On October 8, the Ministry of Commerce issued the Temporal Method of the Establishment and Alteration Filing Management of Foreign-invested Enterprises (No.3 2016, hereinafter referred to as the Method). The Method went into effect on the date of promulgation. During the drafting process, the MOFCOM sought for opinions inform the public on the website of the MOFCOM and the website of legal information of the Chinese government respectively since September 3 according to the relevant requirements of legislative procedure. Up to September 22 when the Method concluded the procedure of seeking opinions in public, the MOFCOM received more than 530 feedback opinions and suggestions from all sectors of society such as association of commerce, enterprises, lawyers, scholars and foreign governments. As a whole, all parties agreed the basic principle of the Method, supported the MOFCOM’s introduction of relevant supporting measures, and provided specific amending advice in terms of the content of the Method. After careful researching and combining the feedback opinions of the public, the MOFCOM amended and perfected the Method.

In order to do a good job in the establishment and alteration Filing management of foreign-invested enterprises and guarantee the smooth implementation of the Method, Head of the Department of Treaty and Law interpreted the relevant questions of the Method.

1. What is the background of the Method? What are the major contents?

On September 3 2016, the 22nd Conference of the 12th Standing Committee of the National People’s Congress adopted the Decision on Modifying Four Laws Such as the Law on Foreign-funded Enterprises of the People's Republic of China by the Standing Committee of the National People's Congress which would not involve the establishment and alteration of the foreign-invested enterprises which must take the country's special management measures. The approval was changed to filing management. This marks a significant reform of China’s foreign investment management system and embodies the spirit that any significant reform must have a legal basis. We will further expand opening up and improve China’s business environment of with legalization, internationalization and facilitation.

In order to guarantee the smooth engagement of laws and do a good job in filing management that does not involve the establishment and alteration of the foreign-invested enterprises which must take the country's special management measures, the MOFCOM researches and formulates this Method on the basis of seeking opinions from the relevant department, local business departments and the public. This Method is regarded as an important supporting measures duplicating and promoting the experience of free trade pilot zone nationwide.

The Method comprehensively implements the requirements of streamlining administration and delegating power to the lower levels, strengthening regulation and cooperating in supervision, making standards aiming at the contents such as the range of application, filing procedure, supervision and examination and legal responsibility, and rules that the Hong Kong, Macao and Taiwan’s investors should deal with investment filing items according to this Method. The Method consists of 37 items, five chapters including general rules, filing procedure, supervision management, legal responsibilities and supplementary articles.

2. What is the feature of filing management? Is this the pre-condition for foreign-invested enterprises to handle other procedures?

The 5th item of the Method rules that the filing of foreign-invested enterprises can be set up before issuing the business license and within 30 days afterwards. . The 6th item rules that the foreign-invested enterprises can alter the filing within 30 days after the occurrence of changes. The filing application materials of the establishment and the alteration should be reported and submitted on line through the filing system first, and then the filing procedure can be handed. The 11th item of the Method regulates that the filing organizations are only responsible for verifying the formal integrity and accuracy of the filing information and relevant documents submitted by foreign-invested enterprises and other investors, and screening that if the declaration belongs to the filing scale. Those belonging to the filing scale should complete the filing procedure within 3 working days. The 12th item of the Method rules that after the completion of filing, foreign-invested enterprises and other investors can get the filing receipt from the filing organizations of their own accord.

Therefore, different from the administrative licensing, the filing management ruled in this Method is the informative filing, not the pre-condition for enterprises to handle other procedures. Foreign-invested enterprises and other investors are responsible for the authenticity, veracity and integrity of the registration information in form of commitment letter of. The filing organizations only conduct formation examination aiming at the registration information at the filing stage and getting the filing receipt is not the mandatory requirement. This is the essential difference from the examination and approval system of the foreign-invested enterprises. It is a “true filing” system which is convenient for enterprises and serving enterprises.

3. What is the scale of the filing management?

During the process of opinion seeking, the public generally pays attention to the range of application of the Method. According to the Decision on Modifying Four Laws Such as the Law on Foreign-funded Enterprises of the People's Republic of China by the Standing Committee of the National People's Congress, the 2nd item of the Method rules that this method applies to the establishment and alteration of foreign-invested enterprises who are not related to the implementation and access of special management measures ruled by China..

In terms of the range of the special management measures ruled by China, the State Development and Reform Commission and the Ministry of Commerce defined in the announcement issued on October 8 that as is approved by the State Council, the range of the special management measures of foreign investment access is executed according to the relevant stipulation of the limited and banned items and the encouraged items with the requirements of stock equity and senior management in the Catalogue for Guidance of Foreign Investment (2015 Revised) (hereinafter referred as the Catalogue). Those not related to the establishment and alteration of foreign acquisitions should be executed according to the existing relevant stipulations.

According to this, as for the investment that must take the special management measures, the range that involves the limited and banned items and the encouraged items according to the requirements of stock equity and senior management in the Catalogue should continue the check management and approval disregarding their volume or investment patterns (newly-established or purchasing); in terms of the foreign investors purchasing domestic non foreign-invested enterprises, the Stipulations on Foreign Investors Purchasing Domestic Enterprises (MOFCOM Announcement No. 6, 2009) is applied, those involve listed companies, the Management Methods on the Strategic Investment of Foreign Investors to the Listed Companies (Announcement No. 28, 2005 of the Ministry of Commerce, China Securities Regulatory Commission, State Administration of Taxation, State Administration for Industry and Commerce and State Administration for Foreign Exchange) is applied. As for foreign investors investing in other fields or using some other investment patterns, the filing management is applied.
What needs to be explained is that, after foreign investors purchasing domestic non foreign-invested enterprises, the alteration matters of the foreign-invested enterprises, if not involving the matters that need to take the country’s special management measures, should also take filing management.

Besides, as for foreign-invested listed companies and the companies that are listed in National Equities Exchange and Quotations, the 6th Article of the Method, according to the current management practice of foreign investment, stipulated that the foreign investors could take the filing procedures on the alteration of the basic information or share of the investor only if his shareholding ratio surpassed 5% or (relatively) his holding status was changed, so as to further alleviate the burden of declaration of the enterprises.

4. What are the applicable targets of the Method? Are the foreign-invested joint stock limited companies suitable to the filing management? What about the domestic reinvestment of foreign-invested enterprises?

The applicable targets of the Method include Chinese-foreign joint ventures, Chinese-foreign cooperative enterprises, foreign-invested enterprise and foreign-invested limited joint stock companies. According to the 32nd article of the Method, the investment-oriented foreign-invested enterprises (including investment-oriented companies and venture capital enterprises) are regarded as foreign investors and could apply to filing management. According to the 33rd article of the Method, investment from Hong Kong, Macao and Taiwan which does not involve the country’s special management measures should conform to the filing management. Besides, the 34th article of the Method stipulated that the filing of service providers of Hong Kong and Macao should accord with the Filing Management Method on Service Providers of Hong Kong and Macao while investing in the Mainland (Trial).

The domestic reinvestment of foreign-invested enterprises should accord with the requirements of the Temporary Provisions of the Ministry of Foreign Trade and Economic Cooperation and the State Administration for Industry and Commerce on Domestic Reinvestment of Foreign-Invested Enterprises.

5. How to determine the ultimate actual controller in the Method?

According to the 5th and the 6th article of the filing management method and the attached Filing Declaration Form of the Establishment of Foreign-Invested Enterprises and Filing Declaration Form of the Alteration of Foreign-Invested Enterprises, the information of the ultimate actual controller of foreign-invested enterprises and the ultimate actual controller of the investors of foreign-invested enterprises are required to be filed. The ultimate actual controller of foreign-invested enterprises means the natural person, enterprises, governmental organizations or international organizations that directly or indirectly control the foreign-invested enterprises ultimately through shares, contracts, trust or other patterns; the ultimate actual controller of investors means the natural person, enterprises, governmental organizations or international organizations that directly or indirectly control the investors of the foreign-invested enterprises ultimately through shares, contracts, trust or other patterns. If the above actual controller is overseas, we should trace the listed companies overseas, the natural person overseas, foreign governmental organizations (including government funds) or international organizations; if the actual controller is domestic, we should trace the domestic listed companies, domestic natural person or state-owned /collectively-owned enterprises.

6. What are the filing organizations stipulated in the Method? How do the organizations carry out the filing work?

According to the 3rd article of the Method, the commercial departments of the State Council are in charge of the planning and guidance of the filing management of the establishment and alteration of foreign-invested enterprises in the whole country; the commercial departments of provinces, autonomous regions, directly-controlled municipalities, municipalities with independent planning status, Xinjiang Production and Construction Corps and sub-provincial cities, and related organizations of Free Trade Pilot Zones and National Economic and Technological Development Zones are the filing organizations of establishment and alteration of foreign-invested enterprises. They are in charge of the filing management of the establishment and alteration of foreign-invested enterprises in their own region.

The filing organizations carry out filing work through the Foreign Investment Management System. According to the 11th article of the Method, the filing organizations will only verify the integrity and accuracy of the filing information and related documents submitted by foreign-invested enterprises or other investors, and examine if the declared matters belong to the scope of filing.

7. What are the filing procedures stipulated in the Method? How do the foreign-invested enterprises or other investors included in the range of filing carry out the filing?

The filing of establishment of alteration of foreign-invested enterprises stipulated in the Method includes three steps: firstly, foreign-invested enterprises or other investors fill and submit the application documents of filing online through the filing system (Article 5, 6, 7); secondly, the filing organizations check the integrity and accuracy of the filled information, examine if the declared matters belongs to the scope of filing, and complete filing within 3 work days (Article 11); thirdly, the filing applicants could choose whether to receive the receipt of filing (Article 12).

Filing for establishment of foreign-invested enterprises within the range shall be done before their license is issued or within 30 days after that (article No.5). Filing for change of foreign-invested enterprises shall be made within 30 days after it happens (article No.6). For those within the range of filing, registration authority shall complete the filing within 3 working days and release the result and inform the foreign-invested enterprises or their investors online through foreign investment comprehensive management information system; for those out of the filing range, the registration authority shall inform foreign-invested enterprises or their investors online to follow what the relevant regulations.

VIII. Regarding the protection of the accuracy, completeness and timeliness of the filed information, what specific regulations does the Method have??

1. Enterprises shall file their information truthfully. Article No.4 of the Method regulates that foreign-invested enterprises or their investors should provide filed information precisely and completely. When filing declaration commitment, they should not provide false information, misleading statement or major omissions. Foreign-invested enterprises or their investors should well save the materials relating to the filed information.

2. The registration authority could require enterprises to complement relevant information in the process of filing. Article No.4 of the Method regulates that registration authority could require the foreign-invested enterprises to complement relevant information online within 15 working days., if they or their investors were found to file inaccurate or incomplete information or their business scope need to be further explained. The filing procedures will go on after relevant information is complete.

3. True information will be ensured through supervision and check. Article No.14 of the Method regulates that departments in charge of commerce could adopt various ways of spot check, check for report, check in light of the advice of the relevant departments or judicial organs and the actual situation and perform its function and power to check whether the informations concerning foreign-invested enterprises and investors are true, precise and complete. Meanwhile, Article No.20 of the Method also regulates enterprises shall provide relevant materials for departments in charge of commerce.

4. Clarifying the legal responsibility to violate the filing obligation. Article No.24 of the Method regulates when foreign-invested enterprises and investors do not fulfill filing obligation in time, or make major omissions, departments in charge of commerce should inform them to modify within a period of time, those who refuse to modify and those who are in cases of severe violation shall be fined less than RMB30,000. When foreign-invested enterprises and investors escape fulfilling the filing obligation or hide their real situation, provide misleading or false information, departments in charge of commerce should inform them to modify their falsehood within a period of time and fine them less than RMB30,000. Those who violate other laws and regulations will be affixed with legal responsibility.

IV. What regulations does the Method have regarding supervision in process and afterwards and legal responsibility?

It’s vital to monitor in process and afterwards when establishment and modifying approval are registered. In order to strengthen monitoring in process and afterwards, Article No.14 regulates departments in charge of commerce should work closely with other administrative departments like public security, state-owned assets management, customs, taxation, industry and commerce, security and foreign exchange to strengthen information sharing. To find foreign-invested enterprises or their investors are beyond their function and responsibility, departments in charge of commerce should notify the relevant departments timely. Article No.22 regulates departments in charge of commerce or other fields should record the credit information of foreign-invested enterprises and their investors make files during their supervision and check work and keep these files in the foreign investment credit system of the Ministry of Commerce. For those who don’t file as required, or provide false information, counterfeit, alter, lease, lend or transfer the filing receipt, refuse to support the check or fulfill the administrative penalty by departments in charge of commerce, departments in charge of commerce will release the credit information through foreign investment information platform to the public and accept public supervision. Besides the publicity, Article No.24-28 also regulates the responding legal liability and clarifies those who violate other laws and regulations will also be affixed with responding legal liability.

X. What transitional arrangement does the Method have for those when departments in charge of commerce have accepted but not finished the approval of establishment or modify of foreign-invested enterprises before the measures enter into force?

According to Article No.29 of the Method, approval procedures of foreign-invested enterprises whose establishment or modification have been accepted but not yet approved before the Method comes into force will be terminated, and foreign-invested enterprises and their investors should have their filing in accordance with the measures.