外商直接投资– 起草须知 (英文版)

FOREIGN DIRECT INVESTMENT – DRAFTING CONSIDERATIONS
1.MANNER OF ESTABLISHMENT
This Chapter is concerned with the basic documentation required to establish a foreign investment enterprise (“FIE”) in the PRC. There are several ways to establish an FIE. One straightforward way is where one or more foreign investors invest to create a new enterprise, a wholly foreign-owned enterprise (“WFOE”). Another straightforward way is where one or more foreign investors partners with one or more Chinese investors to jointly create a new enterprise, a joint venture enterprise. For a joint venture enterprise, at least 25% of the equity of the newly invested enterprise must be held by the foreign investor in order for the enterprise to qualify as an FIE.
It is also possible for an FIE to qualify as a “holding company” and, in turn, to invest alone or to partner with Chinese investors to establish one or more new subsidiary enterprises.1 Again, generally at least 25% of the equity of the subsidiary enterprise must be held by the holding company in order for such subsidiary to qualify as an FIE.
An FIE may also invest to acquire equity or assets of an existing domestic enterprise (i.e., one whose ownership is 100% held by PRC persons) and to convert such a domestic enterprise into an FIE or using the acquired assets to form a new FIE.2 This mergers and acquisitions route also permits the resulting enterprise to qualify as an FIE if at least 25% of the registered capital is attributable directly or indirectly to the contribution of foreign investors. The PRC government is also considering the introduction of a new regulation which, according to the interim provisions under internal discussion, would allow a domestic enterprise to register as FIEs even if less than 25% (but more than 10%) of its equity or assets were acquired by a foreign investor. It is expected that the new law will be approved and promulgated in the near future. 3
1 The Regulations Governing the Establishment of Enterprises of an Investment Nature by Foreign Investors (most recently revised 7 November 2004) set forth the legal parameters for establishing “holding companies.”
A holding company is allowed to make investment to set up or acquire enterprises in China and to provide services to its subsidiaries and associate companies, but is not allowed to engage in production activities in China. A holding company can also apply to be recognized as the regional headquarters of a global company, subject to meeting certain conditions. A holding company recognized as the regional headquarters of a global company can, among other things, import the products of the global company to market in China and to set up a finance company to provide relevant financial services to the holding company and the enterprises invested by the holding company.
2 Investors should refer to the Acquisition of Domestic Enterprises by Foreign Investors Tentative Provisions (effective 12 April 2003).
3 In the interim, the Circular on Issues Relevant to Strengthening the Administration of the Examination, Approval, Registration, Foreign Exchange Issues and Taxation of Foreign Investment Enterprises(the “Circular”, issued January 1, 2003) already permits an FIE to be established and approved with less than 25% foreign investment under certain conditions.According to the Circular, domestic enterprises with less than 25% foreign-acquired investment may be approved as FIEs in accordance with current procedures applicable to the
A third route for establishing an FIE is for a foreign investor to invest to acquire equity, assets or debt of a state-owned enterprise or to acquire state equity or assets of a company and then to restructure such a state-owned enterprise into an FIE or to convert such a company into an FIE or using the acquired assets to, alone or with the Chinese enterprise selling the assets, form an FIE.4 It is currently unclear whether an examination and approval authority will approve the restructuring of a state-owned enterprise or the conversion of a company with state equity into an FIE if the equity stake held by the foreign investor is less than 25%. However, it is quite certain that 25% or above will be approved. Regardless of the percentage of the foreign investor’s equity interest, as long as an entity is approved as an FIE, this chapter and the model documents herein will apply.
2.FORM OF ESTABLISHMENT
FIEs may take the form of an equity joint venture (“EJV”), a cooperative joint venture (“CJV”), a WFOE, or a foreign-invested joint stock company.
The Company Law of the PRC (the “PRC Company Law”, revised and re-promulgated 25 December 1999) contemplates the establishment of two types of companies: limited liability companies and companies limited by shares. EJVs, CJVs (with the exception of those that are not established as legal persons, which are discussed below), and WFOEs are all limited liability companies whereas a foreign-invested joint stock company is a company limited by shares. A foreign-invested joint stock company is, therefore, also known as a foreign-invested company limited by shares (“FICLS”).
An EJV is a separate legal entity whereby each investor’s respective capital contribution is the basis for determining its proportionate equity interest in the EJV and whereby the profits and losses are distributed according to the investor’s perce ntage equity interest. EJVs remain the most common form of foreign investment in the PRC for several reasons. One reason is that the basic structure is relatively clear and straightforward and has been relied on repeatedly with success. Another reason is that, as a result of its popularity, there are an ever-increasing number of supporting laws and regulations which govern the establishment and operations of EJVs and which clarify the rights and obligations of the foreign investors. A third reason is that more industry sectors are open to investment by joint ventures than WFOEs.
A CJV is similar to an EJV except that the relative ratios of the investors’ equity interests in the CJV may be determined according to the contractual arrangement agreed to by the parties in the cooperative agreement (and not necessarily according to capital contributions). Furthermore, the split
establishment of FIEs; however, the certificate of approval and business license of these FIEs would be marked with an annotation stating “foreign investment less than 25%”. Such FI Es would not be entitled to some of the favourable treatments applicable to other FIEs, particularly in taxation concessions and holidays.
4 Investors should refer to the Use of Foreign Investment to Restructure State-owed Enterprises Tentative Provisions (effective January 1, 2003).
of profits of the CJV may also be determined contractually by the parties (and not necessarily according to equity ratios). The flexibility in capitalization and profit split arrangements enables other investment strategies to be considered as long as they are approved by the relevant approval authorities. One common arrangement is to permit the foreign investor to receive a higher percentage of the profits in the early stages of the venture (in order to accelerate recovery of its capital investment) in the early years of operations but to transfer the fixed assets of the CJV to the Chinese party at no cost at the end of the term of the CJV (instead of liquidating such assets).
One particular subset of the foregoing is a CJV which is based solely on a contractual arrangement and which does not result in the establishment of a separate legal entity. These are called non-legal person CJVs. Investors will retain ownership rights over the assets that are “contributed” to a non-legal person CJV because there is no legal entity to take title to such assets. One of the main advantages to establishing this type of CJV is that the profits are not subject to corporate income tax (as there is no corporate entity) and, thus, may be distributed “pre-tax” to the investors (who would then be responsible for paying PRC income tax separately on their respective portions). Despite the tax considerations, setting up a non-legal person CJV has not been a common arrangement especially given the fact that a CJV does not enjoy limited liability protection and the investors are, therefore, jointly and severally liable for the debts and liabilities of the CJV.
A WFOE is established when one or more foreign investors hold the entire equity interest of the FIE and no Chinese investors are involved. A WFOE is likely to be the preferred vehicle for foreign investment when there is no compelling need for a Chinese partner. If the industry sector is open to 100% foreign investment and the foreign investor does not feel it needs a Chinese partner to assist with government relations or provide readily available employees and facilities, then foregoing a joint venture structure involving a Chinese partner in favour of a WFOE structure should be seriously considered.
A characteristic that all three of these types of FIEs share in common is that they do not have a share structure. Although they are each a limited liability entity, each investor holds a percentage “equity interest” in the FIE rather than a percentage shareholding.
On the other hand, an FICLS comprises a share structure and it is precisely for the advantages of such a share structure that a foreign investor might prefer to establish an FICLS over a traditional FIE (i.e., EJV, CJV or WFOE). The principal long-term advantage is that an FICLS would be comparatively less complicated to list in the future than a traditional FIE, which would have to be restructured prior to listing. Although the PRC legal framework contemplates the listing of FICLSs, up to the time of writing of this Chapter, PRC capital markets have been predominantly accessible only to wholly domestically owned enterprises.。