Interim Provisions Issued on Equity Contribution of FIEs
Nov. 1 – In a move to standardize the equity contributions of foreign-invested enterprises (FIEs) and promote foreign investment, China’s Ministry of Commerce (MOC) released the “Interim Provisions on Equity Contributions of Foreign-Invested Enterprises (Order No.8 of MOC, hereinafter referred to as ‘Provisions’)” on September 21, effective as of October 22, 2012. Key information extracted from the Provisions can be found below.
The Provisions apply to the establishment or change of FIEs by domestic or overseas investors making capital contributions with the equity held by them in enterprises within the territory of China (hereinafter referred to as ‘equity enterprises’).
Equity used for capital contributions shall be of indisputable ownership and complete rights, and can be legally transferable. Where an equity enterprise is an FIE, it shall be established upon approval in accordance with the law and comply with the industrial policies on foreign investment.
Equity cannot be used for capital contributions under the following circumstances:
- Where the registered capital of an equity enterprise fails to be paid in full
- Where the equity has been pledged
- Where the equity has been frozen in accordance with the law
- Where the equity is not allowed to be transferred according to the articles of association of an equity enterprise
- Where the equity belongs to foreign-invested enterprises that fail to participate or fail to pass the joint annual inspection of FIEs in the previous year
- Where the equity belongs to real estate enterprises, foreign investment companies, or foreign-invested venture enterprises
- Where the equity transfer shall be reported for approval but failed to be approved in accordance with the laws, administrative regulations, or decisions of the State Council
- Other circumstances where the equity is not allowed to be transferred as prescribed by the laws, administrative regulations, or decisions of the State Council
After equity contributions have been made, the invested enterprises, the equity enterprises, and the direct or indirect shareholding enterprises thereof shall observe the “Provisions on Guiding Foreign Investment Direction,” the “Guiding Catalogue of Foreign-invested Industries” and other provisions on foreign investment.
In the case of any non-conformity, the relevant assets or business shall be stripped or the relevant equities shall be transferred prior to the declaration of equity contribution. Domestic or overseas investors are not allowed to evade foreign investment administration by means of equity contribution.
The aggregate amount of equity contributed by all the shareholders of an invested enterprise and other non-monetary contributions shall not exceed 70 percent of the registered capital of the enterprise.
Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia.
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