Manufacturing operations

1. Legal authority for foreign investment enterprises

2. Stages of setting up a foreign investment enterprise

3. Flow chart for setting up a foreign investment enterprise

4. Information required to set up a foreign investment enterprise

5. Additional vetting and approval requiremen.

LEGAL AUTHORITY FOR FOREIGN INVESTMENT ENTERPRISES

• The PRC Law on Sino-Foreign Equity Joint Venture Enterprises and the Detailed Implementation Regulations
• The PRC Law on Sino-Foreign Co-operative Joint Venture Enterprises and the Detailed Implementation Regulations
• The PRC Law on Wholly Foreign Owned Enterprises and the Detailed Implementation Regulations

 

STAGES OF SETTING UP A FOREIGN INVESTMENT ENTERPRISE

PRE-APPROVING STAGE

The applicant shall conduct a name search at the local office of State Administration of Industry and Commerce to ensure that there is no duplicate name and that the name is registrable. A name reservation can be submitted before the applicant applies to the local office of State Administration of Industry and Commerce for a name pre-approval. The purpose is to ensure that the name is ready for later use. The name pre-approval certificate is valid for 6 months.

In addition, the shareholder must sign a provisional tenancy agreement. Or alternatively the Chinese party in the case of a Sino-foreign joint venture can provide proof of fixed business place. The agreement must be submitted together with the application for approval. The PRC General Code of Civil Law provides that a legal person must have a domicile or a fixed place of business as a pre-condition for obtaining a legal person status.

Applicants for production-type foreign investment enterprise shall also obtain approvals from the Public Security Bureau for fire safety and environmental protection authorities.

APPROVAL STAGE

The shareholder shall submit to the local office of the MOFTEC at the city level an application including a project proposal, a feasibility report, articles of association, shareholder agreement (between the Chinese party and the foreign party for joint venture enterprises). MOFTEC is renamed on March 2003 as Ministry of Commerce (MOC). After examining the application and the other documents and seeing that the applications are in compliance with the laws, the local office of the MOC will issue an "Approval Certificate" to the applicant.

To set up factory operation, the applicant must submit application for approval on fire safety certificate from the Public Security Bureau and assessment of the project impact on local office of the environment authorities.

INCORPORATION STAGE

After obtaining the Approval Certificate, the applicant may proceed with registration with the local office of State Administration of Industry and Commerce at the city level within 30 days.

The foreign investment enterprise (FIE) shall come into existence at the date when the business certificate is granted and the incorporation is completed.

POST-INCORPORATING STAGE

After obtaining the business certificate, the FIE shall proceed with various statutory registrations within the time limits. The following lists out the types of registrations after the incorporation stage.

1. National income tax registration;
2. Local income tax registration;
3. Organization identity code registration;
4. Financial department registration;
5. Foreign exchange registration;
6. Customs registration;
7. Statistics registration;
8. Seal engraving and registration;
9. Basic bank account registration;
10. Labor and social security registration.

 

The flow chart for setting up a wholly foreign owned enterprise is listed below.

FLOW CHART FOR SETTING UP A FOREGIN INVESTMENT ENTERPRISE

 

Post-incorporation stage

 

INFORMATION REQUIRED TO SET UP A FOREIGN INVESTMENT ENTERPRISE

	Documents	Remarks
1	Name pre-approval certificate
2	Project proposal to be submitted in the name of Chinese Partner	Not required for wholly foreign owned enterprises
3	Investment application form	Only required for wholly foreign owned enterprises
4	Contracts between Chinese and foreign parties	Not applicable to solely foreign-owned enterprises
5	Articles of Association
6	Feasibility study report
7	Board resolution of directors of the shareholding company	From both the Chinese party and the foreign party
8	Report on the assessment of impact on environment	For factory operations only
9	Approval from public security bureau on fire safety	For factory operations only
10	Name list of the Board of directors of the foreign-funded enterprises
11	Photocopies of the valid business license or other certificate of business operation issued by the government where the foreign investor resides; or photocopies of passports / identity cards of the foreign investor in case of foreign investment is made by an individual
12	Reference letter issued by the bank with which the foreign investor keeps an account
13	A lease (or purchase) agreement of the premises for production and operation of the proposed foreign funded enterprises; or a land use contract signed with the Land Bureau / department
14	List of major machinery and equipment, office utilities and means of transport to be imported for self use by foreign funded enterprises
15	Other supplementary documents deemed necessary by the examining and approving department

Notes

For Sino-foreign equity JV and Sino-foreign cooperative JV, a contract is required to set out the rights and responsibilities for each party. In case of inconsistency between the contract and the Articles of Association, the contract shall prevail over the Articles.

A wholly (solely) foreign owned enterprise (WFOE), on the other hand, does not need to have any contract. Only Articles of Association are required for a WFOE. The PRC for the Sino-foreign equity joint venture enterprises, the PRC law for the Sino-foreign cooperative joint venture enterprises, and the PRC law for wholly foreign owned enterprises prescribe certain clauses that the Articles of Association must contain.

ADDITIONAL EXAMINATION AND APPROVAL REQUIREMENT

Additional approval requirements in addition to that of MOC 

	Specific industries & services	Additional examining and approval ministries / administrations
1	Accounting service	Ministry of Finance
2	Advertising services	State Administration of Industry and Commerce
3	Asset appraisal	State Asset Appraisal Bureau
4	Civil aviation projects	State Administration of Aviation
5	Commodity inspection	State Import & Export Commodity Inspection Bureau
6	Education	Ministry of Education
7	Engineering design	Ministry of Construction
8	Funeral companies	Ministry of Civil Affairs
9	Finance leasing	People's Bank of China
10	Shipping forwarding agent	Ministry of Communication
11	Transportation service	Ministry of Communication
12	Medical services	Ministry of Health
13	Hotel accommodation	State Tourist Administration
14	Insurance	China Insurance Regulatory Commission
15	Legal service for foreign and international law	Ministry of justice
16	Publication	State Administration of Press and Publication
17	Retailing	MOC
18	Security and brokerage	China Security Regulatory Commission
19	Training service	Ministry of Labor and Social Security
20	Video and audio products	State Administration of Press and Publication
21	Food manufacturing	State Food and Drug Administration

In general, the foreign investors are not required to submit their applications at above the provincial government level if the total amount of investment is not exceeding USD30 million. For project amount below USD30 million, they only need to submit the application to the approval authority at the provincial government level. In practice, they only need to submit their application to the approval authority at the district level of the municipal government at the provincial level, or the office of the approval authority at the districts in the four cities directly administered by the Central Government.