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[ESTABLISHING A BUSINESS ENTITY IN CHINA]
3) Annual Reporting a) RO
the payment or receipt of foreign exchange, are regulated by SAFE. Compared with most entities owned by pure domestic investors, an FIE enjoys some relaxation with regard to foreign exchange 18 , as it may accept investments from outside of China, and may settle foreign currency capital contributions made by its foreign investors into renminbi “at will” for its daily operation. The receipt and payment of foreign exchange during the ordinary transactions of an FIE may in general be handled without additional approval by SAFE, although the processing bank may require certain documents be submitted to support the authenticity and legality of the underlying transaction. An FIE may also borrow foreign loans from its foreign parent or other channels to fund its operation. The specific rules are a little complicated; however, normally foreign loans are permitted within the difference between the registered capital and the total investment amount of the FIE, or a quota calculated based on its net assets. The profits of an FIE, after payment of withholding tax (as discussed below) and certain statutory company reserve funds (if applicable), may be legally remitted out of China to its foreign investors. 5) Land In China, all lands are owned by the public; and in this sense, there is no "private land" in China.
An RO shall submit an annual report to the relevant AMR during the period from March 1 to June 30 of each year. The annual report shall include information such as the legally existing status of the foreign parent enterprise, the activities carried out by the RO, the income and expenses of the RO as audited by an accounting firm, etc.
b) FIE
During the period from January 1 to June 30 of each year, an FIE shall submit its annual report through the National Enterprise Credit Information Publicity System of the AMR. The annual report shall include information about the FIE such as its basic information, its investors and ultimate controller, its operation status and assets and liabilities, etc. This process is now commonly called the “joint reporting,” as information submitted in the annual report will be shared among the AMR, MOFCOM and SAFE.
4) Foreign exchange “Renminbi”, the legal currency in China, is not a freely convertible currency; and foreign currencies are not allowed to be freely converted or used in China. Foreign exchange transactions, such as
18 Enterprises with investments from domestic investors may be subject to higher scrutiny with regard to foreign exchange.
ILN Corporate Group – Establishing a Business Entity Series
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