China Corporate Newsletter – Changes of the administrative management for FIE

By Sven-Michael Werner, Esther Ma

02-2020

At the earlier stages of China's opening up to foreign investment, the Chinese Wholly Foreign-owned Enterprises Law ("WFOE"), Sino-Foreign Equity Joint Ventures Law ("EJV") and Sino-Foreign Cooperative Joint Ventures Law ("CJV") impose strict foreign investment related examination and approval mechanisms prior to the actual company registration. Ministry of Commerce ("MOFCOM"), the authority in charge of such prior examination and approval mechanism, used to review all applications in relation to the establishment, change and liquidation of WFOE and JV.

Such strict administrative management mechanism loosened in Oct 2016 with the implementation of the "Decision of the Standing Committee of the National People's Congress on Revising Four Laws including the Law of the People's Republic of China on Wholly Foreign-owned Enterprises" and "The Interim Measures for the Recordation Administration of the Formation and Modification of Foreign-Funded Enterprises" issued by MOFCOM. These two regulations changed "examination and approval mechanism" to "filing mechanism" so that MOFCOM will no longer examine the content of applications. Such responsibility of application content review was passed to the company registration authority, i.e. Administration for Industry and Commerce ("AIC", the predecessor of Administration for Market Regulation).

This MOFCOM filing mechanism became easier to be fulfilled in 2018 because of the "Notice of the General Office of the Ministry of Commerce and the General Office of the State Administration for Industry and Commerce on Implementing the Work concerning 'Single Window and Single Form' Acceptance for Commercial Recordation and Industrial and Commercial Registration of Foreign-Funded Enterprises" issued by MOFCOM and AIC ("Notice"). The Notice introduced the online MOFCOM filing method for WFOE, EJV and CJV but applicants still need to pick up the paper filing receipt of MOFCOM on site after online filing is finished.

Nowadays, the "Foreign Investment Law" ("FIL") has replaced the laws related to WFOE, EJV and CJV above and China is pushing the management system of pre-establishment national treatment for foreign investors as mentioned in FIL. At the same time, a new regulation named "Measures for Reporting of Information on Foreign Investment" ("Measures") is issued by MOFCOM and State Administration for Market Regulation ("SAMR") at the last day of 2019 and comes into effect at 1 Jan 2020 (the same effective date of FIL). 

The Measures adopt a new reporting mechanism for foreign invested enterprises ("FIE") which replace the previous existing mandatory filing procedure with MOFCOM for FIEs.

What shall FIE do according to the Measures

The Measures introduce various types of reports companies need to submit to SAMR system depending on respective changes as follows:

Establishment Information Report

  1. Apply to (1) incorporation of FIE and (2) equity acquisition of Chinese domestic company by foreign investor(s) in part or in whole;
  2. Shall contain the information of (1) company basic information, (2) investor and ultimate actual controller information, (3) investment transaction information and etc.

Company Information Change Report

Apply to changing the information of establishment report.

Annual Information Report

  1. Annual Information shall be reported through National Enterprise Credit Information Publicity System run by SAMR;
  2. Deadline is 30 June of each year;
  3. Shall contain the information of (1) company basic information, (2) investor and ultimate actual controller information, (3) company operation and assets & liabilities information, (4) license or permit information related to special foreign investment regulatory management (if any) and etc.

De-registration Information Report

  1. Apply to (1) de-registration of FIEs and (2) FIEs become Chinese domestic companies through entire equity acquisition;
  2. If above (1) or (2) have already registered in AMR, de-registration information report could be waived.

The information reporting could be finished online by FIEs/foreign investors themselves but MOFCOM still retain the right of random inspection after they receive certain information reported.

Conclusion

Compared with the "examination and approval mechanism" and the "filing mechanism", the "reporting mechanism" is more efficient in time as there is no need to obtain any permit/filing receipt on site from MOFCOM. However, some local AMR will probably still require FIEs to finish MOFCOM filing prior to AMR registration/filing. For example, in Shanghai practice, AMR will require FIEs to provide their MOFCOM application numbers during the company registration/filing procedures. Such application number is generated online when FIE finishes relevant information reporting.

In addition, given that MOFCOM will conduct random inspections for the reporting information from time to time, FIEs still need to ensure the accuracy and timeliness of reporting to avoid any bad credit records with the government authorities.