On October 8, 2016, the Ministry of Commerce (“MOFCOM”) issued Administrative Interim Measures on Record Filing for the Establishment of and Changes to Foreign Investment Enterprises (the “New Measures”), which took retroactive effect on October 1, 2016.
On the same date, the National Development and Reform Commission and the MOFCOM jointly published the scope for foreign investment still subject to special state administration (i.e., examination and approval by the department of commerce), including investments under the restricted and prohibited categories in the current Guidance Catalogue for Foreign Investment Industries and those in the encouraged category with requirements to have a Chinese party/parties’ shareholding or senior management.
When compared to the draft for public comments, covered in our September Legal Flash, the New Measures include the following revisions:
- Any change to the nature of the project, which is subject to record filing, refers to whether the project falls under the scope of the import equipment tax reduction and exemption established by the State.
- Foreign-invested equity investment enterprises are not considered foreign investors and are not subject to the New Measures.
- Share pledge has been deleted from the scope of record-filing items.
As discussed in earlier Legal Flash editions, share pledges of FIEs now only have to be registered with the competent administration for industry and commerce (“AIC”) and are subject to the same requirements as share pledges of domestic enterprises. Also, several MOFCOM local subsidiaries have verbally confirmed that MOFCOM’s approval is no longer required.
- A unified online platform for record filing, examination and approval has been launched.
- The Administrative Measures for the Record Filing of Foreign Investment in Pilot Free Trade Zones (Trial) have been abolished. However, based on our experience, online access to record filing in the Free Trade Zones of Shanghai, Tianjin, Guangdong and Fujian is different from the unified platform introduced by MOFCOM.
- If original documents are in a foreign language, the Chinese translation must be uploaded and submitted at the same time. Foreign invested enterprises (“FIEs”) or the investors must ensure consistency, but do not need official translations and legalization of these documents.
Along with the New Measures, MOFCOM also held an interpretation meeting to clarify related issues:
- Record filing will not be a precondition for any other procedures. MOFCOM and its subsidiaries will only formally examine the information and documentation submitted to verify completeness and authenticity, and FIEs and their investors are not obliged to submit record-filing receipts.
- Merger and acquisitions (“M&A”) by foreign investors in domestic companies and domestic listed companies will still be subject to current regulations, so they will not be subject to the new record filing.
The Shanghai Commission of Commerce has confirmed that changes made during an M&A (e.g., affecting the legal representative, number of members of the board of directors, and company name containing the foreign investors’ trade name) can be applied simultaneously with the M&A, i.e., no more record-filing procedures are required after MOFCOM has approved the M&A.
Based on our verbal inquiry with the authorities, their preference for both establishment and changes is to register with the AIC first, and then complete the record filing with MOFCOM. However, they have not yet clarified how deregistration procedures will be carried out: whether record filing with MOFCOM must be done within 30 days after the resolution of dissolution and before the composition of the liquidation team is filed with the AIC, or before filing the final deregistration application with the AIC.