Did You Know Wholly Foreign-Owned Enterprise Law China?

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Introduction

If you’re looking to open a WFOE in China. You’ll need to know the wholly foreign-owned enterprise law china because it’s the rule for your businesses in China.

Find more in this article.

The history of wholly foreign-owned enterprise law china

The 5 highlights of WFOE law

  1. Admittance national treatment for foreign investment;
  2. Adhere to the consistency of domestic and foreign investment;
  3. Protect intellectual property rights;
  4. Establish and improve the foreign investment service system;
  5. Establish a foreign investment information reporting system.

The details of WFOE law in China

Chapter 1: General

To promote foreign investment and form a comprehensive opening up. China has enacted this Law by the Constitution. The law is important in protecting the rights and interests of foreign investment.

WFOE law applies to investment activities by foreign investors in China. Such as opening foreign-invested enterprises in China, obtaining shares of Chinese domestic enterprises, etc.

China will protect the lawful rights and interests of foreign investors in China according to WFOE law. Foreign-invested enterprises must also abide by Chinese laws and must not harm China’s interests.

Chapter 2: Investment Promotion

Foreign-invested enterprises can benefit from China’s policies of supporting the development of enterprises. When formulating laws on foreign investment, China will listen to the opinions of foreign-invested enterprises. Documents on foreign investment shall be released in time. China also offers consultation and services on law, regulations, etc.

Governments should simplify handling procedures and improve efficiency to improve the level of foreign investment services. Governments should provide guidelines to ease foreign investments.

China encourages foreign investments in certain industries, following the needs of national development. So, foreign-invested enterprises can enjoy preferential treatment by laws.

Chapter 3: Investment Protection

China does not levy foreign investors’ investment. Under special circumstances, China may impose a levy on the investment of foreign investors. Then give fair compensation following the law.

China protects the intellectual property rights of foreign-invested enterprises. And protects the rights and interests of the right holders. And investigates legal liabilities for intellectual property rights infringements.

China encourages technical cooperation in foreign investment. The cooperation shall be under equal consultation by all parties to the investment.

The government need to offer protection to enterprises, including:

  • Not force the transfer of technology.
  • Keep the business secrets of foreign-invested enterprises and shall not disclose them.
  • Not harm the legitimate rights and interests of foreign-invested enterprises or increase their obligations. And shall not interfere in normal business activities.

Chapter 4: Investment Management

The foreign investment list specifies areas where investment is restricted. And they cannot invest in the areas prohibited by the list.

Foreign investment needs examination, approval and filing. So, foreign investors shall go through the licensing procedures under the law.

If foreign-invested enterprises undertake production and operation activities, they shall abide by the provisions of laws such as labour protection. And handle tax affairs according to law and accept supervision.

The state will conduct security examinations of foreign investment under the law.

Chapter 5: Legal Responsibility

If foreign investors invest in prohibited areas, the government shall stop their investment activities and seize their illegal income.

If the investment activities of foreign investors violate regulations, the government shall order them for corrections within a time limit. And take the necessary measures. And the investor shall bear legal responsibilities by law.

If staff members of government abuse powers or disclose business secrets of foreign-invested enterprises, the government shall give punishment and investigate legal liabilities.

Chapter 6: Supplementary Provisions

If any country or region takes discriminatory restrictions against China’s investment, China may take measures against that country or region.

This WFOE law is established by the Law of the People’s Republic of China on Sino-foreign Joint Ventures and the Law of the People’s Republic of China on Foreign Investment Enterprises. Within five years after the implementation of WFOE law, the original enterprise organization form can be retained.

Find more on WFOE law in China you should know.

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Things about wholly foreign-owned enterprise law china today

Nowadays, China not only encourages foreign investment but also protects the legitimate rights and interests of foreign investment. China regulates the management of a foreign investment. And optimizes the foreign investment environment. It would promote higher levels of opening up.

Thus, to meet actual needs, China formulates a new <Foreign Investment Law>.

It adapts to the new situation and new requirements. Moreover, this law forms the basic framework of our foreign investment law.

The <Foreign Investment Law> has come into effect on January 1, 2020.

Meanwhile, repeal the previous three laws.

More about the new law for wholly foreign-owned enterprise

The key points

On the one hand, the new law clarifies the matters that need elaboration in the foreign investment law.

On the other hand, it enhances the possibility of the legal system and guarantees the effective implementation of the law.

Moreover, China adjusts the negative list in time according to needs.

The advantages

The new law provides a strong legal guarantee for a higher level of opening. It refines the regulations of the Foreign Investment Law.

And remains significant to ensure the implementation of the Foreign Investment Law.

Also, it gives greater emphasis to the promotion and protection of foreign investment.

As well, it optimizes the investment environment and boosts investors’ confidence and helps China open wider and develop faster.

Other benefits of the new wholly foreign-owned enterprise law China

Discount for foreign-invested enterprises

According to the needs of economic and social development, China has worked out a catalogue of industries.

The catalogue states industries in which foreign investment is encouraged in China.

Foreign enterprises of these industries have preferential treatments in taxation, land use, etc.

Besides, foreign investors have corresponding discounts according to law.

Governments of different places will give different preferential treatments to foreign enterprises. All the treatments are for promotion and facilitation. For example, fee reduction.

These measures aim at promoting high-quality development. Also, it helps improve economic and social benefits. And then, it is conducive to optimizing the foreign investment environment.

The government cannot interfere with

The government cannot restrict the following activities:

  • foreign businessmen from entering the government procurement market.
  • suppliers with unreasonable conditions.
  • force foreign businessmen to transfer technology.

Besides, foreign investors shall not raise technical requirements higher than the compulsory standards.

Also, the government shall not restrict the currency, amount, and frequency of remittances.

Safeguard your patent

The government shall protect patents of foreign investors, under the patent management regulations.

When a foreign investor provides materials and information about patents, the government can only know the necessary part.

The government has a responsibility to protect foreign business secrets.

Besides, the government should concern foreign investment. And conduct legality review according to the regulations of the State Council.

When the government changes the contract, it shall give fair compensation to the foreign businessmen.

Also read The New Company Law China of Foreign-Invested Enterprises

The negative list 2020

China released The Negative List for Foreign Direct Investment (2020 Edition) on June 23, 2020. The list came into effect on July 23,2020.

Meanwhile, The Negative List for Foreign Direct Investment (2019 Edition) was abolished.

The new negative list for foreign investment access is reduced.

For example, the negative list for access across the country is reduced from 40 to 33. The negative list for access in pilot free trade zones is reduced from 37 to 30.

It showed China’s determination to promote economic globalization and transnational investment. It further improved the foreign investment environment and promoted high-quality economic development by a higher level of opening up.

Main changes in the new negative list

There are three main changes in the new negative list.

First, it accelerates the opening up of key areas of the service sector. In the financial sector, it cancels restrictions on the foreign share ratio of securities companies, futures companies, etc. In the field of infrastructure, it abolished the requirement that the operation of water supply and drainage networks in cities with a population of more than 500,000 be controlled by the Chinese side.

Second, it eases access to manufacturing and agriculture. it gives up restrictions on the foreign share ratio in the manufacture of commercial vehicles. It abolished the prohibition of foreign investment in radioactive minerals. In the agricultural sector, the Chinese share ratio in the breeding of new wheat varieties and seed production is not less than 34%.

Third, it continues pilot liberalization in pilot free trade zones. Based on the existing national opening-up measures, pilot free trade zones continue to test new opening-up measures. In the field of medicine, the new list lifts the prohibition on foreign investment in traditional Chinese medicines. In the field of education, WFOEs are allowed to establish vocational education institutions.

The FAQ about the wholly foreign-owned enterprise law

The requirements for registered capital when establishing a wholly foreign-owned enterprise (WFOE) in China since 2019?

You don’t need to worry about registered capital in 99% of the cases. The law changed a few years ago. For instance, you can put a registered capital 10,000 RMB.

But some fields may have special requirements. For example, to open a financial company, you need to prepare RMB as registered capital.

What are the benefits of the WFOE structure?

The main benefit of the WFOE structure is the full control of your company.

But, there will be no new WFOEs in China from January 1, 2020. Instead, foreigners can set up companies as the local Chinese do in most cases.

For the existing WFOEs, they can enjoy treatments as WFOE for 5 years. Later WFOEs will be the same as any other Chinese companies. WFOEs will not have any specific benefits.

What are the benefits or differences that are going to disappear from WFOE compared to Chinese companies?

Actually, compared with the Chinese company, WFOE doesn’t have many benefits. We think it is better to have a Chinese company because Chinese companies are more flexible. And the new law in China makes it available.

As early as 2020, how the WFOEs will be almost the same as Chinese companies?

The disappearance of WFOE refers to the cancellation of its status by law. The WFOE will not exist anymore. For existing WFOE, they need to decide to be a WFOE or a Chinese company. They can make the decision within 5 years.

What will be the impact when WFOE disappears?

Normally, the disappearance of WFOE will not affect foreign investment. But this is only a general plan. Now we are waiting for specific implementation rules. The rules may have a great impact.

After the disappearance of WFOEs, do foreign companies have to rely on RMB rather than the foreign currency?

This is not true. You can inject RMB. That is what we call White RMB. For a few years, half of my clients invest in RMB.

Conclusion

In this article, we learned:

  • the history of wholly foreign-owned enterprise law china
  • Things about wholly foreign-owned enterprise law china today
  • The negative list 2020
  • The FAQ about the wholly foreign-owned enterprise law

Now you should have a general idea of the wholly foreign-owned enterprise law china. If you want to know more details of the law, please contact us. It’s our great pleasure to help you.

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