre-Establishment
4. Wholly Foreign Owned Enterprise (WFOE)
5. Equity Joint Venture (EJV)
6. Cooperative Joint Venture (a.k.a. Contractual Joint Venture) (CJV) and FIPE
7. The Implications of the New Foreign Investment Law
8. Taxation
9. Relevant Authorities
10. Relevant Laws and Regulations
