| | FIP | FIVCIE | FIE (LLC only) |
|---|
| (1) Form of entity | Partnership | Either incorporated FIVCIE or unincorporated FIVCIE (collectively FIVCIE) | Sino-foreign equity joint venture enterprise (EJV), or
Sino-foreign cooperative joint venture enterprise (CJV), or
Wholly foreign owned enterprise (WFOE) |
| (2) Eligible investors | Two or more foreign enterprises or individuals; or
One or more foreign enterprises or individuals and one or more Chinese individual, entity or other organization.
If the FIP is a limited liability partnership (LLP), it should have 2 - 50 partners including at least one general partner. | FIVCIE has 2 -50 investors.
For an incorporated FIVCIE, all the investors’ liabilities are limited to their respective capital contributions.
For an unincorporated FIVCIE, all the investors bear unlimited liability although the investors may agree that “necessary investor” would bear unlimited liability while the other investors’ liabilities are limited to their respective capital contribution. | Either an EJV or a CJV may have 2 - 50 investors. A WFOE can have 1 - 50 investors.
A WFOE will have no Chinese investor.
For an EJV/CJV, at least 25% of the aggregate equity interest should be held by foreign investor(s) in order to be treated as an FIE. |
| (3) Establishment procedure | Application for registration submitted to local AIC (including documents required by SAIC Rules and confirmation of compliance with foreign investment policies); Notification to the MOC at the same level as the relevant AIC. Regulatory approval(s) (if applicable) should be obtained prior to the AIC registration; | Formation of FIVCIE with total capital of US$100 million or less requires MOFCOM approval at provincial level.
Need Ministry of Science and Technology (MST) approval of target investment sector prior to establishment (i.e., proof or high tech/new tech investment strategy - though remains to be seen how strictly this is enforced).
AIC registration is required in order to obtain the business licence. | Approval from the National Development and Reform Commission and/or other regulatory authority(ies) may be required.
MOFCOM approval at the competent level is generally required for FIEs in the ordinary industries.
AIC registration is required in order to obtain the business licence. |
| (4) Establishment timing | AIC may effect the registration on the spot or within 20 days after AIC accepts the application. It will take longer if any prior approval is required. | MOFCOM approval at provincial level: generally speaking, 30 days upon submission of required documents;
MOFCOM approval at central level: 60 days in general.
MST Approval: 5 working days upon receipt of the consultation request from competent MOFCOM.
AIC registration: one month in general, variable in different places. | Prior Approval: depending on what specific prior approval (if any) is required.
MOFCOM Approval: 1 - 3 months in general upon submission of the required application documents.
AIC Registration: one month in general, variable in different places. |
| (5) Minimum capital | Silent | Incorporated FIVCIE: US$5 million. The “necessary investor” must invest at least 30% of the total committed capital.
Unincorporated FIVCIE: US$10 million. The “necessary investor” must invest at least 1% of the total committed capital.
The other investors must invest minimum of US$ 1 million each. | RMB30,000 as a general requirement under the PRC Company Law.
Separate laws and regulations governing specific industries, e.g. banking, insurance, may have higher capital amount requirements. |
| (6) Form of capital | Cash or in-kind; Renminbi or freely-convertible foreign currency. General partner may contribute capital in the form of labour services. | In cash only, Renminbi from Chinese investor(s) or freely-convertible foreign currency from foreign investor(s). | Cash or in-kind; Labor services may not be contributed as “capital” of FIE; the investors may not contribute more than 70 per cent of total registered capital in non-cash assets. |
| (7) Timing of contribution | No statutory timetable | Incorporated FIVCIE: maximum 2 years after incorporation.
Unincorporated FIVCIE: maximum 5 years after incorporation. | Statutory timetable governing contributions must be followed (with maximum period of 2 years as a general requirement). |
| (8) Do foreign investment restrictions apply? | Yes, FIPs are not allowed to make any investment unless the Foreign Investment Industry Guidance Catalogue permits 100 percent foreign ownership. | Yes, a FIVCIE is permitted to make equity investments in unlisted domestic companies without government approval if the target companies are engaged in “permitted” or “encouraged” industries (a filing with the competent MOFCOM is required.
If a FIVCIE is to invest into a domestic company in “restricted” industry, prior approval from the provincial MOFCOM is required. | Yes, the Foreign Investment Industry Guidance Catalogue applies to FIEs. |
| (9) Profit distributions | May be specified in partnership agreement and need not correspond with capital contributions. | Generally speaking, profits distributions of FIVCIE in the form of an EJV shall correspond with the capital contributions of the investors. Profit distributions of other forms of FIVCIEs may be agreeable among investors and need not correspond with capital contributions. | Generally speaking, profits distributions of an EJV shall correspond with the capital contributions of the investors. Investors of a CJV may agree on flexible ways of profit distribution. Investors of WFOEs may also agree to distribute profit not corresponding with their respective capital contributions. |
| (10) Management | As specified in the partnership agreement (i.e., flexible) | Offshore fund managers may establish an onshore fund management company to manage the FIVCIE in China under the FIVCIE rules. | As specified in the FIE rules, as to boards of directors (or an executive director), boards of supervisors (or a supervisor) and shareholder meetings (or a shareholder, as the case may be). |
| (11) Tax pass-through? | Yes | Unincorporated FIVCIEs are exempt from enterprise income tax. Incorporated FIVCIEs are not. | Not generally |
It is worth noting that the SAIC Rules are more restrictive than the State Council Measures in some areas: the State Council Measures simply provide that FIPs must comply with China foreign investment policies (i.e., the Foreign Investment Industry Guidance Catalogue). However, the SAIC Rules prohibit FIPs making any investment unless the Catalogue permits 100 percent foreign ownership.