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Detailed Rules for The Implementation of The Law on Wholly Foreign-Owned Enterprises

Tuesday,January 14,2003 Posted: 13:11 BJT(0511 GMT)
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CHINA LEGAL BULLETIN'S ONLINE AMAZON.COM BOOKSTORE
(Approved 28 October 1990 by the State Council. Issued 12 December 1990 by the Ministry, of Foreign Economic Relations and Trade Revised 12 April 2001 in accordance with the Decision of the State Council to Revise the Detailed Rules for the Implementation of the Law of the People's Republic of China on Sole Foreign Investment Enterprise. Re-promulgated 12 April 2001 by Order No 301 of the State Council)


TABLE OF CONTENTS

Chapter I General Principles
Chapter II Establishment Procedures
Chapter III Organizational Structure and Registered Capital
Chapter IV Investment Contribution Methods and Period of Investment
Chapter V Land Use and Its Related Fees
Chapter VI Purchasing and Selling
Chapter VII Taxation
Chapter VIII Foreign Exchange Control
Chapter IX Financial Affairs and Accounting
Chapter X Employees
Chapter XI Trade Unions
Chapter XII Duration, Termination and Liquidation
Chapter XIII Supplementary Provisions


CHAPITRE I
GENERAL PRINCIPLES

Article 1
These Detailed Rules are formulated in accordance with the provisions of the Law of the People's Republic of China on Wholly Foreign-owned Enterprises.

Article 2
Wholly foreign-owned enterprises shall be subject to the jurisdiction of and receive the protection of Chinese laws.

Business activities which wholly foreign-owned enterprises engage in within Chinese territory must comply with Chinese laws and regulations and any activity detrimental to China's social public interest shall be prohibited.

Article 3
The establishment of a wholly foreign-owned enterprise in China must facilitate the development of China's economy and be capable of achieving significant economic results. The State encourages the wholly foreign-owned enterprises to adopt advanced technology and equipment, engage in the development of new products, achieve product upgrading and replacement, and economise on the use of energy and raw materials. The State also encourages ~he establishment of export-oriented wholly foreign-owned enterprises

Article 4
Business and industries in which the establishment of wholly foreign-owned enterprises is prohibited or restricted shall be decided in accordance with State provisions on Foreign Investment Guidelines and the Guideline Catalogue of Foreign Investment Industries.

Article 5
An application to establish a wholly foreign-owned enterprise shall not be granted in any of the following circumstances:

(1) if it is detrimental to China's sovereignty or the social public interest
(2) if it endangers China's national security
(3) if it violates Chinese laws or regulation
(4) if it fails to conform with the requirements for developing China's national economy
(5) if it is likely to cause environmental pollution

Article 6
A wholly foreign-owned enterprise conducting business within its approved scope of operations shall have right of autonomy in its operations and administration and shall not be subject to any interference.


CHAPITRE II
ESTABLISHEMENT PROCEDURES

Article 7
After an application to establish a wholly foreign-owned enterprise has been examined and approved by the Ministry for Foreign Trade and Economic Cooperation (hereinafter referred to as MOFTEC) a document of approval shall be issued.

The State Council shall entrust the people's governments of the various provinces, autonomous regions, directly administered municipalities, cities under separate planning and special economic zones to examine and approve applications to establish wholly foreign-owned enterprises, and to issue a document of approval after the approval of an application, in the following circumstances:

(1) the total amount of investment is within the examination and approval powers stipulated by the State Council
(2) no additional allocations of raw materials by the State are required and the nation's overall balance with regard to fuel, power, transportation and foreign trade export quotas is not affected
(3) the people's governments of the various provinces, autonomous regions, directly administered municipalities, cities under separate planning and special economic zones which are authorized by the State Council shall, after approving the establishment of a wholly foreign-owned enterprise, report the details to MOFTEC within 15 days for its records. (MOFTEC and the people's governments of the various provinces, autonomous regions, directly administered municipalities, cities under separate planning and special economic zones hereinafter shall be jointly referred to as examining and approving authorities.)

Article 8
If, when applying to establish a wholly foreign-owned enterprise, related products are subject to export licenses, export quotas, import licenses or are State-restricted imports, prior approval snail be obtained from relevant authority in charge of foreign trade and economy in accordance with the relevant provisions on administrative jurisdiction.

Article 9
Before submitting an application to establish a wholly foreign-owned enterprise, a foreign investor shall provide the local people's government at county level or above in the locality of the proposed enterprise with a report on the following matters: the purpose and aims of the proposed enterprise, its scope and scale of operations, products to be manufactured, technology and equipment to be used, areas of land to be used and land requirements, conditions and amounts in relation to water, electricity, coal, gas or other fuel requirements and public utility requirements.

A local people's government at county level or above shall issue a foreign investor with a written response within 30 days of receiving the aforesaid report.

Article 10
When applying to establish a wholly foreign-owned enterprise, a foreign investor shall submit an application to the examining and approving authorities through the local people's government at county level or above in the locality of the proposed enterprise, together with the following documents:

(1) an application to establish a wholly foreign-owned enterprise
(2) a feasibility study report
(3) articles of association of the wholly foreign-owned enterprise
(4) a list of legal representatives (or candidates for membership of the board of directors) of the wholly foreign-owned enterprise
(5) testimony of the foreign investor's legal certification and credit standing
(6) the written response of the local people's government at county level or above in the locality of the proposed enterprise
(7) a detailed list of goods and materials needed to be imported
(8) other necessary documents

Items (1) and (3) of the aforesaid list of documents must be written in Chinese. Items (2), (4) and (5) may be written in a foreign language, but a Chinese version of the text shall be attached.

If two or more foreign investors apply jointly to establish a wholly foreign-owned enterprise, a copy of the contract concluded between these parties shall be submitted to the examining and approving authorities.

Article 11
The examining and approving authorities shall decide whether or not to approve an application to establish a wholly foreign-owned enterprise within 90 days of receiving all the required documents. If the aforesaid documents are found to be incomplete or inappropriate, the examining and approving authorities may require a supplementary submission or amendment within a specified period.

Article 12
After the approval of an application to establish a wholly foreign-owned enterprise, a foreign investor shall register with an administrative authority for industry and commerce within 30 days of receiving the document of approval and obtain a business license. The date of issue of business license shall be deemed to be the date of establishment of the enterprise.

If a foreign investor fails to register with an administrative authority for industry and commerce within 30 days of receiving the document of approval, the wholly foreign-owned enterprise's document of approval shall automatically become invalid.

A wholly foreign-owned enterprise shall register with tax authorities within 30 days of its establishment.

Article 13
A foreign investor may commission a Chinese foreign investment enterprise service organization or another economic entity to act as its agent in completing the provisions of Article 8, Article 9 paragraph 1 and Article 10, but shall be required to sign a commission contract.

Article 14
An application to establish a wholly foreign-owned enterprise shall include the following contents:

(1) name or title, address and registered address of the foreign investor and name, nationality and position of its legal representative
(2) name and address of the proposed wholly foreign-owned enterprise
(3) scope of operations, product type and production scale
(4) total amount of investment in the proposed enterprise, amount of registered capital, source of capital, method of investment and term of investment
(5) organizational format and structure and the legal representative of the proposed enterprise
(6) main types of production equipment to be used and respective age of equipment, production technology, level of technology and source of supply
(7) product sales direction, regions, sales channels, and methods
(8) foreign exchange income and expenditure arrangements
(9) establishment provisions and personnel framework, arrangements for employee recruitment, training, wages, welfare benefits, insurance, labor protection, etc
(1O) amount of environmental pollution likely to the caused and corresponding measures for solution
(11) site selection and area of land to be used
(12) capital construction and capital, resources and raw materials required for production and operations and supply measures
(13) progress plans for project implementation
(14) period of operation of the proposed enterprise

Article 15
The articles of association of a wholly foreign-owned enterprise shall include the following contents:

(1) name and address
(2) purpose and scope of Operations
(3) total amount of investment, registered capital and investment term
(4) organizational framework
(5) internal organizational body, its powers of office and rules of procedure, legal representative and the powers, duties and functions of the general manager, chief engineer and chief accountant
(6) principles governing finance, accounting and auditing and related systems
(7) labor management
(8) duration of operations, termination and liquidation
(9) procedures for amendment of the articles of association

Article 16
The articles of association of a wholly foreign-owned enterprise shall become effective after their approval by relevant examining and approving authorities and similarly when amendments are made.

Article 17
A division, merger or significant transfer of capital due to other reasons by a wholly foreign-owned enterprise must be approved by examining and approving authorities and a public accountant registered in China must be engaged to examine the details and issue a capital verification report. Procedures to register such a change shall be undertaken with the relevant administrative authority for industry and commerce after the approval by the examining and approving authorities.


CHAPITRE III
ORGANISATIONAL STRUCTURE AND REGISTERED CAPITAL

Article 18
The organizational structure of a wholly foreign-owned enterprise shall take the form of a limited liability company. It may also take the form of other liability structures subject to approval.

In the case of a wholly foreign-owned enterprise in the form of a limited liability enterprise, the foreign investor shall be liable to the enterprise within the limits of the investment it subscribes.

In the case of a wholly foreign-owned enterprise with another type of liability, the foreign investor's liability towards the enterprise shall be determined pursuant to the provisions of Chinese laws and regulations.

Article 19
The total amount of investment of a wholly foreign-owned enterprise shall refer to the total amount of funds required to establish the enterprise, namely, the sum total of capital construction funds and the amount of production liquid capital required in accordance with the enterprise's production scale.

Article 20
The registered capital of a wholly foreign-owned enterprise shall refer to the total amount of capital registered with the administrative authority for industry and commerce for the establishment of the enterprise, namely, the total amount of investment subscribed by the foreign investor.

The amount of registered capital of a wholly foreign-owned enterprise shall suit its scale of operations and the ratio of registered capital and total investment shall comply with relevant Chinese regulations.

Article 21
A wholly foreign-owned enterprise shall not reduce its registered capital during the duration of its operations. However, if there is a genuine need to reduce its registered capital as a result of changes in the total investment or in production and business scale, etc, such reduction must be approved by examining and approving authorities.

To increase or assign the registered capital of a wholly foreign-owned enterprise, the approval of examining and approving authorities must be obtained and procedures for registration of the change must be undertaken with an administrative authority for industry and commerce.

Article 23
To mortgage or assign its assets or rights and interests, a wholly foreign-owned enterprise must obtain the approval of examining and approving authorities and report the details to the administrative authority for industry and commerce.

Article 24
The legal representative of a wholly foreign-owned enterprise shall be responsible for exercising the powers and functions of the enterprise pursuant to the provisions of its articles of association.

If a legal representative is unable to exercise its powers and functions, it shall commission in writing an agent to exercise these powers of office on its behalf.


CHAPITRE IV
INVESTMENT CONTRIBUTION METHODS AND PERIOD OF INVESTMENT

Article 25
A foreign investor may contribute freely convertible foreign currency or use machinery and equipment. industrial property rights, proprietary technology or other items, the value of which is capitalized, as investment.

Subject to approval from examining and approving authorities, a foreign investor may also invest Renminbi dividends obtained from other wholly foreign-owned enterprises it has established in China.

Article 26
If a foreign investor proposes to use machinery or equipment as investment, such machinery or equipment must be essential for use in production by the enterprise.

The capitalized value of such machinery or equipment shall not exceed the current normal price for the same type of items on the international market.

When investment is in the form of machinery or equipment, a detailed list of the items shall be provided. including details such as the name of each item, type, quantity and capitalized value. This list shall form an appendix to the application to establish a wholly foreign-owned enterprise and shall be submitted to the examining and approving authorities.

Article 27
If a foreign investor proposes to use industrial property rights or proprietary technology as investment, such industrial property rights or proprietary technology must belong to the foreign investor itself.

The principles used for capitalizing the value of these industrial property rights or proprietary technology shall be the same as those used internationally and the capitalized value shall not be permitted to exceed 20% of the enterprise's registered capital.

When investment is in the form of industrial property rights or proprietary technology detailed information must be provided, including a copy of the certificate of title, conditions of validity, technical performance, practical value and the basis of and standards for calculating the capitalized value. These details shall form an appendix to the application to establish a wholly foreign-owned enterprise and shall be submitted to the examining and approving authorities.

Article 28
When machinery or equipment contributed as capitalized investment arrives at a Chinese port, the wholly foreign-owned enterprise shall ask the relevant Chinese commodity inspection authority to inspect the goods and issue an inspection report.

If the type, quality or quantity of the machinery or equipment fails to comply with the details stipulated in the list submitted by a foreign investor to examining and approving authorities, the examining and approving authorities shall have the right to require the foreign investor to rectify the matte within a prescribed period.

Article 29
Examining and approving authorities shall have the right to inspect capitalized investment in the form industrial poverty rights or proprietary technology. If it is found to differ from the details originally provided by the foreign investor, the examining and approving authorities shall have the right to require the foreign investor to rectify the matter within a prescribed period.

Article 30
The time limit for the payment of investment shall be stipulated in the wholly foreign-owned enterprise application form and the enterprise's articles of association. A foreign investor may pay its investment in installments, but the final payment must be settled within three years of the date of issue of the enterprise's business license. The initial installment payment shall be no less than 15% of the amount of investment to be subscribed by the foreign investor and shall be paid within 90 days of the date of issue of the enterprise's business license.

If a foreign investor is unable to pay the initial installment within the period prescribed above, the wholly foreign-owned enterprise's document of approval shall automatically become invalid. The enterprise shall undertake procedures with the administrative authority for industry and commerce to cancel its registration and shall hand in its business license. Should an enterprise fail to undertake procedures to cancel its registration and to hand in its business license, the administrative authority for industry and commerce shall revoke its business license and make a public announcement to the effect.

Article 31
After payment of the initial installment, a foreign investor shall pay the other installments on schedule. If payment is 30 days in arrears without a proper reason, the matter shall be handled in accordan6e with the provisions of paragraph 2 of Article 30 of these Detailed Rules.

If a foreign investor has just cause for requesting an extension of the payment period, approval shall be obtained from the examining and approving authorities and details shall be filed with the administrative authority for industry and commerce.

Article 32
After the payment of each installment by the foreign investor, a wholly foreign-owned enterprise shall engage an accountant registered in China to examine the payments and issue a certificate of capital verification. Details shall be filed with the examining and approving authorities and the administrative authority for industry and commerce.


CHAPITRE V
LAND USE AND ITS RELATED FEES

Article 33
In the case of land to be used by a wholly foreign-owned enterprise, the local people's government at county level or above in the locality of the enterprise shall examine and verify matters in accordance with the local situation and make arrangements.

Article 34
A wholly foreign-owned enterprise shall, within 30 days of receiving its business license, present its document of approval and business license to the land management department of the local people's government at county level or above in the locality of the enterprise in order to carry out land use procedures and obtain a land use certificate.

Article 35
A land use certificate shall be a wholly foreign-owned enterprise's legal proof of its right to use land. A wholly foreign-owned enterprise shall be prohibited from transferring its land use rights without authorization within its stipulated period of operations.

Article 36
When obtaining its land use certificate, a wholly foreign-owned enterprise shall pay a land use fee to its local land management department.

Article 37
If using land that has undergone development, a wholly foreign-owned enterprise shall pay a land development fee.

The aforesaid land development fee shall include a land appropriation, reallocation and settlement fee and an infrastructure construction fee for auxiliary facilities available to the enterprise. The land development fee may be levied by the land development unit as a once-only payment or be paid in installments over a number of years.

Article 38
If using land yet to be developed, a wholly foreign-owned enterprise may develop the and itself or commission relevant Chinese units to develop it. Infrastructure construction shall be uniformly arranged by the local people's government at county level or above in the locality of the enterprise.

Article 39
The land use fees and land development fee standards levied in relation to wholly foreign-owned enterprises shall be determined pursuant to relevant Chinese regulations.

Article 40
The duration of a wholly foreign-owned enterprise's land use term shall be the same as its approved period of operations.

Article 41
In addition to obtaining land use rights pursuant to the provisions of this Chapter, a wholly foreign-owned enterprise may also obtain land use rights in accordance with the provisions of other Chinese laws and regulations.


CHAPITRE VI
PURCHASING AND SELLING

Article 42
A wholly foreign-owned enterprise shall have the right to decide matters relating to the purchase of items for its own use, such as machinery and equipment, raw materials, fuel, spare parts, accessories, components, means of transport and office equipment (hereinafter referred to as commodities)

When purchasing commodities in China under the same conditions as Chinese enterprises, a wholly foreign-owned enterprise shall be granted the same treatment as applies to Chinese enterprises.

Article 43
A wholly foreign-owned enterprise may sell its products on the Chinese domestic market. The State encourages wholly foreign-owned enterprises to export their products

Article 44
A wholly foreign-owned enterprise shall have the right to export its products itself or may also commission a Chinese foreign trade company or a company outside Chinese territory to sell the products on its behalf.

A wholly foreign-owned enterprise may sell its products itself on the Chinese domestic market or may also commission a Chinese commercial organization to sell the products on its behalf.

Article 45
If machinery or equipment contributed by a foreign investor as investment requires an import license in accordance with Chinese regulations, the wholly foreign-owned enterprise itself or an agent engaged by the enterprise shall base its application to the license issuing authority for an import license on the detailed list of equipment and commodities approved for importation by the enterprise.

Article 46
The price of commodities imported by a wholly foreign-owned enterprise and of related skilled labor shall not exceed the current normal price of the same type of goods and skilled labor on the international market. The price of export products of a wholly foreign-owned enterprise shall be determined by the enterprise itself with reference to current international market prices, but shall not be permitted to be less than the appropriate export price. If measures such as high import prices and low export prices are used to evade taxation, tax authorities shall have the right to pursue legal liability in accordance with tax laws.

Article 47
A wholly foreign-owned enterprise shall provide statistical data and submit statistical statements in accordance with the provisions of the Law of the People's Republic of China on Statistics and China's statistical system for the use of foreign capital.


CHAPITRE VII
TAXATION

Article 48
A wholly foreign-owned enterprise shall pay taxes in accordance with the provisions of Chinese laws and regulations.

Article 49
Employees of a wholly foreign-owned enterprise shall pay individual income tax in accordance with the provisions of Chinese laws and regulations.

Article 50
A wholly foreign-owned enterprise may reduce or be exempted from tax on the following imported
commodities in accordance with Chinese laws on taxation:

(1) machinery, equipment, spare parts, building materials for use in construction and materials required for installation and reinforcement of machines which are subscribed by a foreign investor as part of its investment contribution
(2) machinery, equipment, spare parts, means of transport for use in production and production control equipment required by a wholly foreign-owned enterprise for its own production operations that are imported with funds which are part of the enterprise's total investment
(3) raw materials, auxiliary materials, components, spare parts and packaging materials imported by a wholly foreign-owned enterprise for use in producing exports

Payment of the supplementary payment of duty and taxes shall be required pursuant to Chinese tax laws if the aforesaid import Commodities are approved for domestic sale or resold or transferred for use in the production of goods for domestic sales

Article 51
Except for state-restricted exports, taxes on export products of a wholly foreign-owned enterprise may be reduced, exempted or refunded in accordance with Chinese laws on taxation.


CHAPITRE VIII
FOREIGN EXCHANGE CONTROL

Article 52
Foreign exchange matters concerning wholly foreign-owned enterprises shall be handled in accordance with relevant Chinese laws on foreign exchange control.

Article 53
A wholly foreign-owned enterprise shall open an account with a bank in China authorized to engage in foreign exchange dealings by presenting its business license issued by an administrative authority for industry and commerce. A bank handling the account of a wholly foreign-owned enterprise shall supervise the enterprise's receipts and expenditure.

The foreign exchange income of a wholly foreign-owned enterprise shall be deposited in its foreign exchange account. All foreign exchange payments by the enterprise shall be made from this account.

Article 54
A wholly foreign-owned enterprise which, due to production or operational requirements, needs to establish a foreign exchange bank account with a bank outside Chinese territory must obtain approval from Chinese foreign exchange control authorities and, pursuant to the provisions of the exchange control authorities, report periodically on its foreign exchange receipts and expenditure situation and submit its bank reconciliation statement.

Article 55
After tax is paid on the wages and other legitimate foreign exchange income of an employee of a wholly foreign-owned enterprise of foreign nationality or from Hong Kong or Macao, in accordance with China tax laws, the balance may be freely remitted abroad.


CHAPITRE IX
FINANCIAL AFFAIRS AND ACCOUNTING

Article 56
A wholly foreign-owned enterprise shall establish financial and accounting Systems in accordance with Chinese laws and regulations and the provisions of finance authorities and shall report the details to its local finance and taxation authorities for their records.

Article 57
The fiscal year of a wholly foreign-owned enterprise shall be from 1 January to 31 December of the Gregorian calendar year.

Article 58
From the profit remaining after payment of income tax n accordance with Chinese tax law provisions, a wholly foreign-owned enterprise shall allocate money for a reserve fund and employee bonus and welfare funds. That allocated as the. reserve fund shall be no less their 10% of the after-tax profit amount. If the accumulative total of allocated funds reaches 50% of an enterprise registered capital. the enterprise shall not be required to make any further allocation. The allocation ratio for the employee bonus and welfare funds may be determined by a wholly foreign-owned enterprise itself.

A wholly foreign-owned enterprise shall be prohibited from distributing dividends unless the losses of previous years have been made up. Dividends not distributed in previous years may be distributed together with those of the current year.

Article 59
All vouchers, account books and accounting statements prepared by a wholly foreign-owned enterprise shall be written in Chinese. If written in a foreign language, a Chinese translation shall be attached.

Article 60
A wholly foreign-owned enterprise shall undertake its accounting independently.

A wholly foreign-owned enterprise's annual accounting statements and liquidation accounting statements shall be drawn up pursuant to the provisions of China's finance and taxation authorities. If submitting an accounting statement drawn up in foreign currency, another accounting statement showing the renminbi equivalent of the foreign currency statement shall be required to be submitted at the same time.

A wholly foreign-owned enterprise's annual accounting statements and liquidation accounting statements shall be examined and verified by a public accountant registered in China and a report shall be issued.

A wholly foreign-owned enterprise's annual accounting statements and liquidation accounting statements as per the provisions of paragraphs two and three above shall, together with reports issued by a public accountant registered in China, be submitted to finance and taxation authorities within the prescribed period and details shall be reported to the examining and approving authorities and the administrative authority for industry and commerce for their records.

Article 61
A foreign investor may engage an accountant in China or overseas to examine an enterprise's account books. All related costs shall be borne by the foreign investor.

Article 62
A wholly foreign-owned enterprise shall submit its annual balance sheets and profit and loss statements to finance and taxation authorities and report the details to the examining and approving authorities and the administrative authority for industry and commerce for their records

Article 63
A wholly foreign-owned enterprise shall set up accounts books in the locality of the enterprise and shall accept supervision from finance and taxation authorities.

In the event of a violation of the aforesaid provisions, finance and taxation authorities may impose a fine and the administrative authority for industry and commerce may order the suspension of operations or revoke an enterprise's business license


CHAPITRE X
EMLPOYEES

Article 64
When a wholly foreign-owner enterprise recruits employees from within Chinese territory, the two parties, namely the enterprise and the employee, shall sign a labor contract in accordance with Chinese laws and regulations Provisions on matters such as employment, dismissal, remuneration welfare, labor protection and labor insurance shall be stipulated in the contract

A wholly foreign-owned enterprise shall not be permitted to use child labor

Article 65
A wholly foreign-owned enterprise shall be responsible for its employees' occupational and technical training and for establishing an assessment system so that its employees' production and management skills are able to meet the enterprise's production and development requirements.


CHAPITRE XI
TRADE UNIONS

Article 66
The employees of a wholly foreign-owned enterprise shall have the right, in accordance with the provisions of the Trade Union Law of the People's Republic of China, to establish grass-roots trade union organizations and conduct trade union activities.

Article 67
A wholly foreign-owned enterprise trade union shall represent the rights and interests of employees and shall have the right to represent employees in the signing of a labor contract with the enterprise and in supervising the contract's implementation.

Article 68
The primary duties of a wholly foreign-owned enterprise trade union shall be to protect the legal rights and interests of employees pursuant to Chinese laws and regulations, assist the enterprise in rationally arranging and using welfare and bonus funds, organize political, scientific, technical and professional studies for employees, develop cultural and sports activities, educate employees to observe labor disciplines and to strive to fulfill an enterprise's various economic tasks.

Trade union representatives shall have the right to attend as non-voting members those meetings of an enterprise held to discuss and decide issues on employee awards and penalties, wage systems welfare, labor protection and insurance. A wholly foreign-owned enterprise shall listen to the opinions of the trade union and obtain its co-operation.

Article 69
A wholly foreign-owned enterprise shall actively support the work of the enterprise trade union and, pursuant to the provisions of the Trade Union Law of the People's Republic of China, shall provide rooms and equipment for use by the trade union for office work, meetings and collective welfare, cultural and sports activities held for employees. A wholly foreign-owned enterprise shall each month allocate funds equaling 2% of the total actual wages of its employees as a trade union fund to be used by the trade union in accordance with trade union fund control measures formulated by the All China Federation of Trade Unions.


CHAPITRE XII
DURATION - TERMINATION AND LIQUIDATION

Article 70
The duration of the term of operations of a wholly foreign-owned enterprises shall be proposed in the enterprise establishment application submitted by a foreign investor and shall be subject to approval by the examining and approving authorities in accordance with the actual conditions of the particular line of business and type of enterprise.

Article 71
Calculation of the term of operations of a wholly foreign-owned enterprise shall begin from the day the enterprise is issued a business license

If an extension of the term of operations of an enterprise is required an application for an extension shall be submitted to the examining and approving authorities 180 days prior to the expiry of the term of operations. The examining and approving authorities shall decide whether or not to approve the extension application within 30 days of receiving the application.

Subject to approval of its application to extend its term of operations a wholly foreign-owned enterprise shall undertake procedures to register the amendment with the administrative authority for industry and commerce within 30 days of receiving the extension approval document.

Article 72
The operations of a wholly foreign-owned enterprise may be terminated in any of the following instances:

(1)expiry of the term of operations
(2)the foreign investor deciding to dissolve the enterprise due to operations not running well and heavy losses being suffered
(3)inability to continue operations due to heavy 1055e5 caused by force majeure, such as natural disasters and wars
(4)bankruptcy
(5)the enterprise's right to operate being revoked pursuant to the law due to the enterprise violating Chinese laws or regulations or harming the social public interest
(6)occurrence of other reasons for the dissolution as prescribed in the enterprise's articles of association

In cases described in items (2), (3) or (4) above, the wholly foreign-owned enterprise shall voluntarily submit an application for termination to the examining and approving authorities for approval. The date of ratification by the examining and approving authorities shall be deemed to be the date of termination of the enterprise.

Article 73
If an enterprise terminates its operations pursuant to the provisions of items (1), (2), (3) or (6) of Article 72 it shall, within 15 days of the date of termination, make a public announcement to the fact and notify its creditors. Within 15 days of announcing its termination, the enterprise shall determine procedures and principles for the liquidation and nominate candidates for a liquidation committee. Liquidation shall be undertaken after the examining and approving authorities examine and approve these details.

Article 74
A liquidation committee shall comprise of the legal representative of the enterprise, a representative of its creditors and representatives of the relevant authorities. as well as public accountants and lawyers registered in China who are invited to participate.

Priority shall be given to the payment of liquidation expenses from the existing assets of the enterprise.

Article 75
A liquidation committee shall exercise the following rights and functions:

(1) convene a creditors' meeting
(2) take over the management of and sort out the enterprise's assets and draw up a balance sheet and a list of assets
(3) formulate a basis on which to evaluate and calculate the value of assets
(4) formulate a liquidation plan
(5) collect claims and repay debts
(6) pursue payment of items payable by shareholders which are yet to be paid
(7) distribute any remaining assets
(8) represent the enterprise in taking or defending legal action

Article 76
Before the completion of liquidation, a foreign investor shall not be permitted to remit or carry any of the enterprise's assets out of Chinese territory.

On completion of the liquidation of a wholly foreign-owned enterprise, the portion of its net assets or remaining property that exceeds the registered capital of the enterprise shall be deemed to be profit and subject to income tax in accordance with the provisions of Chinese tax laws.

Article 77
On completion of liquidation, a wholly foreign-owned enterprise shall carry out procedures with the administrative authority for industry and commerce for nullifying its registration and shall hand in its business license.

Article 78
When a wholly foreign-owned enterprise is liquidating its assets, Chinese enterprises or other economic entities shall, under the same conditions, have priority right of purchase.

Article 79
If the operations of a wholly foreign-owned enterprise are terminated pursuant to the provisions of item (4) of Article 72, liquidation shall be carried out with reference to relevant Chinese laws and regulations.

If the operations of a wholly foreign-owned enterprise are terminated pursuant to the provisions of item (5) of Article 72, liquidation shall be carried out in accordance with relevant Chinese regulations.


CHAPITRE XIII
SUPPLEMENTARY PROVISIONS

Article 80
The various items of insurance taken out by a wholly foreign-owned enterprise shall be underwritten with an insurance company within Chinese territory.

Article 81
Where a wholly foreign-owned enterprise signs a contract with another company, enterprise or other economic entity, or an individual, the Contract Law of the People's Republic of China shall apply.

Article 82
Enterprises established in China that are fully funded and owned by companies, enterprises, other economic entities or individuals from the regions of Hong Kong, Macao and Taiwan or by Chinese citizens residing abroad shall be handled with reference to these Detailed Rules.

Article 83
Employees of a wholly foreign-owned enterprise of foreign nationality or from Hong Kong or Macao may bring into China in reasonable quantities means of transport and household items for personal use. Import procedures shall be handled in accordance with relevant Chinese regulations.

Article 84
These Detailed Rules shall take effect from the date of promulgation.
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