On 1 March 2010, a new structure for foreign investment--the
("FIP")--was officially launched in
China, and local media reported the registration of China's
first FIP in Kunshan, Jiangsu.
This new form of foreign-invested enterprise is regulated by the
Administrative Measures on the Establishment of Partnership
Enterprises in China by Foreign Enterprises or Foreign Individuals
("FIP Measures") and the Regulations for
the Administration of Foreign-invested Partnership Enterprises
("FIP Registration Regulations"), both
effective as of 1 March 2010.
Stringent Industry Restrictions
The FIP Registration Regulations proscribe FIPs in
"prohibited" industrial categories, as described by the
Catalogue for Guidance of Foreign Investment in Industry
("Foreign Investment Catalogue"), and categories where
there is a (upper) limit on foreign ownership. It appears,
therefore, that FIPs are subject to more stringent industry
restrictions than other types of foreign-invested enterprises.
Streamlined Establishment Process
The new regulations indicate that the Ministry of Commerce or
its local counterpart ("MOFCOM") will
play a small role in the FIP regulatory environment. The FIP
Measures provide that the establishment, modification, liquidation
and deregistration of a FIP that is "in compliance with
China's industrial policies for foreign investment"
require only registration with the local counterpart of the
Administration for Industry and Commerce
("AIC"). MOFCOM approval is not
Also, under the FIP Registration Regulations, when investors
seek to establish an FIP that falls under a "restricted"
category, which sets out restricted activities and sectors for all
foreign invested enterprises (as provided in the Foreign Investment
Catalogue), or that involves a project overseen by a government
authority, the AIC must seek a written opinion from the relevant
government authority within five days after accepting the
Flexibility for Capital Contributions
Unlike other types of foreign investment enterprises, FIPs are
not subject to any minimum capitalisation requirements. The FIP
Registration Regulations allow foreign investors to invest in the
FIP with their legitimate Renminbi income derived from China,
subject to State Administration of Foreign Exchange approval. The
FIP Registration Regulations further allow foreign investors, as
the general partners in the FIP, to make capital contributions in
the form of services.
The PRC Partnership Enterprise Law obliges partners to pay their
respective income taxes according to the relevant taxation
provisions. However, existing laws and regulations do not address
the taxation of a foreign limited partner's interest in an
It remains unclear how a foreign-invested venture capital
enterprise organised in the form of non-legal person and subject to
MOFCOM approval differs from a partnership, and whether a
foreign-invested venture capital enterprise may now be restructured
as an FIP. Similarly, the regulations do not provide guidance on
the formation of foreign-invested RMB funds in the form of
partnerships, an issue of significant market interest.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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