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China Eases Key Corporate Filing Requirements under the Foreign Investment Law by Replacing the “Approval Filing” System with the “Record Filing” System (IRB No. 559)

October 12, 2016

On October 1, 2016, the Decision of the Standing Committee of the NPC on Revising Four Laws, Including the Law of the People’s Republic of China on Wholly Foreign-Owned Enterprises (the “Decision”) came into effect. The Decision replaced the previous “approval filing” system with the new “record filing” system for a number of routine corporate filings for foreign investment enterprises (“FIE”) including establishment, division, merger, dissolution, capital increase, capital reduction, change of contribution mode, extension of operating period, and expansion of business. Additionally, on October 8, 2016, the Ministry of Commerce (“MOFCOM”) issued the Interim Measures for Record-Filing Administration for Establishment of and Changes to Foreign-Investment Enterprises (the “Interim Measures”) to provide implementation rules for the transfer from “approval filing” to “record filing,” which became effective on the same day.

Before being amended by the Decision, the four foreign investment laws (i.e., the Wholly Foreign-Owned Enterprise Law, the Sino-Foreign Equity Joint Venture Enterprise Law, the Sino-Foreign Cooperative Joint Venture Enterprise Law and the Law on the Protection of Investment of Taiwan Compatriots) provided that material corporate matters such as the establishment of an FIE, change of equity ownership, change of business scope, consolidation and split, and extension of the business term trigger an approval filing. The Decision replaces the prior approval filing with a record filing if special restriction measures are not implicated.

According to the Announcement of the National Development and Reform Commission and the Ministry of Commerce [2016] No. 22, which also come into effect on October 8, 2016, the application scope of “special restriction measures” refers to the catalogue of restricted and prohibited foreign investment industries as well as encouraged industries with restrictions on shareholding structure and senior management under the Catalogue for the Guidance of Foreign Investment Industries (Revised in 2015) (“Catalogue”). If the contemplated scope of business of an FIE does not fall into the above industries in the Catalogue, MOFCOM approval will no longer be required and a record filing will be sufficient.

According to the Interim Measures, this new record filing system shortens the processing time for the establishment, division, merger, dissolution, capital increase, capital reduction, change of contribution mode, extension of operating period, and expansion of business scope of foreign-invested enterprises not triggering special restriction measures to only three (3) working days once all documents required for the record filing are submitted. Also, the number of required documents for the record filing is greatly reduced.

This modification in the FIE laws will improve efficiencies in the corporate filing process and enhance the stability of the foreign investment in China. As different officers from different regions can have different understandings of the relevant laws and regulations, the previous approval filing system could be quite subjective, and whether a filing can be approved can often be uncertain. Although the record-filing system cannot completely eliminate the uncertainty, it is expected that the most recent change will introduce additional efficiency and predictability into the process.

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