Significant Changes to Several Requirements on Registration of Foreign Invested Enterprises in China
On June 17, 2014, the Ministry of Commerce of China issued a notice regarding the improvement of review & approval and statistical rules of foreign investment in China (the “Notice”) and the Notice shall take effect as of its promulgation date. The Notice revised several important issues regarding the review and approval of registration of foreign-invested enterprises (the “FIE”) in China.
The main changes are described as follows:
a. The Notice abolished the requirements and restrictions on percentage of first-time capital contribution, percentage of contribution by cash and the time limit of capital contribution of the FIE. All these issues shall be agreed by investors (including shareholders and promoters) of FIE and regulated in the equity/contractual joint venture contracts or the Articles of Association of the FIE.
b. The Notice abolished the requirement on the minimum registered capital of the FIE, unless otherwise provided by laws, administrative regulations and State Council’s decisions for particular industries.
c. The Notice stipulated that the FIE which is involved in particular industries (such as bank, insurance, securities, etc) listed by State Council shall still comply with the current paid-in capital contribution requirements unless relevant laws, administrative regulations and the State Council’s decisions relating to those particular industries are amended later.
On the other hand, subscribed capital contribution (other than paid-in capital contribution) shall be applied to the FIE which is involved in normal industries and whether the registered capital is paid will not be examined or verified by the Chinese authorities except for particular industries.
d. The ratio between registered capital and total investment amount of the FIE shall still comply with the requirement regulated in Provisional Regulations on the Ratio between the Registered Capital and Total Investment Amount of Sino-Foreign Joint Equity Enterprises and other relevant provisions.
e. Regarding the foreign investment registration which was approved before March 1, 2014, investors shall perform their capital contribution obligations according to the original contracts and Articles of Association. Any modification to the original arrangement requested by investors shall be reviewed and approved by Chinese commercial departments.
f. Under the subscribed capital contribution requirement, if the capital contribution is actually paid in by investors (including shareholders and promoters) of the FIE, according to the relevant laws and regulations, the FIE shall issue the capital contribution certificates to investors respectively and then submit the copy of the capital contribution certificates (including the company chop) as well as materials relating to the capital contribution to the local Chinese commercial departments for filing within 30 days after the corresponding capital contribution is finished.
The Notice shall be considered as the corresponding adjustment/amendment to the foreign investment laws and regulations of China in order to keep in line with the new Company Law of China which came into force on March 1, 2014.
According to the amendment in the Notice, the registered capital of the FIE in normal industries will not be necessarily paid by investors within fixed periods after it is established (eg: 3 months and 2 years after the establishment), which will dramatically reduce the cash flow pressure of foreigner investors and increase the flexibility of foreign investment.
The Notice will, through the reform of corporate capital registration and statistical rules, further loosen the control over market entry for foreign investment, lower the access threshold, optimize business environment in China and eventually improve the regulatory efficiency.