15. General Establishment Procedures
Generally speaking, applications for the establishment of Foreign Investment Enterprises are usually dealt with at the provincial or local government level in charge of the geographical locality of the operation. Many of the policies of these local governments will vary depending upon their prevailing local, regional and national politics. In our case, application should be made to the Shenzhen Municipal Government. More specifically, stipulations by the Shenzhen Municipal Government provide that applications concerning the setting up of Foreign Investment Enterprises are to be submitted to the Shenzhen Municipal Foreign Investment Bureau (hereinafter referred to as “SMFIB”). However, major projects are nearly always approved at the central government level in Beijing, PRC.
Set out below is a description of the general steps and procedures that the Overseas Corporation must undertake when making an application for one of the three types of Foreign Investment Enterprises described above. These procedures are generally applicable for the applications of any of the Foreign Investment Enterprises, however references will be made where they differ for each different type of Foreign Investment Enterprises (for more specific details please see subsection “Specific Requirements” under the commentary for each type of Foreign Investment Enterprises) or where the Foreign Investment Enterprise engages in certain businesses and activities.
15.1 Materials To Be Submitted Upon Application
(a) Mandatory Documents
The Overseas Corporation must submit the following documents to the SMFIB in order to initiate its application for a Foreign Investment Enterprise:
- 10 copies of the “Project Clearance Form For Foreign Investment in Shenzhen” completed by the Overseas Corporation (including 2 original copies) – upon lodging the application by the Overseas Corporation, the SMFIB will also determine if the case qualifies for a project enjoying duty exemption for imported equipment. And if so, the SMFIB shall issue a “Verification Paper for State Encouraged Projects” pursuant to “The Industry Catalogue for Guiding Foreign Investment”;
- upon the receipt of a preliminary clearance from the SMFIB, the Overseas Corporation (or the Chinese party, if setting up an equity or contractual joint venture) 5 original copies of a feasibility study report outlining the necessary steps for the success of the Foreign Investment Enterprise prepared, signed and chopped by the Overseas Corporation (and the Chinese party, if setting up an equity or contractual joint venture);
- for a project which impacts on the environment, the Overseas Corporation must also complete and submit 4 original copies of “Environmental Protection Examination and Approval Form For Construction Projects in Shenzhen” (the Overseas Corporation may first refer to the Municipal Environment Protection Bureau for clearance of its business);
- a copy of the “Notice of Advance Authorization of the Company Name” issued by the Industrial & Commercial Administrative Bureau to the Overseas Corporation for the approval of the proposed name of the Foreign Investment Enterprise;
- a copy of any legal business licence, certificate of incorporation, certificate of business registration, or their equivalent, of the Overseas Corporation issued by authorities its place of incorporation;
- a copy of legal registration papers of directors and shareholders or authorisation papers from the PRC embassy or consulate posted overseas for establishment of the Foreign Investment Enterprise;
- a copy of the Overseas Corporation’s “creditability papers” issued by the Overseas Corporation’s bank vouching for the financial history, trustworthiness and stability of the Overseas Corporation;
- an original copy of the resolution of the board of directors or shareholders’ general meeting of the Overseas Corporation for the establishment of the Foreign Investment Enterprise;
- a copy of the Overseas Corporation’s capital verification report or its equivalent, such as an auditors’ report);
- a copy of the Overseas Corporation’s “liabilities sheet” or its equivalent, such as its balance sheet, clearing showing its liabilities, for the last 3 financial years;
- an original copy of a certificate issued by the relevant taxation authority of the Overseas Corporation’s place of incorporation confirming that the Overseas Corporation has no outstanding corporate income tax liability;
- where there is another party or parties involved in the establishment of the Foreign Investment Enterprise, the Overseas Corporation must submit 4 original copies of the agreement entered into by the Overseas Corporation with the party or parties, that have been signed and sealed by the representatives of the Overseas Corporation – wholly foreign-owned enterprises may be established without such an agreement, but instead it must complete and submit an original copy of the “Application Form For Establishing Foreign-invested Enterprise in China”;
- 4 original copies of the Foreign Investment Enterprise’s proposed articles of association that have been signed and sealed by the representatives of the Overseas Corporation;
- an original copy of the “SMFIB Ratification Paper” with the stub of the said form completed by the Overseas Corporation;
- the first page of the “Notice Sheet of National Institutions and Organisations Codes”;
- copy of any powers of attorney where the Overseas Corporation authorises any other person or persons to sign the required documents to be submitted to the SMFIB; and
- any other documents as required by the SMFIB.
In relation to sino-foreign equity joint ventures and sino-foreign contractual and co-operative joint ventures, there are additional documentary requirements. The Chinese party to these “partnership type” Foreign Investment Enterprises must submit, together with the above-mentioned documents to be submitted by the Overseas Corporation, the following additional documents to the SMFIB when making its application:
- an asset evaluation report for the assets to be contributed by the Chinese party towards the establishment of the Foreign Investment Enterprise; and
- if the said assets happens to be State–owned, an additional confirmation from the State Asset Administration for the assets evaluation results as well as a clearance from the department in question with the relevant asset ownership portfolio.
Once the above documents have been submitted to the SMFIB and assuming that the SMFIB approves, it will then issue a “Project Approval Form”, which the Overseas Corporation will then use to go through registration procedures with the Industry and Commerce Administration Bureau for a requisite business licence in order to carry out its intended business.
(b) Special Documents In Special Cases
For Foreign Investment Enterprises with proposed businesses in real estate development or property investment and management, or alternatively where part of the capital contribution or terms of cooperation of the Foreign Investment Enterprise comprises of self-owned property, the Overseas Corporation must also submit a copy of the valid documentation for land use rights and property and building ownership to the SMFIB.
For businesses in hotel, catering, recreations and warehousing, the Overseas Corporation must secure and submit to the SMFIB the valid approvals and licences from the relevant PRC authorities authorising its business and the use of its proposed facilities. Further, an approval issued by the Municipal Planning and Lands Bureau must also be obtained and submitted to the SMFIB for these businesses.
Special approvals and licences, pursuant to current national PRC laws and regulations, are required for Foreign Investment Enterprises engaged in areas such as investment, construction, trade and commerce, leasing, freight forwarding, and transport.
15.2 Points For Attention
Particular attention must be paid by the Overseas Corporation to the following matters when seeking approval for the establishment of a Foreign Investment Enterprise:
- Under no circumstances should the Overseas Corporation make an investment in the form of property subject to an existing legal encumbrance such as a mortgage or a charge or property acquired under a capital leasing arrangement.
- The Overseas Corporation is responsible for the legality and validity of all the above-mentioned documents submitted.
- The SMFIB reserves the right to request the Overseas Corporation for documents to be resubmitted or revised or for further information and documents, within a prescribed time, when it is of the opinion that the submitted documents are inadequate or irrelevant to its consideration for approving a Foreign Investment Enterprise. In that event, the process of application and clearance will be subject to postponement.