The National People’s Congress passed amendments on 3 September 2016 that will replace current regulations of the Ministry of Commerce (MOC) on the formation of foreign invested enterprises (FIEs) in China. The new rules will strengthen the certainty of approval and shorten the processing timeline for FIEs.
The new regulations abolish the need, for foreign investors in most industries, to obtain approval from a local department of the MOC. Instead, investors can proceed directly to the competent at Administration of Industry and Commerce (AIC) to register the company. This system was already in place for FIEs in the pilot free trade zones, and for domestic companies, and is expected to result in the following:
1. Easier to establish Wholly Foreign Owned Enterprises
2. Easier to make changes to corporations
3. Easier to finalize M&A deals
4. Easier to arrange securities over equity
On the other hand, the new system also imposes new information requirements. For example, full information on the FIE’s and investors’ ultimate effective controllers must now be filed when establishing a new FIE. “Control” is widely defined and includes shareholding control, effective control of decision-making bodies and control of business decisions, human resources, finance and technology.”
