Establishing a Foreign Invested Enterprise in China
Uninitiated foreign investors seeking to establish a foreign invested enterprise (FIE) in China face a daunting task of navigating elaborate registration and approval procedures.
These may also vary according to the type of FIE to be established as well as Chinese laws and restrictions governing the sector concerned. An experienced consultant with extensive on-the-ground knowledge and expertise in China like SBA Stone Forest can greatly facilitate the process for you in both the pre-establishment and post-establishment stages.
For the pre-establishment stage, foreign investors first need to pre-register the FIE’s name with the State Administration for Industry and Commerce (SAIC), which takes one to three days.
Next, they must obtain project approval from the National Development and Reform Commission (NDRC). In addition, they must complete an environmental impact assessment examination conducted by the relevant environmental authority. Together, these steps should take between one and two months to complete.
The next step is to obtain approval for the FIE’s establishment from the Ministry of Commerce (MOFCOM). The investment amount and the industry’s classification (according to whether foreign investment is “encouraged”, “restricted”, or “prohibited” in the sector concerned) under China’s ‘Catalogue Guiding Foreign Investment in Industry’ will determine the level of governmental approval required. Once MOFCOM approves the application, it will issue an approval letter and a certificate of approval. The approval process for this step will generally take one to three months to complete. Additional approvals might be required for certain sectors.
To complete the registration procedure for the FIE’s establishment, investors must submit the relevant approval letter, approval certificate and other required documents to the SAIC. If all is in order, the SAIC will issue the business licence, which formally establishes the FIE under the law of the People’s Republic of China. This step is expected to take two to three weeks.
After its establishment, the FIE must undertake additional registration procedures with various government departments within prescribed time periods. The main procedures are described below.
The FIE must apply for an organisation code certificate within 30 days of obtaining the business licence. This is done by filing a completed application form with the Shanghai Organisation Code Management Centre, a branch of the Quality and Technology Supervision Bureau.
Chinese law requires a legally registered FIE to have at least an official company seal to conduct its business activities. While the use of business seals may be an unfamiliar practice to western investors, they have been used in governmental and commercial transactions since imperial times in China.
The FIE must apply for its official seal from the Public Security Bureau (PSB). A specimen of the seal must also be registered with the PSB. Should any disputes arise, the PSB may use the specimen seal to determine the authenticity of the official seal.
Although a signature may be used to establish a contract under the law, common practice requires the use of both the signature and official company seal. All documents filed with the government must also have the official company seal to be considered valid.
As the official seal technically empowers anyone who possesses it to legally bind the company, adequate internal controls must be established to protect against fraudulent use of it.
The FIE may create other types of seals as a general business practice, such as for the legal representative, human resource, finance, or contracts. These are mainly restricted to their specific, intended use. For example, the contract seal may replace the official company seal for the sole purpose of executing contracts.
Other steps in the post-establishment process include applying to the State Administration of Foreign Exchange for permission to open a foreign exchange account and tax registration.
In addition, the FIE will need to register with authorities in charge of statistics, customs, labour, finance and social security, among others.
The abovementioned pre- and post-establishment steps are only a general outline of procedures involved in the FIE’s establishment process, which may vary according to prevailing provincial rules and practices. A summary of the pre- and post-establishment procedures is presented in the diagram below.
General Procedures for Establishing an FIE in China