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LEGAL ISSUES ON DOING BUSINESS IN CHINA

LEGAL ISSUES ON DOING BUSINESS IN CHINA. Henry Zhuang Henry Zhuang & Partners 14 January 2008. Forms of Foreign Direct Investments. Foreign Investment Enterprises (“FIE”): ◆ Wholly Foreign Owned Enterprise (“WOFE”) ◆ Sino-Foreign Equity Joint Venture Enterprise (“EJV”)

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LEGAL ISSUES ON DOING BUSINESS IN CHINA

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  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 ◆ Legal Person Status ◆ Mode of Investment ◆ Profit Distribution ◆ Recovery of Investment

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

  6. Foreign Invested Holding Company • WOFE or EJV • Related Legal Requirements Exploitation ofPetroleum and Mineral Resources • Inland Petroleum • Offshore Petroleum • Other Mineral Resources

  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 InvestmentRegistered 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 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 GapDifference 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 • infrastructure projects • environmental protection projects, energy saving or water saving projects • transfer of technology • small-scale and low profit enterprise • high and new technology enterprise • venture capital enterprise • regional preferential treatment • 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 • 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 • 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 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 200120 The People's Republic of China Tel: (86-21)-5115-0828 Did: (86-21) 5115 0908 Fax: 86-21-5115-0806 E-mail: info@hzlawyers.com Website: www.hzlawyers.com

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