On Aug. 24, 2018, the China Securities Regulatory Commission (CSRC) issued the Administrative Measures for Foreign-invested Futures Companies (AMFFC) to open up the futures market and strengthen the supervision and administration of foreign-invested futures companies (i.e., a futures company of which no less than five percent of equity is directly held or indirectly controlled by a single overseas shareholder or by several overseas shareholders connected by an affiliate relationship, where the investors from Hong Kong, Macao, and Taiwan are treated as an overseas shareholder(s)). Highlights of the AMFFC: • Foreign-invested futures companies shall satisfy the following requirements: (1) engagement in business for not less than five years without having been seriously punished by the supervisory authority, administrative organization, or judicial organization at its business site; (2) good © 2019 Greenberg Traurig, LLP www.gtlaw.com | 2 professional qualities and management capacity of the management; (3) sound internal control and risk management system; (4) good worldwide reputation and business performance maintaining business scale, income, and profit at a top global level, and three years of strong long-term credit. • The indirect equity holding via investment relations, agreement, or other arrangement (except for the indirect equity holding through Chinese domestic-securities companies or other ways prescribed by CSRC), which results in the actual control by overseas shareholder(s) of not less than five percent of the equity of the futures company, shall be converted into direct equity holding. • The senior executives of a foreign-invested futures company must perform their duties within the territory of China. Ministry of Justice Releases Draft for Review of the Implementing Rules of the Law on the Promotion of Private Education见 On Aug. 10, 2018, the PRC Ministry of Justice (MOJ) published the Implementing Rules of the Law on the Promotion of Private Education (Revised Draft) (Draft for Review) (the Draft) and sought public opinion. Compared with the 2004 version of the Implementing Rules of the Law on the Promotion of Private Education (the Implementing Rules), currently in effect, and the Draft for Comments of the Implementing Rules issued in April 2018, there are two notable changes under the Draft that may affect the establishments, operations, investments, and listings of private schools, especially where a variable interest entity (VIE) structure is adopted: 1. Restrictions on foreign investment and VIE structure The Draft stipulates that foreign-invested enterprises and social organizations controlled by foreign entities are prohibited from sponsoring, participating in sponsoring, or controlling private schools providing compulsory education. The Draft further stipulates that education groups are not allowed to control any not-for-profit private schools by means of merger and acquisition, franchising, or contractual arrangement. The VIE structure is widely used for overseas listing purposes due to foreign-investment restrictions in the Chinese education sector. Once the Draft’s restrictions on the “participating in the sponsoring or actual controlling” or “control by contractual arrangement” of the not-for-profit private schools are officially promulgated and become effective, the VIE structure may no longer be applicable in the field of private education, and the compliance of overseas-listed education companies with VIE structures may also be adversely affected. 2. Restrictions on related-party transactions The Draft requires that the education administration, human resources, and social security departments strengthen supervision of agreements signed between nonprofit, privately run schools and related parties, and examine and audit the necessity, legality, and compliance of the agreements involving major interests or those agreements that shall be performed permanently and repetitively. The legality of the arrangements for the transfer of profits from not-for-profit private schools to foreign invested enterprises under the relevant VIE agreements may be challenged.
On July 30, 2018, the Ministry of Commerce (MOFCOM) released for public comment the Decision on Draft Amended Administrative Measures for Strategic Investments in Listed Companies by Foreign Investors (the Draft Amended Measures). Based on the Interim Measures for Filing Administration on the Establishment and Change of Foreign-Invested Enterprises (the Filing Measures), released just one month prior, the Draft Amended Measures further clarify the approval authority, lock-up period, and other issues of foreign strategic investment. Key focuses of the Draft Amended Measures: • Redefines scope of application. The Draft Amended Measures lower the threshold for foreign investors to participate in the PRC securities market in the following ways: (i) qualified foreign-nationals will be entitled to make foreign strategic investments in A-share listed companies; (ii) qualifications for foreign investors using their equity in an overseas company as consideration for strategic investment in onshore listed companies will be relaxed; and (iii) the shareholding requirement of foreign-strategic investors as a result of their strategic investment in an A-share listed company will be completely removed. • Clarifies approval authority. To be consistent with the Filing Measures, the Draft Amended Measures clarify that (i) all foreign strategic investments not related to any industry on the “Negative List” will only need to be filed by the underlying A-share listed company with competent MOFCOM offices within 30 days after the relevant transactions have been registered; and (ii) foreign strategic investments involving any industry on the Negative List will need to go through an advance approval and review procedure with the central or local MOFCOM office, depending on the amount of proposed investment. • Shortens lock-up period. According to previous regulations, the shares of an A-share listed company obtained by foreign strategic investors shall be subject to a three-year lock-up period during which such shares are not tradable. The Draft Amended Measures have shortened such lock-up period to one year for all foreign strategic investments in A-share listed companies. China Banking and Insurance Regulatory Commission Collects Public Comments for the Implementing Rules for the Administrative Regulations on Foreign-invested Insurance Company 中国银保监会对《中华人民共和国外资保险公司管理条例实施细则（征求意见稿）》公 开征求意见 On July 5, 2018, the Banking and Insurance Regulatory Commission released the updated version of the Implementing Rules for the Administrative Regulations of the People’s Republic of China on Foreigninvested Insurance Companies (Draft for Comment) (the Implementing Rules). The updated version © 2019 Greenberg Traurig, LLP www.gtlaw.com | 4 made minor changes on the previous version (which was issued on May 30, 2018) by adding one channel (http://www.chinalaw.gov.cn) for public comment collection, and slightly modifying the definition of the major shareholder of the foreign invested insurance company. Highlights of the Implementing Rules: • The shareholding percentage held (directly or indirectly) by the foreign insurance company shall not exceed 51 percent of the total volume of the Sino-foreign joint equity insurance company. • The majority shareholder of a foreign-invested insurance company shall not transfer its equity for a period of five years after its acquisition of the equity. • When the majority shareholder of a foreign-invested insurance company intends to reduce its equity volume or quit the Chinese market, it shall first fulfill its shareholder obligations and replenish capital for the company if necessary. • The registered capital or operating funds of a foreign-invested insurance company shall be paid. Company Law and Civil Law The Formal Promulgation of the Amendments to the Company Law 《公司法修正案》颁布 On Oct. 26, 2018, the Decision on Amendments to the Company Law of the People’s Republic of China (the Amendments) was adopted at the Sixth Session of the Standing Committee of the 13th National People’s Congress and took effect immediately. The Amendments redefine the repurchase situations, the decision-making procedure, and the treasury-share arrangement of listed companies in accordance with the draft amendment released Sept. 6, 2018 (the Draft Amendment). As stipulated in the Amendments, companies may repurchase their shares (i) for employee stock ownership plans or equity incentives (to substitute the old rule on share rewards to employees); (ii) for equity conversion of convertible bonds and warrants issued by listed companies; (iii) as a necessity for listed companies to maintain company credit and shareholder equity; and (iv) under other situations provided by laws and regulations. Under the first three situations, the board of directors may adopt such resolutions on share repurchase in accordance with the company’s articles of association or the authorization by the general meeting of shareholders. The maximum repurchase limit is 10 percent of the total issued shares of the company. Relevant shares may be transferred, canceled, or held in stock as treasury shares (if held in stock as treasury shares, the holding period shall not exceed three years). Compared with the Draft Amendment, the Amendments further require listed companies to fulfill their information-disclosure obligations pursuant to securities laws and regulations and to repurchase their shares through centralized public trading if they use the repurchased shares (i) for employee stock ownership plans or equity incentives; (ii) for equity conversion of convertible bonds; or (iii) as a necessity to defend their corporate value and protect shareholder interests. Listed companies may not repurchase their shares by means of contractual transfers in these three situations. © 2019 Greenberg Traurig, LLP www.gtlaw.com | 5 Supreme Court Releases Interpretation on Statute of Limitations 最高人民法院颁布关于诉讼时效的司法解释 On July 18, 2018, the Interpretation of the Supreme People’s Court on Several Issues concerning the Application of the Statute of Limitation Rules in the General Provisions of the PRC Civil Law (the Judicial Interpretation) was released by the Supreme People’s Court and has been in effect since July 23, 2018. Pursuant to the Judicial Interpretation, the three-year statute of limitations, which was stipulated in the General Rules of the Civil Law released March 15, 2017 (the General Provisions), will replace both the two-year general and the one-year shorter statute of limitation stipulated in the General Principles of the Civil Law. In line with the principle that if both the old and new provisions are applicable, the new provisions should prevail, where the limitation period of a case lasted less than two years or one year as stipulated in the General Principles of the Civil Law upon the promulgation of the General Provisions, if a party requests to apply the three-year limitation period, such request should be supported by the court. However, the statute of limitations shall not be extended if it has expired before Oct. 1, 2017, the effective date of the General Provisions. Tax China Adopts New Individual Income Tax Law 新个人所得税法出台 On Aug. 31, 2018, the Decision of the Standing Committee of the National People’s Congress on Amending the Individual Income Tax Law of the PRC (the Decision) was adopted at the Fifth Session of the Standing Committee of the 13th National People’s Congress of the People’s Republic of China. Pursuant to the Decision, the revised PRC Individual Income Tax Law (the New IIT Law) will be implemented step by step, with most of the provisions in effect as of Jan. 1, 2019. Highlights of the New IIT Law: • Tax reduction measures. The New IIT Law reduces individual tax burden by raising the threshold and introducing additional deductible items. • Criteria for qualification as a PRC tax resident. The New IIT Law tightens up the physical-presence test for determining the tax-residency status of foreign individuals without a domicile in China (including Hong Kong, Macao and Taiwan residents) from one full year to 183 days spent in China. Under the new criteria, a foreign individual without domicile in China who has spent 183 days or more in China during the relevant tax year would be considered a PRC tax resident for individual income tax purposes and thus will be subject to individual income tax on his/her income. • Conditions for change registration for equity transfer of individuals. The New IIT Law says that individual income tax clearance is a condition for an individual to complete the change registration for a proposed equity transfer. © 2019 Greenberg Traurig, LLP www.gtlaw.com | 6 • Anti-tax-avoidance rules. The New IIT Law introduces a series of anti-tax-avoidance rules to prevent individuals from evading their tax obligations through related-party transactions, offshore structures, and other special arrangements without reasonable commercial purposes. Tax Deferral for Overseas Investors Expanded 境外投资者再投资的递延纳税适用范围扩大 To further encourage foreign investments, on Sept. 29, 2018, four central government departments, including the PRC Ministry of Finance and State Administration of Taxation, jointly issued the Notice on Expansion of Policy of Temporary Exemption of Withholding Income Tax from Overseas Investors’ Direct Investment with Distributed Profits (the Notice). The Notice took effect retroactively to Jan. 1, 2018. The tax deferral policy for foreign investors’ reinvestments was first released in December 2017 and stated that the distributed profits to overseas investors used for domestic direct reinvestment would enjoy tax deferral and be exempted from the 10 percent withholding tax on a temporary basis (the Tax Deferral Policy), but the Tax Deferral Policy at that time was only applicable to reinvestments in encouraged foreign direct investment projects. According to the Notice, the Tax Deferral Policy covers not only the encouraged category of foreign-invested projects but also all projects and fields from which foreign investments are not prohibited. The Notice further clarifies that, where an overseas investor is eligible for the Tax Deferral Policy but does not benefit from the tax incentive, it can apply for the Tax Deferral Policy within three years of the date on which the relevant tax payments are made, and receive a refund of taxes paid. Capital Markets CSRC Releases Revised Code of Corporate Governance for Listed Companies 证监会发布新版《上市公司治理准则》 On Sept. 30, 2018, the CSRC released the Code of Corporate Governance for Listed Companies (2018 Edition) (the New Code). Based on the 2002 version, the New Code adds many new provisions to adapt to changes in both domestic and foreign markets and developments in corporate governance. Highlights of the New Code: • Adds new chapter on institutional investors’ participation in corporate governance. The New Code adds a new Chapter 7, “Institutional Investors and Other Organizations,” to encourage institutional investors to participate in corporate governance and exercise shareholder rights, and to regulate such activity. According to this chapter, institutional investors are entitled to take part in corporate governance in many ways, including but not limited to exercising their right to vote, to inquire, to submit proposals, and other shareholder rights; participating in major corporate decision-making in © 2019 Greenberg Traurig, LLP www.gtlaw.com | 7 accordance with laws, regulations, and articles of association, and nominating and overseeing directors and supervisors. • Enhances protection for small and minority investors’ lawful interests. The New Code enhances protection for small and minority investors’ rights and interests. Specifically, it requires that listed companies actively repay and reward their shareholders, and that the articles of association specify the profit-distribution method, especially the cash dividend policy, and fully disclose the reasons for not carrying out any cash-dividend distribution if all other conditions are met. In addition, the New Code further restricts controlling shareholders and/or actual controlling parties of listed companies from abusing their controlling position to harm the interests of minority shareholders. • Regulates corporate governance in change-of-control situations. The New Code requires all parties to take measures to ensure the stable operation of the company during the transitional period in changeof-control situations, and to promptly report to the CSRC and relevant stock exchange when any major problem arises. • Establishes basic framework for information disclosure on environment, social responsibility and corporate governance (ESG). The New Code stipulates that listed companies should disclose information on environment, fulfillment of social responsibility and corporate governance. In this way, the New Code establishes the basic framework of ESG information disclosure, aiming to keep in line with the prevailing ESG practice in the international capital market.