MOFCOM Decree No.8 of 2012 MOFCOM Interim Provisions on Equity Contribution in Foreign-funded Enterp

Issued by: Ministry of Commerce of the People’s Republic of China
MOFCOM Decree No.8 of 2012
Date of Issuance: September 21, 2012
Date of Implementation: October 22, 2012

MOFCOM Interim Provisions on Equity Contribution in Foreign-funded Enterprises have been examined and adopted during the 68th Administrative Meeting of the Ministry of Commerce on August 24, 2012, which is now published and will take effect as of October 22, 2012.

Minister of Commerce of PRC: Chen Deming
September 21, 2012



MOFCOM Interim Provisions on Equity Contribution in Foreign-funded Enterprises



Article 1 With the purposes of regularizing the behaviors concerning equity contribution in foreign-funded enterprises, improving the level of investment facilitation and encouraging foreign investors to invest in China, these Provisions are hereby formulated in accordance with the provisions as specified in the foreign investment laws of the People’s Republic of China, the Company Law of the People’s Republic of China and relevant administrative regulations.

Article 2 When domestic and foreign investors (hereinafter collectively referred to as “Equity Contributor”) make contributions with the equities in the domestic Chinese enterprises they hold (hereinafter collectively referred to as “Equity Enterprise”), their behaviors concerning the establishment of and any change to foreign-funded enterprises (hereinafter collectively referred to as “Investee Enterprise”) shall be governed by these Provisions, which include:

A. Setting up of foreign-funded enterprises in a form of newly established company;

B. Any change into foreign-funded enterprises from non-foreign-funded enterprises through capital increment;

C. Any change on equities of foreign-funded enterprises through capital increment.

The above-mentioned enterprises refer to limited liability companies or joint stock limited companies lawfully established in China.

Article 3 Any reference to examination and approval authority in these Provisions refers to the Ministry of Commerce of the People’s Republic of China or any local competent commerce department.

In case that an investor establishes and makes any change to a foreign-funded enterprise in the form of equity contribution, it shall be approved, if as specified in relevant administrative provisions on the examination and approval of foreign investment, by the Ministry of Commerce; if not, by the competent commerce department of the province, autonomous region, municipality directly under the central government and municipality separately list on the state plan where the Investee Enterprise is located (hereinafter referred to as “Examination and Approval Authority at Provincial Level”).

Article 4 There shall be a clear and full ownership of the equities to be contributed, which may also be legally transferred; if an Equity Enterprise is a foreign-funded enterprise, it shall be established upon approval in accordance with laws and comply with the industrial policies on foreign investment.

In case of any of the following circumstances, none equities shall be contributed:

A. The registered capital of the Equity Enterprise has not been fully paid;

B. Any pledge right has been established on the equities;

C. The equities have been lawfully frozen;

D. Non-transferable equities as agreed in the Equity Enterprise’s Articles of Association (Contract)


E. Equities of a foreign-funded enterprise which has not participated in as required in relevant provisions or has not passed the joint annual examination for foreign-funded enterprises last year;

F. Equities of a real estate enterprise, foreign-funded company and foreign-funded venture (equity) investment enterprise;

G. The transfer of such equities should be approved as required in relevant laws, administrative laws and regulations or relevant decisions of the State Council, but is not approved in fact;

H. Other circumstances in which such transfer should not be carried out as required in relevant laws, administrative laws and regulations or relevant decisions of the State Council.

Article 5 After such equity contribution, any Investee Enterprise and any Equity Enterprise and the enterprises they directly or indirectly hold shall comply with the Provisions on Guiding the Orientation of Foreign Investment, the Catalogue of Industries for Guiding Foreign Investment and other relevant provisions on foreign investment; otherwise, it is required to divest related assets and businesses or transfer the equities before declaration of equity contribution. Domestic and foreign investors shall not evade foreign investment administration in the form of equity contribution.

Article 6 The equities to be contributed shall be evaluated by any domestic evaluation authority lawfully established.

Article 7 Equity contributors and the shareholders of an Investee Enterprise or other investors may determine equity pricing amount and equity contribution amount based on such equity evaluation through negotiations.

Equity pricing amount refers to the transaction pricing for the equities to be contributed as agreed by the abovementioned parties based on such equity evaluation; while equity contribution amount refers to a part of equity pricing amount to be included in the registered capital of the Investee Enterprise, and equity contribution amount shall not be higher than equity evaluation value.

In case of subscription of capital increase of the Investee Enterprise based on equity pricing, equity pricing amount shall be included in transaction amount of merger and acquisition.

Article 8 The sum of the equity contribution amount and the contribution amount in the form of other non-monetary property of all shareholders of the Investee Enterprise shall not be more than 70% of its registered capital.

Article 9 If an Investee Enterprise is a limited liability company, its total amount of investment shall be determined based on its registered capital of the Investee Enterprise after such equity contribution in accordance with the Interim Provisions of the State Administration for Industry & Commerce on the Proportion of the Registered Capital and the Total Investment Amount of Chinese-foreign Equity Joint Ventures.

Article 10 If an investor makes equity contribution, the investor or Investee Enterprise shall submit an application to the competent examination and approval authority, presenting the following documents:

A. Equity contribution application and equity contribution agreement;

B. Certificate of the equities the equity contributor lawfully holds and contributes;

C. Copy of the Business License of Enterprise Legal Person of the Equity Enterprise;

D. If an Equity Enterprise is a foreign-funded enterprise, the Approval Certificate of Foreign-funded Enterprises and its copies as well as related certificate concerning passing the joint annual examination for foreign-funded enterprises are needed;

E. Equity evaluation report prepared by competent evaluation authority;

F. Legal opinions issued by competent law firm and its designated lawyer with respect to Article 4 and 5 in these Provisions;

G. Other documents concerning the establishment of or any change to foreign-funded enterprises which should be submitted in accordance with relevant foreign investment laws, administrative laws and regulations;

H. Related approval document concerning equity transfer by the shareholders of the Equity Enterprise which should be submitted for approval in accordance with relevant laws, administrative laws and regulations or relevant decisions of the State Council;

I. Other documents to be submitted as required by competent examination and approval authority.

Article 11 Competent examination and approval authority shall grant or not grant any approval to the Investee Enterprise in accordance with laws. If the authority grants such approval, it should issue or renew the Approval Certificate of Foreign-funded Enterprises (add “Equity contribution not paid” in the Remarks column).

If an Equity Enterprise is a foreign-funded enterprise and shall be subject to the approval of the competent examination and approval authority different from Investee Enterprise, the competent examination and approval authority for the Investee Enterprise shall seek opinions from the examination and approval authority at provincial level in which the Equity Enterprise is located, which shall feed back its opinions within 20 working days upon receipt of the request; if no reply is made within the time limit, it shall be deemed agreed.

Article 12 If equity contribution is approved by the competent examination and approval authority for the Investee Enterprise, and the Equity Enterprise is a non-foreign-funded enterprise, the Equity Enterprise shall go through filing or examination and approval related formalities with the Approval Certificate of Foreign-funded Enterprises commented by the Investee Enterprise in accordance with the Provisional Rules for Investment in China by Enterprises with Foreign Investment and other relevant provisions, and apply to change the holder of the equities to be contributed into an Investee Enterprise.
Article 13 If equity contribution is approved by the competent examination and approval authority for the Investee Enterprise, and the Equity Enterprise is a foreign-funded enterprise, the following provisions shall apply:
After equity contribution, if the shareholders of an Equity Enterprise still include some foreign investors (including foreign-funded company, foreign-funded venture (equity) investment enterprise or foreign-funded partnership enterprise which declares investment as its primary business), the Equity Enterprise shall apply to the competent examination and approval authority to change the holder of the equities to be contributed into an Investee Enterprise with the Approval Certificate of Foreign-funded Enterprises commented by the Investee Enterprise in accordance with the Provisions for the Alteration of Investors' Equities in Foreign-funded Enterprises.
After equity contribution, if the shareholders of an Equity Enterprise include no foreign investor (including foreign-funded company, foreign-funded venture (equity) investment enterprise or foreign-funded partnership enterprise which declares investment as its primary business), the Equity Enterprise shall go through examination and approval or filing related formalities with the Approval Certificate of Foreign-funded Enterprises commented by the Investee Enterprise in accordance with the Provisions for the Alteration of Investors' Equities in Foreign-funded Enterprises and the Provisional Rules for Investment in China by Enterprises with Foreign Investment, and submit the Certificate to the competent examination and approval authority for revocation or make some change to the Certificate.
Article 14 After the above-mentioned changes are made by an Equity Enterprise, change of registration shall be carried out with relevant industry and commerce, tax, customs and exchange management department in which it is located in accordance with relevant national regulations.
For equities to be contributed having been registered with the competent securities registration and clearing institution, the Equity Enterprise shall go through share transfer and registration related formalities with the corresponding stock exchange and the securities registration and clearing institution in accordance with relevant regulations.
Article 15 After the Equity Enterprise has completed the above changes, the Investee Enterprise shall file an application to the examination and approval authority for renewing the Approval Certificate of Foreign-funded Enterprises by presenting the following documents (add “Equity Contribution Paid” in the Remarks column):
A. descriptions of the Equity Enterprise’s equity change;
B. the Business License of Enterprise Legal Person and the copy thereof after the Equity Enterprise’s equity change;
C. the equity contribution and verification certificate issued by a lawfully established capital verification authority;
D. where the Equity Enterprise remains a foreign-funded enterprise after equity change, it shall also submit the Approval Certificate of Foreign-funded Enterprises and the copy thereof after the equity change; and
E. in case that the Equity Enterprise is not a foreign-funded enterprise but its scope of business covers those sectors in the restricted category of the Catalogue of Industries for Guiding Foreign Investment, it shall also submit approval documents issued by the examination and approval authority at provincial level with respect to the domestic reinvestment by foreign-funded enterprises.
Article 16 Any equity contribution involving a domestic listed company shall comply with relevant state regulations on securities regulation, securities trading, securities registration and clearing.
When foreign investors participate in the introduction or transfer of shares by agreement by taking the equity of the Equity Enterprise as consideration, the Measures for the Administration of Strategic Investment in Listed Companies by Foreign Investors shall also apply. In case the Ministry of Commerce has issued an approval certificate according to relevant regulations, the Equity Enterprise may go through relevant procedures for filing, approval and other changes as well as those for introduction or transfer of shares by agreement based on such approval certificate in accordance with the Article 12 and Article 13 herein. Upon completion of the transaction, the listed company shall collect the Approval Certificate of Foreign-funded Enterprises from the Ministry of Commerce and go through relevant procedures for the registration of change at the administrative department for industry and commerce by virtue of such Approval Certificate.
Article 17 The examination and approval authority of the Investee Enterprise with respect to the equity contribution shall forward the approval documents respectively to the industrial and commercial, tax, customs, foreign exchange department and other departments of the place in which the Investee Enterprise is located; in case the equity contributor is a domestic investor, such documents shall be forwarded to the competent tax department of the place in which the equity contributor is located.
Article 18 When handling procedures concerning the registration of foreign debts and import duty-free quota for the Investee Enterprise, the aggregate investment determined by the registered capital of the Investee Enterprise after deducting the equity contribution shall be relied on for verification.
Article 19 Equity contribution shall be subject to relevant state regulations on tax administration.
Article 20 Where the equity contribution involves matters related to the management of enterprises’ state-owned property rights and the state-owned equity of listed companies, relevant regulations on state-owned assets administration shall be complied with.
Article 21 When issuing a certificate of capital verification, the capital verification authority shall confirm the capital verification from the foreign exchange administration of the place in which the Investee Enterprise is located.
Article 22 In case the equity contribution involves relevant situations specified in the Notice of the General Office of State Council on Establishment of Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, an application shall be filed by a foreign investor for security review of mergers and acquisitions according to relevant regulations.
Equity contribution falling into a category of a merger and acquisition of a domestic enterprise by a foreign investor, shall also abide by the Provisions on the Merger and Acquisition of Domestic Enterprises by Foreign Investors in addition to these Provisions.
Article 23 Any equity contribution involving a foreign-funded company shall comply with relevant regulations on establishing investment companies with foreign investments.
Article 24 Where a domestic investor makes contributions to a domestic-funded enterprise with the equity of a foreign-funded enterprise, the provisions of Article 4 hereof regarding the conditions of equity contribution shall be complied with.
Article 25 Consideration of the equity of domestic enterprises of foreign investors in exchange for equity of domestic enterprises of other investors shall refer to relevant regulations hereof on the conditions of equity contribution and equity assessment, and comply with such provisions as the Provisions for the Alteration of Investors' Equities in Foreign-funded Enterprises and the Provisions on Merger or Acquisition of Domestic Enterprises by Foreign Investors.
Article 26 Any equity contribution involving enterprises invested by Chinese in Taiwan, Hong Kong and Macau shall be managed by reference to these Provisions.
Article 27 These Provisions shall be construed by the Ministry of Commerce.
Article 28 These Provisions shall come into effect as of October 22, 2012.

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