When a sourcing project gets to a certain size, it often makes sense to set up a permanent presence on-the-ground in China to help manage the supply chain. This series of blog posts covers some of the key areas of consideration when it comes to setting up in China.
The Basic Approval Process
Establishing new FIEs used to be the traditional form of foreign investment in the PRC, and this is still used where conducting business through a relatively clean vehicle is of importance to investors. FIEs can be established either to develop a new business, or to acquire the assets of an existing PRC business where the objective is to operate these assets in the name of the new FIE.
FIEs may be established only with the approval of the Chinese government. A typical approval process including:
Name reservation: apply to the local Administration for Industry and Commerce (“AIC”) to ensure the proposed name for the FIE to be reserved. The name reservation is valid for six months and would typically contain details such as the location, a unique industry trade name and the form of business organization.
Substantive examination and approval by MOFCOM: for this purpose, applicant should submit full definitive documents for the proposed enterprise, along with a “Feasibility Study” describing
Background information on the project and other supporting documents. MOFCOM has the flexibility to request documents not expressly set forth in the statutes if they believe such documents would be helpful to its decision.
Issuance of business license: after MOFCOM’s approval and the parties’ payment of the initial installment of registered capital, a business license will be issued by local AIC, the FIE is then officially established.
Even after the business license is issued, there remain additional registrations to complete (including with the local SAFE, labor, customs, and tax authorities). After an FIE is registered with the AIC and a business license is obtained, it will have the status of a legal entity in the PRC and may contract on its own behalf.
Commencement of specific business activities by the FIE may, however, be subject to specific conditions, such as payment of registered (share) capital and obtaining industry specific permits.
After obtaining its business license, the FIE would typically deal with certain formalities and obtain certain licenses necessary for its day- to day operations, including formalities and licenses relating to the enterprise code, foreign exchange, customs, statistics and tax registrations.
Written for CSIC by Sophie Mao
China based lawyer at www.AsiaBridgeLaw.com