Decree of the Ministry of Commerce (2012) No.8 Interim Provisions of the Ministry of Commerce on Equity Contribution of Foreign-invested Enterprises

Decree of the Ministry of Commerce [2012] No.8

 

The Interim Provisions of the Ministry of Commerce on Equity Contribution of Foreign-invested Enterprises that have been approved at the 68th ministerial affairs meeting of the Ministry of Commerce on August 24, 2012, are hereby promulgated for implementation as of October 22, 2012.

Minister: Chen Deming

September 21, 2012

Interim Provisions of the Ministry of Commerce on Equity Contribution of Foreign-invested Enterprises

  

Article 1 In order to regulate the equity contribution behaviors of foreign-invested enterprises, improve investment facilitation level and promote foreign investors to invest in China, the Interim Provisions of the Ministry of Commerce on Equity Contribution of Foreign-invested Enterprises (hereinafter referred to as the "Provisions") are enacted in accordance with laws of People's Republic of China on foreign investment, Company Law of the People's Republic of China, and related administrative regulations.

Article 2 The Provisions shall apply to the conducts regarding the establishment or alternation of foreign-invested enterprises (collectively, the "Investees") by domestic and foreign investors (collectively, the "Equity Contributors") through making capital contribution in the form of equity of enterprises held in China (collectively, the "Equity Enterprises"), including:

1.    Setting up foreign-invested enterprises in the form of establishing new companies;

2.    Transforming non-foreign-invested enterprises into foreign-invested ones through capital increase;

3.    Altering the equity of foreign-invested enterprises by capital increase.

The aforementioned enterprises refer to limited liability companies or stock limited companies set up within the territory of China according to the law.

Article 3 The term "Approval Authorities" mentioned in these Provisions refers to the Ministry of Commerce of P.R.C (hereinafter referred to as the "MOFCOM") or local authorities of commerce.

Establishment or alternation of foreign-invested enterprises by investors in the form of equity contribution, other than those that shall be approved by the MOFCOM pursuant to relevant administration regulations on approval of foreign investment, shall be subject to the approval of the competent authorities of commerce of the provinces, autonomous regions, municipalities directly under the Central Government or cities specifically designated in the state plan where the Investees are located (hereinafter referred to as the "Provincial-Level Approval Authorities").

Article 4 Equity used for capital contribution shall be free from encumbrance, complete and transferable according to the law; in case that the Equity Enterprises are foreign-invested ones, it shall be set up according to the law and shall conform to industry policies on foreign investment.

The equity shall not be used for capital contribution in any of the following cases:

1.    Registered capital of Equity Enterprises is not fully paid;

2.    The equity has been mortgaged;

3.    The equity has been frozen according to the law;

4.    The equity cannot be transferred in accordance with agreement specified in articles (contracts) of the Equity Enterprises;

5.    The equity of foreign-invested enterprises that have not participate in or have failed the joint annual check for foreign-invested enterprises in the previous year;

6.    The equity of real estate enterprises, foreign-invested companies, and foreign-invested venture (equity) enterprises;

7.    The equity transfer that shall be submitted for approval as required by laws, administrative regulations, or decisions of the State Council and is not approved;

8.    Other cases in which the equity is not allowed to be transferred as required by laws, administrative regulations, or decisions of the State Council.

Article 5 After equity contribution, Investees and Equity Enterprises as well as direct or indirect shareholding enterprises thereof shall observe the Provisions for Guiding the Foreign Investment Direction, Foreign Investment Industry Guidance Catalogue as well as other  regulations on foreign investment; enterprises that do not conform to related regulations shall strip related assets, business or transfer equity before declaring equity contribution. Domestic and foreign investors shall not escape foreign investment administration in the form of equity contribution.

Article 6 The equity used for capital contribution shall be evaluated by domestic evaluation institutions that are set up according to the law.

Article 7 Equity Contributors and shareholders or other investors of Investees shall negotiate and determine the equity evaluation amount and equity contribution amount based on equity evaluation.

Equity evaluation amount refers to the transaction evaluation used for equity contribution agreed by all the aforementioned parties based on equity evaluation. Equity contribution amount refers to the part of equity evaluation amount that is included in the registered capital of Investees and shall not be higher than the equity evaluation value.

For subscribing the increasing capital of Investees by equity evaluation, the equity evaluation amount is included in the merger trading value.

Article 8 The total equity contribution amount and evaluation contribution amount of other non-currency asset of all shareholders of Investees shall not be higher than 70% of the registered capital.

Article 9 The total investment amount of Investees of limited liability company, shall be determined based on the registered capital of the Investees after the equity contribution, in accordance with the Interim Regulations of the State Administration for Industry and Commerce on the Proportion of the Registered Capital to the Total Investment of Sino-foreign Equity Joint Ventures.

Article 10 In the case of equity contribution, investors or Investees shall submit applications and the following documents to the Approval Authorities:

1.    Equity contribution application and equity contribution agreement;

2.    Certificate proving that Equity Contributors legally hold the equity that is used for capital contribution;

3.    Equity Enterprises' Business License of Enterprise Legal Person (copy);

4.    Equity Enterprises of foreign-invested enterprise nature shall submit the Approval Certificate for Foreign-Invested Enterprises and its copies, and relevant certificates of passing joint annual check on foreign-invested enterprises;

5.    Equity evaluation report of evaluation institution;

6.    Legal opinions issued by law office and assigned lawyers pursuant to Articles 4 and 5 of the Provisions;

7.    Other documents concerning the establishment or alternation of foreign-invested enterprises that shall be submitted pursuant to foreign investment laws, administrative regulations and rules;

8.    Related approval documents required to be submitted where the equity transfer of shareholders of Equity Enterprises shall be subject to approval as regulated by laws, administrative regulations, and decisions of the State Council;

9.    Other documents required by Approval Authorities.

Article 11 Approval Authorities of Investees shall determine whether or not to grant approval according to the law. When the approval is granted, the Approval Certificate for Foreign-Invested Enterprises shall be issued or renewed ("equity contribution is not paid" shall be specified in the remark column) by Approval Authorities.

For Equity Enterprises of foreign-invested enterprise nature that are approved by the Approval Authorities other than those of Investees, the Approval Authorities of Investees shall seek opinions from local Provincial-level Approval Authorities of Equity Enterprises; upon receipt of letters of asking for opinions, local Provincial-level Approval Authorities of Equity Enterprises shall reply within 20 working days; if no reply is given within the time limit, it is regarded as agreed.

Article 12 After equity contribution is approved by the Approval Authorities of Investees, the non-foreign-invested equity enterprises shall go through registration or approval formalities based on the Approval Certificate for Foreign-Invested Enterprises remarked by Investees pursuant to the Interim Provisions on Investment in China by Foreign Investment Enterprises for changing the holders of equity used for capital contribution to Investees.

Article 13 After the equity contribution is approved by Approval Authorities of Investees, the foreign-invested equity enterprises shall be treated in accordance with the following circumstances:

After equity contribution, if the shareholders of Equity Enterprises still contain foreign investors (including foreign-invested companies, foreign venture (equity) enterprises, or foreign-invested partnership enterprises with investment as main business), the Equity Enterprises shall, pursuant to Several Provisions for the Alteration of Investors' Equities in Foreign Investment Enterprises, apply for changing holders of equity used for capital contribution to Investees to competent approval authority with the Approval Certificate for Foreign-Invested Enterprises remarked by Investees.

After equity contribution, if shareholders of Equity Enterprises do not have foreign investors (including foreign-invested companies, foreign venture (equity) enterprises, or foreign-invested partnership enterprises with investment as main business), Equity Enterprises shall, pursuant to Several Provisions for the Alteration of Investors' Equities in Foreign Investment Enterprises and Interim Provisions on Investment in China by Foreign Investment Enterprises, process related approval or record formalities with the Approval Certificate for Foreign-Invested Enterprises remarked by Investees and revoke or change the Approval Certificate for Foreign-Invested Enterprises at the Approval Authorities.

Article 14 After completion of the aforementioned changes, Equity Enterprises shall register the change with the relevant local departments of industry and commerce, tax, customs, and foreign exchange administration in accordance with relevant national provisions.

If the equity used for capital contribution has been registered with the security registration and settlement authorities, Equity Enterprises shall go through equity transfer and transfer registration formalities with the stock exchange and security registration and settlement authorities.

Article 15 After Equity Enterprises have completed the aforementioned changes, Investees shall apply for renewal of the Approval Certificate for Foreign-Invested Enterprises to Approval Authorities (the expression of "equity contribution has been paid" shall be specified in the remark column) by advantage of the following documents.

1.    Description on the equity change of Equity Enterprises;

2.    Equity Enterprises' Business License of Enterprise Legal Person and copies thereof after the equity change;

3.    Equity contribution verification certificates issued by verification institutions set up according to the law;

4.    Equity Enterprises shall also submit the Approval Certificate for Foreign-Invested Enterprises and copies thereof if they are still foreign-invested enterprises after the equity change;

5.    Equity Enterprises shall also submit Provincial-level Approval Authorities' approval documents on re-investment of foreign-invested enterprises in China if Equity Enterprises are non-foreign-invested enterprises but their business scope involve restricted fields regulated in the Foreign Investment Industry Guidance Catalogue.

Article 16 The equity contribution involving domestic listed companies shall conform to the related regulations of national security supervision, security exchange, and security registration settlement.

The Administrative Measures for Strategic Investment by Foreign Investors in Listed Companies shall also apply to the circumstance under which foreign investors participate in domestic listed companies' target issuance or agreement-based transfer of shares by means of equity of Equity Enterprises at the same time. The MOFCOM shall issue principle approval letters pursuant to related regulations. Equity Enterprises may, in accordance with regulations specified in Article 12 and 13 of the Provisions, go through modification formalities such as record and approval with principle approval letters and target issuance or agreement-based transfer formalities. After the completion of the transactions, listed companies shall get the Approval Certificate for Foreign-Invested Enterprises from the MOFCOM and register the change registration with the administration departments of industry and commerce with such approval certificate.

Article 17 Approval Authorities of Investees for the equity contribution shall separately forward the approval documents to departments of industry and commerce, tax, customs, and foreign exchange at the locality of Investees; when Equity Contributors are domestic investors, they shall forward the documents to the competent tax departments at the locality of Equity Contributors.

Article 18 During the process of foreign debt registration and import tax deduction amount of Investees, it shall be verified pursuant to the total investment amount reached based on the registered capital of Investees after deducting the part for equity contribution.

Article 19 The equity contribution shall conform to related regulations on national tax administration.

Article 20 The equity contribution involving administration issues of state-owned equity of enterprises and state-owned equity of listed companies shall observe related regulations on the administration of national assets.

Article 21 The verification agencies shall obtain verification confirmation from foreign exchange departments in the locality of Investees before issuing the capital verification certificate.

Article 22 Foreign investors shall submit merger security review applications pursuant to related regulations in case that equity contribution involves cases specified in the Circular of the General Office of State Council on Establishing the Security Review System for Merger and Acquisition of Domestic Enterprises by Foreign Investors.

In addition to the Provisions, the equity contribution falling into the category of merger of domestic enterprises by foreign investors shall also observe the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors.

Article 23 Equity contribution involving foreign-invested companies shall conform to the related regulations on foreigners' contribution to investment companies.

Article 24 Domestic investors contributing to domestic enterprises in the form of equity of foreign-invested enterprises shall conform to the regulations on equity contribution conditions set forth in Article 4 of the Provisions.

Article 25 Related regulations on equity contribution conditions and equity evaluation specified in the Provisions shall apply mutatis mutandis to the circumstance under which the foreign investors exchanging equity of domestic enterprises for equity of domestic enterprises held by other investors as consideration, and the foreign investors shall adhere to the regulations specified in Several Provisions for the Alteration of Investors' Equities in Foreign Investment Enterprises and Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors.

Article 26 The Provisions shall apply mutatis mutandis to the equity contribution by enterprises funded by investors from Taiwan region, Hong Kong and Macao.

Article 27 The Provisions shall be interpreted by the MOFCOM.

Article 28 The Provisions shall come into force as of October 22, 2012.