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Policy > Implementation Regulations for the Wholly Foreign Owned Enterprise Law of the People's Republic of C
Implementation Regulations for the Wholly Foreign Owned Enterprise Law of the People's Republic of C
2009-11-30

Implementation Regulations for the Wholly Foreign Owned Enterprise Law of the People's Republic of China

 Implementation Regulations for the Wholly Foreign Owned Enterprise Law of the People's Republic of China(Approved by the State Council on October 28,1990,and promulgated by Decree No. 1 of the Ministry of Foreign Economic Relations and Trade on December 12,1990)


Article 1. These Rules are formulated in accordance with the provisions in Article 23 of the Law of the People's Republic of China on Foreign-Capital Enterprises.

Article 2. Foreign-capital enterprises shall be under the jurisdiction of and protection by China' s laws. Foreign - capital enterprises,while engaged in business operational activities within the territory of China,must abide by Chinese laws and regulations and must not jeopardize the social and public interests of China.

Article 3. A foreign-capital enterprise to be established in China must be conducive to the development of China's national economy,be capable of gaining remarkable economic results and shall meet at least one of the following conditions:
(1) the enterprises is to adopt advanced technology and equipment,engage in the development of new products,conserve energy and raw materials,and realize the upgrading of products and the replacement of old products with new ones which can be used for placing similar imported goods;
(2) its annual output value of export products accounts for more than 50% of the annual output value of all products,thereby realizing the balance between revenues and expenditures in foreign exchange or with a surplus.

Article 4. No foreign-capital enterprise shall be established in the following trades:
(1) the press,publication,broadcasting,television,and movies;
(2) domestic commerce,foreign trade,and insurance;
(3) post and telecommunications;
(4)other trades in which the establishment of foreign-capital enterprises of
foreign-capital enterprise is forbidden,as prescribed by Chinese government .

Chapter I General Provisions

Article 5. The establishment of foreign-capital enterprises shall be restricted in the following trades:
(1) public utilities;
(2) communications and transportation;
(3) real estate;
(4) trust investment;
(5) leasing
The application for the establishment of a foreign capital enterprise in the preceding paragraph shall be submitted to the Ministry of Foreign Economic Relations and Trade of the People' s Republic of China (hereinafter referred to as the Ministry of foreign Economic Relations and Trade) for approval,except as otherwise provided by Chinese laws and regulations .

Article 6. Application for the establishment of a foreign - capital enterprise shall not be approved if the proposed enterprise would involve one of the following circumstances:
(1) injury to China's sovereignty or to social and public interests;
(2) impairment of China's national security;
(3) violation of Chinese laws and regulations;
(4) incompatibility with the requirements of China's national economic development; or
(5) possible creation of environmental pollution.

Article 7. A foreign-capital enterprise shall make its own managerial decisions within the approved scope of business operations and shall not be subject to intervention.

Chapter II Procedures for Establishment

Article 8. The application for the establishment of a foreign- capital enterprise shall be submitted to the Ministry of Foreign Economic Relations and Trade,and after examination and approval,a certificate of approval shall be issued by the Ministry. With respect to the application for the establishment of a foreign -capital enterprise that comes under one of the following circumstances,the State Council shall authorize the People's Government of the relevant province,autonomous region,municipality directly under the Central Government,municipality separately listed on the state plan,or the special economic zone,to issue the certificate of approval after examining and approving the application: (l) the total amount of investment is within the limits of powers for the examination and approval of investments stipulated by the State Council. (2) the proposed enterprises does not need the raw and processed materials to be allocated by the State,or does not influence unfavorably the national comprehensive balance of energy resources,communications and transportation,as well as export quotas for foreign trade. Where the people's government of the province,autonomous regions,municipality directly under the Central Government,municipality separately listed on the state plan,or the special economic zone has approved the establishment of a foreign- capital enterprise within its limits of powers granted by the State Council,it shall,within 15 days after the approval,submit a report to the Ministry of Foreign Relations and Trade for the record (hereinafter the Ministry of Foreign Relations and Trade,and the people' s government of the province,autonomous regions,municipality directly under the Central Government,municipality separately listed on the state plan,and the special economic zone shall be called generally as the examining and approving organ).

Article 9. With respect to a foreign-capital enterprise,the establishment of which has been applied for,if its products are subject to export license,export quota,or import license,or are under registrations by the State,prior consent of the department of foreign economic relations and trade shall be obtained in accordance with the limits of powers for administration.

Article 10. A foreign investor shall,prior to the filling of an application for the establishment of a foreign-capital enterprise,submit a report to the local people's government at or above the county level at the place where the proposed enterprise is to be established. The report shall include: the aim of the establishment of the proposed enterprise; the scope and scale of business operation; the products to be produced; the technology and equipment to be adopted and used; the proportion of the sales of products between the domestic market and the foreign market; the area of land to be used and the related requirements; the conditions and quantities of water; electricity,coal,coal gas and other forms of energy resources required; and the requirement of public facilities. The local people's government at or above the county level shall within 30 days after receiving the report submitted by the foreign investor,give a reply in writing to the said foreign investor.

Article 11. In case that a foreign investor wishes to establish a foreign-capital enterprise,an application shall be submitted to the examining and approving organ through the local people's government at or above where the enterprise is to be established,together with the following documents: (1) the written application for the establishment of a foreign-capital enterprise; (2) a feasibility study report; (3) the articles of association of the foreign - capital enterprise; (4) the name-list of the legal representatives (or the candidates for members of the board of directors) of the foreign-capital enterprise; (5) the legal certifying documents and the credit position certifying documents of the foreign investor; (6) the written reply given by the people's government at or above the county level at the place,where the enterprise is to be established; (7) an inventory of goods and materials needed to be imported; (8) other documents that are required to be submitted.

The documents mentioned in items (1) and (3) in the preceding paragraph must be written in the Chinese language while the documents mentioned in items (2),(4) and (5) in the preceding paragraph may be written in a foreign language,but a corresponding Chinese translation shall be attached. In the event that two or more foreign investors jointly file an application for the establishment of a foreign capital enterprise,they shall submit a duplicate of the contract concluded and signed between them to the examining and approving organ for the record.

Article 12. The examining and approving organ shall,within 90 days after receiving all the required documents with respect to an application for the establishment of foreign - capital enterprise,make a decision whether to approve or disapprove the application. In the event that the examining and approving organ has found that the documents mentioned above are not complete,or that some of them are inappropriate,it may call on the applicant to make up the incomplete documents,or to make necessary revisions,within 3 prescribed time limit.

Article 13. After the approval of the application for the establishment of a foreign - capital enterprise by the examining and approving organ,the foreign investor shall,within 30 days after receiving the certificate of approval,file an application with the relevant administrative department for industry and commerce for registration,and obtain a business license. The date on which the business license is issued shall be the date of the establishment of the said enterprise. In the event that the foreign investor fails to file an application with the administrative department for industry and commerce for registration on the expiration of the 30 days after receiving the certificate of approval,the certificate of approval for the establishment of the proposed enterprise shall become invalid automatically. A foreign-capital enterprise shall,within 30 days after its establishment,go through the procedures for taxation registration with the tax authorities.

Article 14. Foreign investors may appoint a Chinese service agency for enterprises with foreign investment or other economic organization to handle,on their behalf,the affairs stipulated in Article 9,the first paragraph of Article 10 and Article 11 of these Rules,but a contract of entrustment shall be concluded and signed between them.

Article 15. The written application for the establishment of a foreign-capital enterprise shall include the following contents:

(1) the name of designation,the residence and the place of registration of the foreign investor,and the name,nationality,and position of the legal representative.

(2) the name and residence of the foreign-capital enterprise;

(3) the scope of business operations,the varieties of products,and the scale of production.

(4) the total amount of investment,the registered capital,the source of funds,and the method of investment contribution and the operation period;

(5) the organizational form and organs,and the legal representative of the foreign - capital enterprise;

(6) the primary production equipment to be used and the degrees of depreciation,production technology,technological level and their sources;

(7) the sales orientation and areas,the sales channels and methods,and the sales proportion between China's market and foreign market;

(8) the arrangements for the revenues and expenditures in foreign exchange;

(9) the arrangement for the establishment of relevant organs and the authorized size of working personnel,the engagement and use of workers and staff members,their training,salaries and wages,material benefits,insurance and labor protection.

(10) the degrees of probable environmental pollution and the measures for tackling pollution.

(11) the selection of sites and the area of land to be used;

(12) the funds,energy resources,raw and processed materials needed in capital construction and in production and business operations and the solutions thereof;

(13) the progress plan for the construction of the project; and

(14) the period of business operations of the foreign capital enterprise to be established.


Article 16. The articles of association of a foreign capital enterprise shall include the following contents:

(1) the name and the residence;

(2) the aim and the scope of business operations;

(3) the total amount of investments; the registered capital,and the time limit for contributing investment;

(4) the form of organization;

(5) the internal organizational structures and their functions and powers as well as their rules of procedures; the functions,duties and limits of powers of the legal representative as well as of the general manager,chief engineer,chief accountant and other staff members;

(6) the principles and system of financial affairs accounting and auditing;

(7) labor administration;

(8) the term of business operations,termination,and liquidation,and

(9) the procedures for the amendment of the articles of association.


Article 17. The articles of association of a foreign-capital enterprise shall become effective after the approval by the examining and approving organ. The same procedure shall apply when amendments are made.

Article 18. The division or merge of foreign capital enterprises,and the significant change in capital resulting from other causes,shall be subject to the approval by the examining and approving organ; in addition,the said enterprises shall engage a Chinese registered accountant to carry out verification,and to submit a report on the verification of capital; after the approval by the examining and approving organ,the enterprises concerned shall go through the procedures for the change of the registration with the relevant administrative department for industry and commerce.

Chapter III Form of Organization and Registered Capital

Article 19. The organizational form of a foreign capital enterprise shall be a limited liability company. With approval,the enterprise may also take any other liability form. With respect to a foreign - capital enterprise which is a limited liability company,the liability of the foreign investor to the enterprise shall be limited to the amount of investment subscribed and contributed to the enterprises by the investor. With respect to a foreign - capital enterprise which takes any other liability form,the liability of the foreign investor to the enterprise shall be dealt with in accordance with the provisions of Chinese laws and regulations.

Article 20. 0 The total amount of investment of a foreign - capital enterprise refers to the total amount of funds needed for the establishment of the enterprises,i. e. the sum total of the funds invested in capital construction in accordance with the scope of production and the circulating funds for production.

Article 21. 1 The registered capital of a foreign capital enterprise refers to the total amount of capital registered with the administrative department for industry and commerce for the purpose of establishing the foreign - capital enterprise,i. e. the total amount of investment the foreign investor undertakes to contribute. The registered capital of a foreign - capital enterprise shall fit in with the enterprise's scope of business operations; and the proportion between the registered capital and the total amount of investment shall conform with the provisions of the relevant Chinese laws and regulations.

Article 22. A foreign - capital enterprise shall not reduce the registered capital during the term of business operation.

Article 23. The increase or assignment of the registered capital of a foreign - capital enterprise shall be subject to the approval by the examining and approving organ; in addition,the said enterprise shall go through the procedures for the change of the registration with the administrative department for industry and commerce.

Article 24. In case that a foreign - capital enterprise intends to mortgage or assign its assets or rights and interests to a foreign unit,the case shall be submitted to the examining and approving organ for approval,and then to the administrative department for industry and commerce for the record.

Article 25. The legal representative of a foreign capital enterprise shall be the person-in-charge who,in accordance with the stipulations in the enterprise's articles of association,executes his/ her functions and powers on behalf of the enterprise. In the event that the legal representative is unable to execute his/ her functions and powers,he/ she shall entrust in writing an agent with the execution of his/ her functions and powers.

Chapter IV Methods of Contributing Investment and the Time Limit

Article 26. Foreign investors may use convertible foreign currencies for the contribution of investment,or use as their investment machinery and equipment,industrial property rights,and proprietary technology that,are assigned a fixed price. Foreign investors may,after approval by the examining and approving organ,use,as their investment,their profits in Renminbi ( RMB ) earned from other enterprises with foreign investment established within the territory of China.

Article 27. In case that foreign investors intend to use machinery and equipment,being assigned a fixed price,as their investment,the said machinery and equipment must meet the following requirements: (1) those the t are needed for the production of the foreign- capital enterprise; (2) those that cannot be produced in China,or that can be produced in China but cannot be guaranteed to meet the needs in terms of technical performance or time of supply. The price fixed for the aforesaid machinery and equipment shall not be higher than the normal price for similar machinery and equipment sold on the international market at the time.

With respect to the machinery and equipment,being assigned a fixed price and used as contributing investment,an inventory listing in detail the assigning of fixed prices as contributing investment,including the names,categories,quantities,and the assignment of prices,shall be made and submitted to the examining and approval organ as an appendix to the application for the establishment of the foreign - capital enterprise.

Article 28. In case that foreign investors intend to use industrial property rights and proprietary technology,being assigned a fixed price,as their in vestment,the said industrial property rights and proprietary technology must meet the following requirements: (1) owned by the foreign investors themselves; (2) capable of producing new products that are urgently needed by China,or that are suitable for export and marketable abroad. The assigning of a fixed price for the aforesaid industrial property rights and proprietary technology shall be in conformity with the general pricing principles of the international market and the amount of pricing thereof shall not exceed 20% of the registered capital of the foreign - capital enterprise. With respect to those industrial property rights and proprietary technology,being assigned a fixed price for contributing investment,a detailed inventory of relevant data,including a duplicate of the proprietary rights certificate,the effective condition,technological performance,the practical value,the basis and standard for the calculation of pricing,shall be prepared and submitted to the examining and approving organ as an appendix to the application for the establishment of the foreign - capital enterprise.

Article 29. When the machinery and equipment,being assigned a fixed price and used as contributing investment,have arrived at China's port,the foreign capital enterprise shall apply to China's commodity inspection,which shall then issue as inspection report. In the event that the variety,quality and quantity of the machinery and equipment,being assigned a fixed price and used as contributing investment,are not in conformity with the variety,quality and quantity of the machinery and equipment,being assigned a fixed price as contributing investment and listed in the inventory submitted to the examining and approving organ,the examining and approving organ has the power to require the foreign investors to make corrections within a prescribed time limit.

Article 30. 0 After the industrial property rights and proprietary technology priced as contributing investment have been put to use,the examining and approving organ has the power to carry out inspection. In the event that the said industrial property rights and proprietary technology are not in conformity with the data originally provided by the foreign investors,the examining and approving organ has the power to require the foreign investors to make corrections within a prescribed time limit.

Article 31. The time limit for a foreign investor to make the investment contributions shall be clearly stipulated in the written application for the establishment of the foreign- capital enterprise and also in the article of association of the enterprise. A foreign investor may make the investment contribution by installments,but the last installment of the contribution shall be made within the period of three years beginning from the day when the business license is issued. The first installment of investment contribution shall not be less than 1S % of the total amount of investment contribution that the foreign investor undertakes to make,and shall be made in full within a period of 90 days beginning from the day when the business license is issued. In the event that a foreign investor fails to make in full the first installment of the investment contribution within the time limit stipulated in the preceding paragraph,the certificate of approval for the establishment of the proposed foreign-capital enterprise shall become invalid automatically. The foreign-capital enterprise in question shall go through the procedure for registration cancellation with the relevant administrative department for industry and commerce,and hand in its business license for cancellation. In the event of the failure to go through the procedure for registration cancellation and to hand in the business license for cancellation,the administrative department for industry and commerce shall revoke the business license and announce the case publicly.

Article 32. After making the first installment of investment contribution,the foreign investor shall make the remaining installments of contribution strictly as scheduled. In the event that a foreign investment is in arrears with the contribution for 30 days without any justification,the case shall be handled in accordance with the provisions of paragraph 2 of Article 31 of these Rules. In the event that a foreign investor has proper reasons for requesting the postponement of investment contribution,prior consent of the examining and approving organ shall be obtained,and the case shall also be reported to the administrative department for industry and commerce for the record.

Article 33. After the foreign investor's each installment of investment contribution,the foreign - capital enterprise shall engage a Chinese registered accountant to carry out verification,and to prepare a report on the verification of capital,which shall be submitted to the examining and approving organ and the administrative department for industry and commerce for the record.

Chapter V Use of site and the Site Use Fees

Article 34. With respect to the site to be used by a foreign - capital enterprise,the local people' s government at or above the county level in the place where the enterprise is to be located,shall make arrangements after examination and verification in the light of the local conditions.

Article 35. A foreign - capital enterprise shall,within 30 days from the day the business license is issued,go through the procedure for the use of land and obtain the land certificate by presenting the certificate of approval and the business license to the land administration department under the local people's government at or above the county level in the place where the enterprise is to be located.

Article 36. The land certificate shall be the legal instrument for the foreign - capital enterprise to use the land. The foreign - capital enterprise within its term of operations,may not assign its land - use right without permission.

Article 37. A foreign - capital enterprise shall,when obtaining the land certificate,pay its land use fee to the land administrative department in the place where the enterprise is located.

Article 38. In case that a foreign - capital enterprise uses land that has already been developed,it shall pay the land development fee. The land development fee,as mentioned in the preceding paragraph,includes the expense for the requisition of land,the expense for the pulling down of houses and the settlement allowance,and the expense for the construction of basic installations that match the foreign - capital enterprise. The land development fee may be calculated and collected by the land development unit in a lump - sum,or by yearly installments.

Article 39. In case that a foreign - capital uses land that has not been developed,it may develop the land by itself,or it may entrust a department concerned in China to develop the land. The infrastructure construction shall be carried out under the unified arrangement of the local people' s government at or above county level in the place where the enterprise is to be located.

Article 40. 0 The standard for the calculation and collection of land use fee and land development fee shall be handled in accordance with the pertinent provisions of China.

Article 41. The term for the use of land by a foreign - capital enterprise shall be the same as the approved operation period of the said enterprise.

Article 42. A foreign - capital enterprise,besides obtaining the land use right in accordance with the provisions of this Chapter,may also obtain the same right in accordance with the pertinent provisions of other Chinese laws and regulations.

Chapter VI Purchasing and Marketing

Article 43. A foreign - capital enterprise shall formulate and execute its production and operation plans on it own; the said production and operation plans shall be submitted to the competent department in charge of the trade,in the place where the said enterprise is located,for the record.

Article 44. A foreign - capital enterprise is entitled to make decisions for itself on the purchase,for its own use,of machinery and equipment,raw and processed material,fuels,parts and components,fittings,primary parts,means of transport,and articles for office use (hereinafter uniformly called 'goods and materials'). A foreign - capital enterprise shall,when purchasing goods and materials in China under the same condition,enjoy the same treatment as enjoy by the Chinese enterprises.

Article 45. In case that a foreign - capital enterprise sells its products on the Chinese market,it shall conduct its sales in accordance with the approved sales proportion. In the event that sales of products on the Chinese market by a foreign - capital enterprise exceed the approved sales proportion,the case shall be subjected to the approval by the examining and approving organ.

Article 46. A foreign - capital enterprise is entitled to export of its own accord,goods produced by itself; it may also appoint a Chinese foreign trade company or a company outside the territory of China to sell its goods on a commission basis. A foreign - capital enterprise is entitled to sell,of its own accord,the products produced by itself on the Chinese market in accordance with the approved sales proportion; it may also appoint a Chinese commercial agency to sell its products on a commission basis.

Article 47. Where machinery and equipment being assigned a fixed price and used by foreign investors as contributing investment require,according to the pertinent provisions of China,import licenses,the foreign investors shall,on the strength of the approved inventory of equipment and goods and materials of the said enterprise to be imported,file an application directly,or through an agency entrusted by them,with the license issuing organ for obtaining due import licenses. Where a foreign - capital enterprise has to import,in accordance with the approved scope of business,goods and materials for its own use and needed by its production and if,according to the pertinent provisions of China,it is necessary for the said enterprise to obtain import licenses,it shall work out an annual plan for importation and apply,every six months,to the license - issuing organ for the licenses. With respect to products to be exported by a foreign - capital enterprise,if,according to the pertinent provisions of China,it is necessary for the said enterprise to obtain an export license,it shall work out an annual plan for exportation,and apply,every six months,to the license - issuing organ for the license.

Article 48. The prices of the goods and materials and technological labor service imported by a foreign capital enterprise shall not be higher than the normal prices of similar goods and materials and technological labor service on the international market at the time. The price of export products produced by a foreign capital enterprise shall be fixed by the enterprise itself with reference to the international market prices at the time,but the prices must not be lower than the reasonable export prices. With respect to the evasion of tax by using such methods as importing at high prices while exporting at low prices,the tax authorities shall have the power,in accordance with the pertinent provisions of the tax law,to investigate the legal responsibilities therefor. The pricing of products to be sold by a foreign - capital enterprise on the Chinese market in accordance with the approved sales proportion shall be governed by the pertinent provisions of China administration of prices. The pricing mentioned in the preceding paragraph shall be reported to the administrative authorities for prices and the tax authorities for the record,and shall be placed under their supervision.

Article 49. A foreign - capital enterprise shall provide statistical data and submit statistical statements to the departments concerned in accordance wi

 

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