China Simplifies Administrative Procedures for Foreign Invested Enterprises
On September 3, 2016, the Ministry of Commerce (MOFCOM) released a draft of the Interim Measures for the Administration of the Recordation of Establishment and Changing of Foreign Invested Enterprises (the Interim Measures) for public opinion solicitation. This article looks at this draft and discussions its implications.
The release of the Interim Measures is to support the implementation of the Decision made by the Standing Committee of the National People’s Congress as it is mentioned below:
On September 3, the Standing Committee of the National People’s Congress issued a Decision to amend administration approval related provisions of four laws including the Law of the People's Republic of China on Wholly Foreign-Owned Enterprises, the Law of the People's Republic of China on Chinese-Foreign Equity Joint Ventures, the Law of the People's Republic of China on Chinese-Foreign Contractual Joint Ventures and the Law of the People's Republic of China on the Protection of Investments of Taiwan Compatriots. In accordance with the Decision, it is provided that the establishment and changing of foreign related enterprises as well as Taiwan-invested enterprises will only be required of recordation instead of prior approval, on the premise that the establishment of such enterprise does not involve the implementation of special access management measures as prescribed by the state. The said Decision will become effective on October 1, 2016.
Thus, in order to ensure a smooth transition of the relevant provisions, the MOFCOM issued the draft of the Interim Measures to regulate the recordation work.
The Interim Measures has five chapters, thirty-five provisions; and it will be applied to the establishment and changing of foreign invested enterprises that do not involve implementation of special access management measures as prescribed by the state (the Negative List), including wholly-owned foreign invested enterprises, Chinese-foreign equity joint ventures, Chinese-foreign contractual joint ventures, Hong Kong, Macao and Taiwan-invested enterprises, as well as investment companies, startup investment enterprises and equity investment enterprises that are invested by foreign investors. MOFCOM and its local departments will be responsible for such recordation.
It is worth of noticing that, for the establishment recordation, it can be filed after the proposal established enterprise obtaining the pre-approval of the enterprise name but prior to the issuance of the business license, or filed within 30 days after the issuance of the business license thereof. In other words, such establishment recordation is not a prerequisite for the AIC registration. As to the changing recordation, it shall be filed within 30 days after the occurrence of such change. Both recordation for establishment and changing will be filed online through a system called the Foreign Investment Comprehensive Management Information System (“the System”).
For the foreign related enterprises already established prior to the issuance of the Interim Measures, in case of changing, such enterprise shall also file changing recordation through the System mentioned above. As the changing recordation is completed, its Certificate of Approval for Establishment of Enterprises with Foreign Investment will become invalid.
Upon submitting all the required materials to the System, the recordation department will conduct a formal check to the completeness and accuracy of the filed information and decide whether the filed information fall into the filing scope. If so, the recordation department shall finish the recordation within three working days, and issue a recordation confirmation receipt to the enterprises.
Supervision and Management
In accordance with the draft of the Interim Measures, the recordation departments shall supervise the implementation of the Measure by taking various inspections, including random-pick inspection, inspection upon report, inspection upon suggestion by relevant departments or judicial department, as well as inspection ex officio. In addition, the recordation departments will closely coordinate and share information with relevant administrative departments, such as public safety, national assets, customs, taxation, AIC, securities as well as foreign exchange and so on.
The draft of the Interim Measures also lists four kinds of liabilities borne by the enterprises in case of violating the recordation obligation, violating the admittance license, investing in the prohibited fields, and refusing to cooperate with supervision and inspection. Under the circumstances, the violating enterprises may face the order to rectification within limited period, and a fine no more than RMB 30,000 Yuan.
Starting from October 2013, China conducted the management mode of pre-establishment national treatment and negative list in the four Free Trade Zone (FTZ, including Shanghai, Guangdong, Tianjin and Fujian), which was to change the prior examination and approval to recordation for the establishment and changing of foreign invested enterprises that do not involve implementation of special access management measures as prescribed by the state.
It is reported that such reform has been widely recognized due to its great convenience and high efficiency. According to statistics, in the first six months this year, more than 99% of the foreign-invested enterprises in the four FTZ were established through recordation. In addition, there has no aerial or systematic risk happened in the FTZ in the past three years. The Chinese government, upon evaluation by third party institutions, considers that the foreign investment management system reform conducted in the FTZ has possessed the conditions to be promoted to the nationwide.
In conclusion, the issuance of the Decision mentioned above as well as the draft of the Interim Measures marks the successful experience gained from the FTZ pilot reform to be duplicated and promoted to the nationwide, and the foreign investment examination and approval mechanism which has carried out for more than 30 years will be terminated. It is estimated that the Interim Measures will become effective along with the Decision on October 1, 2016.
ABOUT THE AUTHOR: Fei Dang
Fei Dang is an Associate with the MMLC Group.
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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.