Provisions on the Establishment of Investment Companies by Foreign Investors (Promulgated November 17th, 2004, Effective December 17th, 2004)
Order of the Ministry of Commerce of the People’s Republic of China
(No. 22 [2004])
The Provisions on the Establishment of Investment Companies by Foreign Investors were amended and adopted at the 12th executive meeting of the Ministry of Commerce of the People’s Republic of China on November 3, 2004. The amended Provisions on the Establishment of Investment Companies by Foreign Investors are hereby promulgated and shall be implemented 30 days after the date of promulgation.
November 17, 2004
Provisions on the Establishment of Investment Companies by Foreign Investors
Article 1 In order to promote foreign investors to invest in China, introduce advanced technologies and management experiences from abroad, foreign investors are permitted to, in accordance with the relevant laws and regulations of China on foreign investments as well as the present Provisions, establish investment companies in China.
Article 2 The term“investment company” as mentioned in the present Provisions refers to a company established by a foreign investor in the form of either wholly-owned enterprise or Chinese-foreign joint venture to engage in direct investments. Such a company shall be in the form of a limited liability company.
Article 3 An applicant who intends to establish an investment company shall meet the following conditions:
(1) (a) It is in good credit status and has the necessary economic strength to establish an investment company, with its total amount of assets during the year before the application being no less than US$ 400 million, and it has established a foreign-funded enterprise inside the territory of China, with the amount of registered capital it has actually contributed being US$ 10 million or more, or; (b) It is in good credit status and has the necessary economic strength to establish an investment company, and has established 10 or more foreign-funded enterprises inside the territory of China, with the amount of registered capital it has actually contributed being US$ 30 million or more;
(2) If it establishes an investment company by means of joint venture, the Chinese investor shall be in good credit status and have the necessary economic strength to establish an investment company, with its total amount of assets during the year before the application being no less than RMB 100 million Yuan;
(3) The investment company’s registered capital shall be no less than USD $ 30 million.
The foreign investor that applies to establish an investment company shall be a foreign company, enterprise or economic organization. If there are two or more foreign investors, there shall be at least one foreign investor who holds a major share and conforms to Item (1) of Paragraph 1 of the present Article.
Article 4 A foreign investor who meets the conditions prescribed in Item (1), Paragraph 1 of Article 3 of the present Provisions may invest to establish an investment company in the name of its wholly-owned subsidiary company.
Article 5 If a foreign investor that applies to establish an investment company meets the conditions prescribed in Item (1), Paragraph 1 of Article 3 of the present Provisions, it must issue a letter of warranty to the examination and approval organ, guaranteeing the contribution of the registered capital by the established investment company when investing inside the territory of China and the technology transfer of the said foreign investor or affiliated company.
If a foreign investor invests to establish an investment company in the name of its wholly-owned subsidiary company, the parent company must issue a letter of warranty to the approval organ, guaranteeing the the subsidiary company’s contribution of the registered capital of the investment company to be established according to the conditions of the approval organ, and guaranteeing the the investment company’s contribution of registered capital when investing inside the territory of China and the technology transfer of the parent company and its subsidiaries.
Article 6 An investor shall, when applying to establish an investment company, submit the following documents to the commerce administrative department of the province, autonomous region, municipality directly under the Central Government, or city directly under state planning where the investment company will be located for verification and consent, which, if consented to, shall be submitted to the Ministry of Commerce for examination and approval.
(1)In the case of establishing a joint venture, a project proposal on the establishment of a joint venture investment company, a feasibility study report, and contracts and articles of association signed by all parties to the investment;
In the case of establishing a wholly-owned investment company, a project proposal signed by the foreign investor, the wholly foreign-owned enterprise’s application form, feasibility study report and articles of association;
(2)The certification documents of credit status, certification documents of registration (photocopies) and certification documents of the legal representative (photocopies) of all parties to the investment;
(3)The approval certificate (photocopy) and business license (photocopy) of the enterprise invested by the foreign investor and the capital verification report (photocopy) issued by Chinese CPA;
(4)The recent 3 years of balance sheets of all parties to the investment which have been audited in pursuance of law;
(5) The letter of warranty to be submitted as required by Article 5 of the present Provisions; and
(6) Other documents required by the Ministry of Commerce.
All of the above-mentioned documents shall be formal documents unless they are indicated to be photocopies.
As to the documents not signed by a legal representative, a power of attorney of the legal representative shall be presented.
If a lawfully established intermediary institution is authorized to file the application, a power of attorney signed by the legal representative of the investor shall be presented.
Article 7 A foreign investor must use convertible currencies or the Renminbi profits it obtains inside the territory of China or the lawful Renminbi proceeds it obtains due to any share transfer or liquidation, etc. as the registered capital it contributes to the investment company. A Chinese investor may invest in Renminbi. If a foreign investor uses its lawful Renminbi proceeds as registered capital to contribute to the investment company, it shall submit the relevant evidential documents and the tax payment receipts. The investments shall be fully contributed within two years from the day when the business license is issued.
Article 8 In the registered capital of an investment company, there shall be at least US $ 30 million which shall be regarded as investments to the newly established foreign-funded enterprise, or be regarded as the incompletely contributed amount of investments to the foreign-funded enterprise invested and established by the parent company or affiliated company (with the formalities of stock right transfer having been lawfully completed), or the increased portion of investments, or be used for establishing a research and development center or other institutions, or be used for purchasing the stock rights of a shareholder of a domestic company inside the territory of China (excluding the stock rights formed by the capital contributions already paid by the parent company or the affiliated companies of the investment company).
Article 9 If the registered capital of an investment company is no less than USD $ 30 million, the amount of loans shall be no more than 4 times of the contributed amount of registered capital. If the registered capital of an investment company is no less than USD $ 100 million, the amount of loans shall be no more than 6 times of the contributed amount of registered capital. If the amount of loans for the investment company is planned to exceed the above limit due to operation needs , it shall report to the Ministry of Commerce for approval.
Article 10 An investment company may, after its establishment is approved by the Ministry of Commerce, run the following business on the basis of its actual needs in undertaking business activities in China:
(1)Investing in accordance with the law in the areas where foreign investments are permitted by the state.
(2)Being entrusted in writing by an enterprise it invests in (unanimously adopted by the board of directors) to provide the enterprise with the following services:
(a)Assisting or representing the said enterprise in purchasing machinery equipment, office equipment and raw materials, components and parts needed in production for the enterprise’s own use from both home and abroad, as well as in selling products manufactured by the said enterprise in both domestic and overseas markets, and providing after-sale service;
(b)Balancing foreign exchange between the enterprises it invests in upon the consent and under the supervision of the foreign exchange department;
(c)Providing the enterprise it invests in with such services as technical support in the process of production, sale and market development, training for employees, and intra-enterprise personnel management, etc.;
(d)Assisting the enterprise it invests in to seek loans, and providing guaranty.
(3) Establishing scientific research and development centers or offices inside the territory of China, engaging in research and development of new products and technologies, transferring its research and development achievements, and providing corresponding technical services.
(4) Providing its investors with consulting services, and providing its associated companies with such consulting services including market information related to investment and investment policies, etc.
(5) Undertaking services contracted out by its parent company or its affiliated companies.
Article 11 An investment company engaging in import & export of goods or technologies shall meet the requirements as mentioned in the Measures for the Archival Filing and Registration of Foreign Trade Business Operators issued by the Ministry of Commerce.
An investment company engaging in commissioned, wholesale, retail or franchise business shall meet the relevant requirements as mentioned in the Measures for the Administration on Foreign Investment in Commercial Fields issued by the Ministry of Commerce.
Article 12 The term “an enterprise invested in by an investment company ”as mentioned in the present Provisions refers to an enterprise meeting the following conditions:
(1)An enterprise invested in by an investment company either directly or jointly with any other foreign investor and/or Chinese investor, with the proportion of the converted investment of the sole foreign investor of the investment company or the converted joint investment with other foreign investors to the registered capital of the invested enterprise being 25% or more;
(2)The investment company purchases part or all of the stock rights of the enterprise invested in and established inside the territory of China by its investor or associated company and other foreign investors, thus causing the proportion of the converted sole investment of the foreign investor of the investment company or the converted joint investment with other foreign investors to the registered capital of the invested enterprise to reach 25% or more;
(3) The investment company’s investment amount shall be no less than 10% of the registered capital of the enterprise it invests in and establishes.
Article 13 An investment company may, upon approval by the People’s Bank of China, provide financial support to the enterprise it invests in and establishes.
Article 14 An investment company may act as an initiator to initiate the establishment of a foreign-funded share limited company or to hold the unlisted corporate shares of the foreign-funded share limited company. The investment company may also hold the unlisted corporate shares of other share limited companies inside the territory in accordance with the relevant provisions of the state. The investment company shall be regarded as an overseas initiator or shareholder of the share limited company.
Article 15 If an established investment company runs its business in accordance with the law and has no record of violation of law, and its registered capital is contributed in time as prescribed in the articles of association, and the amount of the registered capital actually contributed by the investor is no less than US $ 30 million and has been used as an investment of the enterprise it invests in, the investment company shall, after obtaining the consent of the administrative department for commerce of a province, autonomous region, municipality directly under the Central Government, or city under separate state planning at its locality, file an application to the Ministry of Commerce, and may, pending approval, run the following businesses on the basis of its actual needs in undertaking business activities in China:
(1)Being entrusted in writing by an enterprise it invests in (unanimously adopted by the board of directors) to carry out the following business:
(a)Selling the products manufactured by the enterprise it invests in by means of distribution in both domestic and foreign markets;
(b)Providing the enterprise it invests in with such comprehensive services such as transport, storage, etc.
(2)Exporting domestic commodities by means of agency, distribution or by establishing an export purchasing institution (including internal institution) in accordance with the relevant provisions of the state;
(3)Purchasing the products manufactured by the enterprise it invests in and then selling them both at home and abroad after system integration; if the products manufactured by the enterprise it invests in cannot completely satisfy the needs of system integration, it is permitted to purchase the auxiliary products for system integration both at home and abroad, provided that the value of the said products shall not exceed 50% of the value of all the products required by the system integration;
(4) Providing relevant technical training for the domestic distributors and agents of the products produced by the enterprise it invests in, and for the domestic companies and enterprises that have concluded technology transfer agreements with the investment company or its parent company;
(5) It is permitted to, before the enterprise it invests in starts production or before the new products of the enterprise it invests in are put into production, import from its parent company the products related to those to-be-manufactured by the enterprise it invests in for domestic trial sale for the purpose of developing the products market;
(6) Providing the enterprise it invests in with services involving operating lease of machines and office equipment, or establishing an operating lease company;
(7)Providing after-sale service for the products imported by it; and
(8)Participating in overseas contract projects undertaken by Chinese enterprises having the right to run overseas contract projects in accordance with the relevant provisions of the state.
(9)Selling (excluding retail sale) products imported from its parent company within China.
Article 16 An investment company shall comply with the provisions in Paragraphs 3 and 5 of Article 15 in the process of importation as well.
It shall go through the formalities for the import of goods in accordance with the relevant provisions of the state. The above accumulative import amount of each year shall not exceed the capital contributions already paid by the company.
Article 17 An investment company shall, if applying for running the business prescribed in Article 14 of the present Provisions, submit the following documents to the Ministry of Commerce:
(1) An application letter signed by the legal representative of the investment company;
(2)The resolution of the investment company’s board of directors;
(3)The investment company’s amended articles of association;
(4)The investment company’s approval certificate (photocopy), business license (photocopy) and its capital verification report issued by a Chinese CPA;
(5)The capital verification report issued by a Chinese CPA on the enterprise it invests in; and
(6)Other documents as required by the Ministry of Commerce.
Article 18 The duration of an investment company’s operation shall be verified in light of the nature of the project to be established by the investment company as well as the relevant provisions of the state on foreign-funded enterprises’ duration of business operation.
Article 19 An investment company shall, if investing to establish an enterprise, separately report for approval according to the scope of approval and procedures of examination and approval for foreign-funded enterprises.
Article 20 If an investment company invests to establish an enterprise, with the proportion of the converted sole investment by the foreign investor of the investment company or the converted joint investment with other foreign investors to the registered capital of the enterprise it invests in and establishes at 25% or more, the invested and established enterprise may enjoy thepreferential treatments accorded to foreign-funded enterprises, and be issued a approval certificate of foreign-funded enterprise and a business license of foreign-funded enterprise.
Article 21 An investment company shall, if establishing a branch, report to the Ministry of Commerce for examination and approval. If the investment company applies for establishing a branch company, it must meet the following conditions:
(1)Its registered capital has been contributed in a timely manner as prescribed in the contract and the articles of association, and the contributed amount of investments is no less than US $ 30 million; or the investment company has invested in and established or has owned 10 or more foreign-funded enterprises;
(2)The region where the branch company is to be established shall be a region with concentrative investments of the investment company or a region with concentrative sales of the investment company’s products.
Article 22 An investment company that meets the prescribed conditions may file an application for designation as the regional headquarters of the transnational companies (hereinafter referred to as the regional headquarters), and shall go through modification formalities in accordance with the law.
(1)When applying for designation as the regional headquarters, an investment company shall meet the following requirements:
(a)The contributed investment in the registered capital is not less than US $ 100 million; or the contributed investment in the registered capital is not less than US $ 50 million, the total amount of the assets of the enterprises it invests in is not less than RMB 3 billion yuan during the year before the application is filed, and the total amount of profits in not less than RMB 100 million yuan (which shall be calculated according to the relevant provisions on consolidated statements);
(b)Meeting the conditions as specified in Article 8 of the present Provisions;
(c)It has established two or more research and development institutions in accordance with relevant provisions.
(2) An investment company that has been determined as the regional headquarters may, in light of the actual needs of its business in China, engage in the following businesses:
(a) The business as prescribed in Articles 10 and 15;
(b)The import and domestic sale (excluding retail sale of) of transnational company’s products, and products of the affiliates controlled by it;
(c)Importing the original auxiliary materials and parts necessary for providing maintenance services for products of the enterprises invested in by it or the transnational company;
(d)Undertaking services contracted out by enterprises both at home and abroad;
(e)It may engage in logistics and distribution services in accordance with relevant provisions;
(f)Upon approval of the China Banking Regulatory Commission, it may establish finance companies to provide relevant financial services to investment companies and the enterprises invested in by it;
(g)Upon approval of the Ministry of Commerce, it may engage in contracting overseas projects and make investments abroad, establish financing lease companies and provide relevant services; and
(h) Other businesses upon approval.
(3) Application procedures:
(a)The investment company shall file an application to the local commerce administrative department of the province, autonomous region, municipality directly under the Central Government or city under separate state planning for preliminary examination, and then the application shall be submitted to the Ministry of Commerce;
(b)The Ministry of Commerce shall make a reply within 30 days from the day when it receives a complete set of application materials, in the case of designating the applicant as the regional headquarters, it shall issue a new foreign-funded enterprise approval certificate (with an indication of its designation as “Regional Headquarters”);
(c)The investment company shall, within 30 days, file an application to the administrative department of industry and commerce for modifying its registration upon the strength of the approval certificate;
(4) Application documents:
(a)The application signed by the legal representative of the investment company;
(b)Resolution of the investment company or the board of directors of the transnational company;
(c)The amended articles of association / contract of the investment company;
(d)The approval certificate (photocopy) and business license (photocopy) of the investment enterprise and the capital verification report (photocopy) issued by a Chinese CPA;
(e)The approval certificate (photography) and business license (photocopy) and the capital verification report (photocopy) issued by a Chinese CPA;
(f)The invested enterprise’ capital verification report (photocopy) issued by a Chinese CPA
(g)The main financial statements of the investment companies audited by a Chinese CPA; and
(h)Other documents required by the Ministry of Commerce.
The above-mentioned documents shall be formal ones except for those indicated to be photocopies.
The “transnational company” as mentioned in the present Article refers to the parent company of the company group of the foreign investor that establishes the investment company.
Article 23 The investment activities of an investment company inside the territory of China are not to be limited by its registration place.
Article 24 The investment activities of an investment company inside the territory of China are not be limited to its registration place.
Article 25 An investment company shall earnestly implement its project investment plans, and shall, within 3 months before the next year, submit the information about investment and operation of the first year to the Ministry of Commerce for archival purposes in compliance with the prescribed contents and format. The above-mentioned materials shall be regarded as one of those necessary materials for the investment company to apply for joint annual examination.
Article 26 An investment company and the enterprises it invests in and establishes are legal persons or entities independent from each other, and their business relations shall be treated as those between independent enterprises
Article 27 An investment company and the enterprises established by it shall abide by the law, regulations and rules of China, and shall not evade administration and tax payment by any means.
Article 28 No investment company may directly engage in productive activities.
Article 29 The present Provisions shall be allowed to apply to the establishment of investment companies in the Mainland by investors from Taiwan, Hong Kong and Macao.
Article 30 The power to interpret the present Provisions shall remain with the Ministry of Commerce.
Article 31 The present Provisions shall be implemented 30 days after the date of promulgation.