Revised Law on Wholly Owned Foreign Enterprises
The articles of the revised "Law of the People's Republic
of China on Wholly Foreign-Owned Enterprises" were published
in the Nov. 2 Shanghai Securities News.
The law was adopted at the Fourth Session of the Sixth National
People's Congress on April 12, 1986, and revised in accordance
with the "Decision on Modifying the Law of the People's
Republic of China on Foreign Capital Enterprises" at
the 18th Session of the Standing Committee of the Ninth National
People's Congress on Oct. 31, 2000.
Article 1: To expand economic cooperation and technical exchange
with foreign countries and promote the development of China's
national economy, the People's Republic of China permits foreign
enterprises, other foreign economic organizations and individuals
(hereinafter collectively referred to as "foreign investors")
to set up enterprises with foreign capital in China and protects
the legitimate rights and interests of such enterprises.
Article 2: "Foreign capital enterprises" in this
law refers to those enterprises established in China by foreign
investors exclusively with their own capital in accordance
with relevant Chinese laws. Branches set up in China by foreign
enterprises and other foreign economic organizations are not
included.
Article 3: Foreign capital enterprises shall be established
to help the development of China's national economy. Export-oriented
and technologically advanced foreign capital enterprises will
be encouraged.
The State Council will make provisions regarding the types
of business that foreign capital enterprises are forbidden
or restricted from engaging in.
Article 4: The investments of a foreign investor in China,
the profits it earns and its other lawful rights and interests
are protected by Chinese law.
Foreign capital enterprises must abide by Chinese laws and
regulations and shall not engage in any activities detrimental
to China's public interest.
Article 5: The state shall not nationalize or requisition
any foreign capital enterprise. Under special circumstances
required by public interest, foreign capital enterprises may
be requisitioned by legal procedures, but appropriate compensation
shall be made.
Article 6: The application to establish a foreign capital
enterprise shall be submitted for examination and approval
to the Ministry of Foreign Trade and Economic Cooperation
(MOFTEC) or to another agency authorized by the State Council.
The authorities in charge of examination and approval shall,
within 90 days from the date they receive such application,
decide whether to grant approval.
Article 7: After an application for the establishment of a
foreign capital enterprise has been approved, the foreign
investor shall, within 30 days from the date of receiving
a certificate of approval, apply to the industry and commerce
administration authorities for registration and to obtain
a business license. The date of issue of the business license
shall be the date of the establishment of the enterprise.
Article 8: A foreign capital enterprise that meets the requirements
for being a legal corporation under Chinese law shall acquire
the status of a legal Chinese corporation.
Article 9: A foreign capital enterprise shall make investments
in China within the period approved by the authorities in
charge of examination and approval. If it fails to do so,
the State Administration for Industry and Commerce (SAIC)
may cancel its business license.
The SAIC shall inspect and supervise the investment situation
of a foreign capital enterprise.
Article 10: In the event of separation, merger or other major
changes, a foreign capital enterprise shall report to and
seek approval from the authorities in charge of examination
and approval, and register the change with the SAIC authorities.
Article 11: Foreign capital enterprises shall conduct their
operations and management in accordance with the approved
articles, and shall be free from any interference.
Article 12: When employing Chinese workers and staff, a foreign
capital enterprise shall sign contracts with them according
to the law, which shall clearly prescribe matters concerning
employment, dismissal, remuneration, welfare benefits, labor
protection and labor insurance.
Article 13: Workers and staff of foreign capital enterprises
may organize trade unions in accordance with the law to conduct
trade union activities and protect the lawful rights and interests
of workers and staff.
Foreign capital enterprises shall provide necessary conditions
for the activities of the trade unions in their respective
enterprises.
Article 14: A foreign capital enterprise must set up account
books in China, conduct independent accounting, submit the
accounting statements as required, and accept supervision
by the financial and tax authorities.
If a foreign capital enterprise refuses to maintain account
books in China, the financial and tax authorities may impose
a fine on it, and SAIC authorities may order it to suspend
operations or revoke its business license.
Article 15: Foreign capital enterprises may purchase raw materials,
fuels and other materials needed for their approved business
based on the principles of fairness and reasonableness. These
may be purchased in China or from the world market.
Article 16: Foreign capital enterprises shall apply to insurance
companies in China for insurance coverage as needed.
Article 17: Foreign capital enterprises shall pay taxes in
accordance with relevant state provisions and may enjoy preferential
treatment for tax reduction or exemption.
An enterprise that reinvests its profits in China after paying
the income tax may, in accordance with relevant state provisions,
apply for partial refund of the income tax already paid on
the reinvested amount.
Article 18: Foreign capital enterprises shall handle their
foreign exchange transactions in accordance with the state
provisions for foreign exchange control.
Foreign capital enterprises shall open an account with the
Bank of China or with a bank designated by the state agency
exercising foreign exchange control.
Article 19: The foreign investor may remit abroad any profits
that are lawfully earned from a foreign capital enterprise,
as well as other lawful earnings and any funds remaining after
the enterprise is liquidated.
Foreign employees in a foreign capital enterprise may remit
abroad their salaries and other legitimate income after payment
of individual income tax in accordance with the law.
Article 20: With respect to the period of operation of a foreign
capital enterprise, the foreign investor shall report to and
secure approval from the authorities in charge of examination
and approval.
For an extension of the period of operation, an application
shall be submitted to the said authorities 180 days before
the expiration of the period. The authorities in charge of
examination and approval shall, within 30 days from the date
such application is received, decide whether or not to grant
the extension.
Article 21: When terminating its operations, a foreign capital
enterprise shall promptly issue a public notice and proceed
with liquidation in accordance with legal procedures.
Before the completion of liquidation, a foreign investor shall
not dispose of the property of the enterprise, except for
the purpose of liquidation.
Article 22: At the termination, the foreign capital enterprise
shall nullify its registration with the SAIC and hand in its
business license for cancellation.
Article 23: MOFTEC shall, in accordance with this law, formulate
detailed rules for its implementation, which shall go into
effect after being submitted to and approved by the State
Council.
Article 24: This law shall go into effect as of the date of
promulgation.
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