Key Points

  • A series of rules introduced to reform the legal framework of the PFTZ in incorporation relating matters – to simplified the incorporation procedures of a FIE.
  • Foreign investors will enjoy national treatment in the investment of all sectors unless otherwise listed in the “Negative List”.
  • “One window” system allows all the filings to be submitted and accepted through a single government channel, with the project filing and enterprise filing allowed to be summited simultaneously.
  • There will be a change to the current rules on capital restrictions.
  • Business licenses for most types of the enterprises (including FIEs) in the PFTZ will be consolidated into a unified format, called Enterprise Business License for the PFTZ.

Background

The much-anticipated China (Shanghai) Pilot Free Trade Zone (“PFTZ”) has now been officially launched. Following the high-level guidelines released for the proposed regulatory reforms in various governmental agencies have released a series of rules to reform the legal framework of the PFTZ in incorporation relating matters which have simplified the incorporation procedures of a foreign invested enterprise (the “FIE”) in the PFTZ.

Waivers of Approval Requirements for Foreign Direct Investments

Under the current administration of foreign investment, incorporating a FIE in China could be generally subject to a time-consuming process including project approval by the National Development and Reform Commission (or its local branches) (the “NDRC”), approval by the Ministry of Commerce (or its local branches) (the “MOFCOM”) and registration with State Administration of Industry and Commerce (or its local branches) (the “AIC”).

Such process has been changed in the PFTZ so that foreign investors will enjoy national treatment in the investment of all sectors unless otherwise listed in the “Negative List”. They will not be required to go through an administrative approval process with NDRC or MOFCOM. Instead, the filing system will be implemented for project application, establishment of a FIE and change of a project (such as change of the shareholding structure of investors, change of project content, 20% over the proposed total investment, etc.) or a FIE (such as term extension, change of registered capital, share transfer, merger and separation, early terminated, etc.). Joint venture contracts and articles of association of FIEs are free from approval. Foreign investors or FIEs only need to file documents with the competent Free Trade Zone authority, the Administrative Committee of the China (Shanghai) Pilot Free Trade Zone (the “Administrative Committee”) for the above matters, for record purpose only.

Streamlined Application Procedure

To further simplify the filing procedures, the PFTZ has developed a “one window” system, by which all the filings will be submitted and accepted through a single government channel and the project filing and the enterprise filing may be summited simultaneously. The above changes are also applicable to the enterprises whose investors are from Hong Kong SAR, Macao SAR and Taiwan, the FIEs which have been established in the area before the official formation of the PFTZ, and the FIEs which move into the zone after its official formation. Investors will obtain a Filing Certificate of Enterprise with Foreign/Hong Kong/Macao/Taiwan/Overseas Chinese Investment in the zone within one business day for enterprise filing and obtain the Project Filing Opinion for project filing within ten business days after the application documents are received, with organization code certificate and tax registration certificate to be issued simultaneously, which is much quicker than the current approval schedule.

Change in Capital Restrictions

Currently, any company established in PRC shall be subject to the restrictions in company capital including minimum capital contribution and mandatory capital contribution timetable. As part of the reformation in the PFTZ, AIC has adopted the subscription registration system for registered capital as follows:

  • Companies in the PFTZ will not be subject to any minimum registered capital, i.e., RMB 30,000 for a limited liability company, RMB 100,000 for a solely invested limited liability company and RMB 5 million for a joint stock company limited. Investors may decide the registered capital amount in accordance with their actual operational demands and needs. Nevertheless, the mandatory ratio between the registered capital and total investment amount of a FIE will still be applicable. Investors, however, shall still take the responsibility of shareholders as subscribed registered capital.
  • Foreign investors of FIEs in the PFTZ are also free from the mandatory capital contribution requirement and may decide the timetable freely. Therefore, investors have no need to contribute 20% of registered capital within three months and 100% of registered capital within two years from obtaining the business license of the invested FIEs as currently required, which enable the investors a full discretion.
  • Investors will not be subject to the 70% cap of non-cash contribution of registered capital, which grants the investors the freedom to decide the proportion of cash in registered capital.

For certain industries where laws or regulations specify special requirements on registered capital (such as banks, insurance companies, securities companies, futures companies, fund management companies, direct sales enterprises and joint stock limited company established by way of public offer), such capital liberalization will not be applicable.

New Business License Format

Except for Business License for Legal Person Farmer Cooperative and the Business License for Individually-owned Business, the business licenses for all types of the enterprises (including FIEs) in the zone will be consolidated into a unified format, called Enterprise Business License for the PFTZ. The business license will be changed into portrait from landscape, without paid-up capital to be recorded. Instead, it will be recorded as “Subscription, the liability of a shareholder shall be limited to the subscribed capital contribution amount to subscribed shares”. Other existing items (such as registered number, registered address, the legal representative and business scope) will be recorded as before. Please note that such format change will not be applied to a foreign invested representative or an enterprise group in the PFTZ.

Business License before Prior Approval

Enterprises in the PFTZ will enable to engage generic business activities once obtaining a business license before obtaining various certificates from relevant competent authorities for regulated business unless such certificates are relating to prior approval required by laws, regulations or the State Council, which provide the enterprises with the legal status first.

Annual Reporting System

For companies in the PFTZ, the annual inspection system has been replaced by an annual reporting system by the AIC as post supervision, information from which should be available to the public. The details of annual reporting system will be promulgated later according to AIC.

Conclusion

The detailed stipulations in many aspects are still under development. But in general, foreign investors may expect more efficient administrative formalities, shorter timeframe and more flexible operation in the PFTZ.