Foreign Direct Investment Forms in China
On 1 January 2020, the Foreign Investment Law of the PRC came into effect and replaced the Law of the PRC on Chinese-Foreign Equity Joint Ventures, the Law of the PRC on Chinese-Foreign Contractual Joint Ventures and the Law of the PRC on Wholly Foreign Owned Enterprises. Since then, foreign invested enterprises in China are no longer divided into sino-foreign equity joint ventures, sino-foreign contractual joint ventures or wholly foreign owned enterprises. According to the new rules and regulations, foreign direct investment in China can be carried out in three main forms, namely:
1. Establishing Companies
Foreign investors may establish limited liability companies and joint stock limited companies in China in accordance with the Company Law of the PRC and Regulations of the PRC on the Administration of Company Registration.
A limited liability company refers to a commercial entity that is funded and established by no more than 50 shareholders, each of whom bears limited liability to the company within the limit of his/her subscribed capital contribution, while the company bears limited liability for its debts with all its assets.
A joint stock limited company refers to a commercial entity whose registered capital is composed of equal shares that are raised through the issuance of shares (or stock warrants), whose shareholders are each liable to the company within the limit of his/her subscribed shares, while the company bears limited liability for its debts with all its assets.
2. Establishing Partnership Enterprises
Foreign investors may set up general partnership enterprises and limited partnership enterprises in China in accordance with the Law of the PRC on Partnerships and Regulations of the PRC on the Administration of Registration of Foreign Invested Partnership Enterprises.
A general partnership enterprise is composed of general partners who bear unlimited joint and several liabilities for the debts of the partnership enterprise.
A limited partnership enterprise is composed of general partners who bear unlimited joint and several liabilities for the debts of the partnership enterprise and limited partners who are liable for the debts of the partnership enterprise within the limit of their subscribed capital contribution.
3. Establishing Representative Offices
Foreign enterprises may establish representative offices in China in accordance with the Regulations of the PRC on the Administration of Registration of Resident Representative Offices of Foreign Enterprises.
A representative office is an office set up within the territory of China to engage in non-profit activities related to the business of the foreign enterprises. It is not an independent legal person and is not allowed to engage in profit-making activities. A representative office is only allowed to engage in market research, exhibitions and publicity activities related to the products or services of the foreign enterprises and the liaison activities related to the product sales, service delivery, domestic sourcing and domestic investment of the foreign enterprises.
KAIZEN Group is equipped with experienced and highly qualified professional consultants and is therefore well positioned to provide professional advices and services in respect of the formation and registration of company, application for various business licences and permits, company compliance, tax planning, audit and accounting in China. Please call and talk to our professional consultants for details.
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