The Foreign Investment Law of the People's Republic of China ("FIL") has drawn significant attention of foreign investors since it took effect on January 1st, 2020.
The Foreign Investment Law, together with its "Implementing Regulations", the "Negative List", and the "Encouraged Industries Catalogue", is collectively called the "New Law".
The New Law has established new principles and set up policies that are in favour of foreign investors, which is mainly reflected in the following three aspects:
The National Treatment and the Negative List The Chinese government accords national treatment to foreign investment outside of the negative list.
Simplified Incorporation It is simpler for foreign investors in terms of incorporation and managing operations.
Better Protection of IPRs The new law has strengthened the protection of intellectual property rights (IPRs in short) of foreign investors. If you are interested in this topic please read: China's Foreign Investment Law: IPRs Protection Made Practical
This article will explain what is new of the New Law from the perspective of setting up Foreign-Invested Enterprises (FIEs) in China. Furthermore, we will provide tips concerning how to incorporate an FIE in China.
The National Treatment and the Negative List
The New Law introduces an innovative management system. As to pre-establishment, a pre-entry national treatment plus the negative list is introduced.
The negative list stipulates industries in which China prohibits or limits foreign investment. Industries not on the list are open for investment to all businesses and will not require pre-approval by the Chinese government. The national treatment during pre-establishment ensures that foreign investors are treated at par with their Chinese counterparts during the entry stage unless the investment is prohibited or limited according to the negative list.
With the Foreign Investment Law implemented, it is simpler and faster for foreign enterprises to be incorporated in China.
Check the negative list before you start
When considering setting up an enterprise in China, foreign investors must answer this question: is my investment area outside of the negative list? (note: if the enterprise intends to incorporate in the China Free Trade Pilot Zone, it must refer to the negative list applicable to the free trade pilot zone). If the answer is YES, then the establishment of an enterprise will be the same as that of any Chinese enterprise, and the record-filing procedure can be taken without government approval. Foreign investors need to prepare documents as required and deliver them to the competent governmental body. The governmental authority will then complete the record-filing within the time prescribed by law and set up the FIE in China.
Incorporation in China in Three Steps
If the industries of your investment are not on the negative list, you can follow these three steps to establish your FIE in China:
Step 1: Identify the relevant government authority
The relevant government authority that takes care of the record-filing matters is the commercial department of the place where the enterprise is intended to set up. The work of the filing agents is carried out entirely through the foreign investment management system. Thus, foreign investors can complete incorporation online.
The New Law does not designate the government authorities. It is up to foreign investors to identify the relevant government authority to contact.
Step 2: Prepare the required materials
The Chinese government authority has stipulated the required materials for the record-filing process. Foreign investors need to prepare the materials and submit them to the relevant government authority. Connect Flow International can provide you with a list of required materials.
Step 3: Keep track of the process
After submitting the application, filing agents will screen whether the declaration is within the scope of the record filing. If so, the record-filing shall be completed within three working days; if not, the record-filing will not be carried out.
After the filing is completed, the foreign investors can request the "Record Filing Receipt for the Establishment of a Foreign-Invested Enterprise" from the government authority after receiving the notification online. This marks the completion of the incorporation process.
Regarding incomplete materials
If the materials are incomplete, they should be completed within fifteen working days after receiving the notification. If the materials cannot be completed within the prescribed deadline, the record-filing is not completed. In this case, within five working days, foreign investors should apply for additional filing information for the same incorporation.
With the enactment of the Foreign Investment Law, the process of incorporation of FIEs will be simplified. And the Foreign Investment Law will further improve the efficiency of various government authorities. Hence, FIEs will receive more convenient services.
However, during the incorporation of the enterprise, preparing materials and identifying relevant government authority involve complicated details and much local knowledge, which still requires considerable time and efforts. Connect Flow International is here to provide you with professional guidance and services to ensure your incorporation process to be swift, efficient, and worry-free. Contact us!