To attract and encourage inbound foreign investment in China, the Standing Committee of the National People’s Congress amended four pieces of legislation relating to foreign investment in China in September 2016, namely, PRC Foreign Invested Enterprises Law; PRC Sino-foreign Equity Joint Ventures (“EJV”) Law; PRC Sino-foreign Cooperative Joint Ventures (“CJV”) Laws and PRC Laws on Protecting the Investment by Taiwanese Compatriots. These amendments were effective to the above foreign invested enterprises from 1 October 2017.
Under the new amendments, if the establishment (or change of its particulars) of the foreign-invested enterprises (“FIE”) does not involve the special market entry management measures prescribed by the State, a record-filing system will be applicable instead of the former examination and approval procedures by the Ministry of Commerce (“MOFCOM”).
To implement the amendments in the above legislations, MOFCOM published the following circular and measures on 8 October 2016 in order to provide further clarifications and guidelines on the procedures for FIE’s establishment and change of its particulars :-
(1) Circular number 22 of 2016 (joint circular with the National Development and Reform Commission) (“Circular 22”); and
(2) Interim Measures for Record-filing Administration of the Establishment and Change of Foreign-invested Enterprises (“Interim Measures”).
Special Market Entry Management Measures
Circular 22 aims to clarify that the types of FIEs falling into “special market entry management measures”, which refers to those FIEs in the industries classified as (a) restrictive and prohibited categories under the Foreign Investment Industrial Catalogue (latest version published in 2015)(“Catalogue”); and (b) those FIEs in the industries classified as the encouraged category but with special requirements on shareholding or senior management. Therefore, the record filing system will be applicable to the establishment and change of the particulars of FIEs not falling in the above 2 categories. Otherwise, the usual examination and approval procedures are still applicable to those FIEs with special market entry measures. Commentators suggest that it is the new “negative list system” for foreign investment in PRC.
New Online Record Filing Procedures
The new online record filing procedures set out in the Interim Measures (applicable to FIEs without the special market entry management measures) are summarized as follows :-
1. For establishment of FIEs, after obtaining the enterprise name reservation approval, the investor’s representative or agent should complete online and file the FIE Establishment Filing Application Form and the relevant documents with the local MOFCOM’s FIE General Management Data System (“System”) prior to the issuance of the business license.
2. For change of FIE’s particulars (such as address, business scope. registered capital, legal representative etc), FIE’s representative or its agent should complete online and file the FIE’s Change of Particulars Application Form and the relevant documents within 30 days of such change.
3. Article 11 of the Interim Measures provides that the local MOFCOM should complete verification of the filing within 3 working days providing that the information and documents filed by the FIE are in order. Otherwise, the authorities may request for supplemental documents and/or information. After completing the filing, FIE should attend the local MOFCOM to collect the filing receipt by providing a copy of the enterprise name reservation document (for new companies establishment); or business license (for companies apply for change of particulars). The receipt will provides the following details in relation to the filing :-
(i) That the relevant FIE or its investor has submitted application materials for filing of establishment or change, and that such materials are in the required formats;
(ii) The matters of the establishment or change of the FIE have been recorded;
(iii) That the matters of the establishment or change of the FIE fall within the scope of filing; and
(iv) Whether the FIE falls into the scope of import equipment tax exemption and reduction as prescribed by the State.
With the implementation of the Interim Measures, we expect that the local Administration of Industry and Commerce (“AIC”) will be mainly responsible for vetting the FIE’s application documents such as the Articles of Association. It remains to be seen whether AIC will strictly scrutinize the application by conducting substantial review of the documents.
The launch of the Interim Measures by MOFCOM will be welcomed since it will significantly simplify the establishment processes of FIEs and their change of particulars. However, foreign investors are still advised to check with local MOFCOM and AIC before filing any application documents. We expect that the authorities will publish more guidelines in the near future in this area and will continue to monitor the development in our future updates.
If you have any questions on the above or other issues on doing business in Mainland China, experienced lawyers in our China Business Department will be happy to assist.