For foreign investors who want to explore the Chinese market, what are the investment options available in China? This handbook aims to give foreign investors a general picture of the above questions and thus help them be better informed and prepared for navigating in the Chinese market.
- Foreign-Invested Limited Liability Companies – A limited liability company invested by foreign investors alone or together with Chinese investors (See I. A. 1. for details). It includes the former WFOEs and former equity joint venture as well as cooperative joint ventures.
- Foreign-Invested Company Limited by Shares (FICLS) – Company typically organized for listing purposes (See I. A. 2. for details).
- Holding Company – Foreign investors with substantial operations in China may set up holding companies to hold their investments in FIEs (See I. A. 3. for details).
- Regional Headquarters – These can be set up to coordinate and provide services to group companies in the region, both inside and outside China. The benefits of regional headquarters depend upon which rules are used to set them up, we take the rules implemented inBeijing or Shanghai for example (See I. A. 4. for details).
- Foreign-Invested Partnership – Structure established by two or more foreign entities or individuals with or without a Chinese partner, with the partnership agreement providing for the distribution of profits and losses (See I. A. 5. for details).
- Representative Office (RO) – Structure set up in China to represent foreign companies (and their affiliates). A representative office itself is not a company. ROs are not permitted to engage in direct business activities (See I. A. 6. for details).
Other Arrangement Options
- Manufacturing Arrangements – These can be structured as processing and assembly arrangements, compensation trade, or manufacturing arrangements (See I. C. 2. for details).
- Distribution Arrangements – – In a distribution arrangement, a foreign company may appoint Chinese companies to distribute the foreign company’s products in China (See I. C. 1. for details).
- Variable Interest Entity – Structure where a wholly or partially foreign-owned entity enters into agreements with a PRC operating company that has the approved business scope and the required licenses to operate in a foreign investment restricted or prohibited sector (See I. C. 3 for details).
- Hong Kong company – A foreign entity can use a Hong Kong entity to structure its investments in Mainland China (See I. A. 7. for details).
A Quick Overview
Several factors should be considered when choosing your investment business vehicle. The chart below summarizes the main differences between the most popular options for structuring foreign investments.
The new Foreign Investment Law (“FIL”) and its Implementation Rules have come into effect since January 1, 2020, which has significantly changed the legal framework of foreign investments, especially in relation to the current organizational form and corporate structure of FIEs.
To know more, download our legal handbook related to foreign investment in China…
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