1 LEGAL ISSUES ON DOING BUSINESS IN CHINA Henry Zhuang Henry Zhuang & Partners 14 January 2008.

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Presentation transcript:

1 LEGAL ISSUES ON DOING BUSINESS IN CHINA Henry Zhuang Henry Zhuang & Partners 14 January 2008

2 Forms of Foreign Direct Investments Foreign Investment Enterprises (“FIE”): ◆ Wholly Foreign Owned Enterprise (“WOFE”) ◆ Sino-Foreign Equity Joint Venture Enterprise (“EJV”) ◆ Sino-Foreign Cooperative Joint Venture Enterprise (“CJV”) Other Forms: ◆ Stock Company with Foreign Investment (Listed or Unlisted) ◆ Foreign Invested Holding Company ◆ Joint Exploitation ◆ Building, Operation and Transfer (“BOT”) ◆ Investment in Particular Industries ◆ Foreign Company Branch and Representative Office

3 Guidance Catalogue of Foreign Investment Industries ◆ Scope of Business ◆ Guidance Catalogue of Foreign Investment Industries ● “ encouraged”; ● “permitted”; ● “restricted” and ● “prohibited”. ◆ Catalogue of Priority Industries for Foreign Investment in the Central-Western Region ◆ Special Restrictions

4 Wholly Owned Foreign Enterprise (“WOFE”) ◆ Legal Entity ◆ Non Legal Entity Main Differences between EJV and CJV Main Differences between EJV and CJV ◆ Legal Person Status ◆ Legal Person Status ◆ Mode of Investment ◆ Mode of Investment ◆ Profit Distribution ◆ Profit Distribution ◆ Recovery of Investment ◆ Recovery of Investment

5 Stock Company with Foreign Investment (Listed or Unlisted) ◆ Registered capital: at least RMB30 million ◆ Registered capital: at least RMB30 million ◆ Percentage of foreign shares ◆ Percentage of foreign shares ◆ Conversion from FIE into stock company ◆ Conversion from FIE into stock company ◆ Initial public offer ◆ Initial public offer

6 Foreign Invested Holding Company Exploitation of Petroleum and Mineral Resources  Inland Petroleum  Offshore Petroleum  Other Mineral Resources  WOFE or EJV  Related Legal Requirements

7 Building, Operation and Transfer (“BOT”)  Competitive bidding  BOT contract  Project company

8 Investment in Particular Industries  Bank  Insurance Company  Joint Venture Securities Company  Joint Venture Institute  Joint Venture Hospital  Others

9 Total Investment and Registered Capital  WOFE, EJV & CJV: Total Investment Registered Capital ≤US$3 million > 70% > US$3 million and ≤US$10 million > 50% (Minimum: US$2.1 million) > US$10 million and ≤US$30 million > 40% (Minimum: US$5 million) > US$30 million > 1/3 (Minimum: US$12 million)  Special Requirements: ◆ Property Development Company ◆ Stock Company with Foreign Investment ◆ Foreign Invested Holding Company

10 Capital Contribution  Form of Capital Contribution In Cash (at least 30%) In Cash (at least 30%) In Kind, Industrial Property Rights, Land Use Rights, etc. In Kind, Industrial Property Rights, Land Use Rights, etc. (Exclusive of service, credit, name of an individual, goodwill, franchise right, assets created as security)  Valuation and Capital Verification Report  Time Limit

11 Borrowing Gap Difference between Total Investment and Registered Capital Limited Liability Share Transfer

12 Control over a FIE  Highest Authority: Shareholders’ Meeting or Board of Directors  Quorum of Board Meeting  Veto Power of Minority Shareholder  Legal Representative  Official Stamp

13 Establishment   Company Name Reservation   Preparation of related documents   Application to the approval authority for approval   Registration with the company registration authority   Other related registrations

14 Acquisition  Share acquisition & Asset acquisition  Percentage of foreign shares  Valuation by a valuer qualified in China  Legal requirements on payment of consideration  Special regulations on acquisition of state-owned shares  Approval by examination and approval authority  Anti-trust review  Acquisition of shares in a listed company by foreign strategic investor

15 Taxation - Enterprise Income Tax  Tax Rate  Preferential Treatment agriculture, forestry, animal husbandry and fisheries agriculture, forestry, animal husbandry and fisheries infrastructure projects infrastructure projects environmental protection projects, energy saving or water saving projects environmental protection projects, energy saving or water saving projects transfer of technology transfer of technology small-scale and low profit enterprise small-scale and low profit enterprise high and new technology enterprise high and new technology enterprise venture capital enterprise venture capital enterprise regional preferential treatment regional preferential treatment transition of existing preferential tax treatments transition of existing preferential tax treatments

16 Taxation – Import Duty Exemption available for FIE  Conditions: Encouraged industries listed in Guidance Catalogue of Foreign Investment Industries Encouraged industries listed in Guidance Catalogue of Foreign Investment Industries Priority industries listed in Catalogue of Priority Industries for Foreign Investment in the Central-Western Region Priority industries listed in Catalogue of Priority Industries for Foreign Investment in the Central-Western Region Import of self-used equipment by a FIE within its total investment Import of self-used equipment by a FIE within its total investment  Exceptions: FIE’s foreign shares ≥ 25% List of Commodities not Exempted from Import Duty for Foreign-invested Projects FIE’s foreign shares ≥ 25% List of Commodities not Exempted from Import Duty for Foreign-invested Projects FIE’s foreign shares < 25% List of Commodities not Exempted from Import Duty for Domestic-invested Projects FIE’s foreign shares < 25% List of Commodities not Exempted from Import Duty for Domestic-invested Projects

17 Dispute Solution  Litigation and arbitration  Arbitration committees in China  Enforcement of foreign judgment  Enforcement of foreign arbitral award

18 Thanks for your attention. Contact Us: Henry Zhuang Henry Zhuang & Partners #2006, Hua Xia Bank Tower 256 Pudong Nan Road Pudong, Shanghai The People's Republic of China Tel: (86-21) Did: (86-21) Fax: Website: