On October 8, 2016, the Ministry of Commerce promulgated the Interim Administrative Measures for the Administration of Recordation for the Establishment of and Changes to Foreign-Invested Enterprises (the “Measures”), which came into effect on the day of their promulgation. The Measures provide for the scope of application, the recordation procedure, the supervision and inspection scheme, and the legal obligations; recordation of investments by investors from Hong Kong, Macau and Taiwan shall also reference and follow the Measures. The Measures are highlighted below:
1. Scope of recordation
Article 2 of the Measures provides that the Measures shall apply to the establishment of and changes to foreign-invested enterprises where special administrative measures imposed by the state are not involved. In addition, for foreign-invested public companies and the special category of companies listed in the National Equities Exchange and Quotations, Article 6 of the Measures incorporate the administrative practices for foreign investors by only requiring recordation of investor basic information or changes to the shareholding if the foreign investor’s shareholding stake changes by more than 5% or if its (relative) controlling position changes, thereby further reducing the submission burden of enterprises.
2. Targets for the recordation administration
The Measures apply to Sino-foreign joint venture enterprises, Sino-foreign cooperative enterprises and foreign-invested companies limited by shares. Under Article 32 of the Measures, foreign-invested investment companies (including investment-oriented companies and venture capital enterprises) shall be deemed as foreign investors to be governed by the recordation system. Under Article 33 of the Measures, investors from Hong Kong, Macau and Taiwan whose investment does not involve special administrative measures imposed by the state shall reference and follow the recordation administration. Article 34 of the Measures provides that for service providers in Hong Kong and Macau investing in service and trade industries in mainland China that are open to Hong Kong and Macau investors under the relevant agreements, the recordation of the establishment of and changes to such companies shall be governed by the (Pilot) Measures for the Recordation Administration of Investment in Mainland China by Service Providers in Hong Kong and Macau.
3. Characteristics of recordation administration
Article 5 of the Measures provides that the establishment recordation of a foreign-invested enterprise may be conducted prior to the issuance of its business license or within 30 days after the issuance of the business license. Article 6 provides that a foreign-invested enterprise applying for recordation of changes shall submit the application within 30 days after the change took place; the recordation materials for establishment and changes are both completed and submitted online via the recordation system. Article 11 of the Measures provides that a recordation agency shall verify the completeness and accuracy of the recordation information and the formats of relevant documents submitted by a foreign-invested enterprise or its investor, and determine if the submission shall be handled through recordation. If yes, the recordation will be completed in three working days. Article 12 of the Measures provides that upon the completion of the recordation, the foreign-invested enterprise or its investor may voluntarily request a recordation receipt from the recordation agency.
Therefore, the recordations under the Measures are generally for informative purposes and are not prerequisites for other procedure. A foreign-invested enterprise or its investors may submit an affidavit attesting to the veracity, accuracy and completeness of the information provided. A recordation agency need only to conduct a review in form of the information provided, and the enterprise is not required to obtain a recordation receipt.
4. Recordation agencies
Under Article 3 of the Measures, the commerce authority under the State Council shall be in charge of the collective planning and guidance of the administration of recordation for the establishment of and changes to foreign-invested domestic enterprises in the entire country. The competent commerce authorities in the provinces, autonomous regions, municipalities directly under the central government, cities under separate state planning, the Xinjiang Production and Construction Corps, the sub-provincial cities, and the relevant agencies in free trade pilot zones and national economic and technological development zones shall serve as the recordation agencies in their respective regions. The recordation agencies will conduct recordation via the Integrated Management Information System for Foreign Investment.
5. Recordation procedure
The recordation for the establishment of and changes to foreign-invested enterprises under the Measures primarily consists of three steps: (1) the foreign-invested enterprise or its investors fill out online the application and submit the application materials (Articles 5, 6 and 7); (2) the recordation agency verifies (in form) the completeness and accuracy of the submitted information, and determines whether the submitted matters fall within the scope of recordation by the recordation agency (Article 11); and (3) the applicant to decide whether to collect a recordation receipt (Article 12).
For the establishment of foreign invested enterprises that fall within the scope of recordation, the recordation shall be conducted within 30 days after the issuance of the business license (Article 5). The recordation of a change to a foreign invested company shall be conducted within 30 days after the change (Article 6). The recordation agency shall complete the recordation within three working days and announce the results of the recordation via the Integrated Management Information System for Foreign Investment, as well as an online notification to the foreign-invested enterprise or its investor; if the matter is not within the scope of recordation, an online notification regarding such shall be made to the foreign-invested enterprise or its investor with a request to handle such matter pursuant to applicable requirements (Article 11).
6. Supervision and legal liabilities
After changing from a formal review to a recordation procedure for the establishment of and changes to of foreign-invested enterprises, the interim and after-the-fact supervision have become particularly important. To enhance such supervision, Article 14 of the Measures provides that the competent commerce authorities and the public security, state-owned assets, customs, tax, industry and commerce, securities and foreign exchange administrative agencies shall closely coordinate and cooperate with each other for better information sharing. If the competent commerce authorities detect during their supervision and inspections any violations by a foreign-invested enterprise or its investor which goes beyond their supervisory responsibility, they shall timely communicate the matter with the relevant agencies. Article 22 of the Measures provides that information obtained in the course of supervision and inspection by a competent commerce authority and other competent authorities regarding the credit status of a foreign-invested enterprise or its investor shall be included in the Foreign Investment Credibility Archive System of the Ministry of Commerce. In particular, if recordation is not conducted pursuant to the Measures, is false, if a recordation receipt is forged, altered, lent or assigned, if the enterprise do not cooperate with the supervision or inspection, or if an administrative penalty decision rendered by the competent commerce authority is not followed, the competent commerce authority can disclose such credit information via the foreign investment information disclosure platform of the Ministry of Commerce to enable public supervision. In additional to public disclosure, Articles 24 through 28 of the Measures also stipulate corresponding liabilities for the above circumstances and authorize the relevant authorities to prosecute violations of any other laws or regulations.
Under Article 29 of the Measures, for any applications regarding the establishment of and changes to foreign-invested enterprises that was accepted by the competent commerce authorities prior to the effective date of the Measures for review which has not yet been completed, and the application would have fallen within the scope of recordation, the review shall be terminated, and the foreign-invested enterprise or its investors shall follow the recordation formalities pursuant to the Measures.