Partnership - New option for foreign investment in China

Zhiguo Li


　A new door to partnership is opened by the Chinese government to the foreign investors under this post-financial turmoil era in order to attract more foreign investment and provide more employment. On November 25, 2009, the State Council of the PRC promulgated the Measures for the Administration on the Establishment of Partnership Business by Foreign Enterprises or Individuals in China adopted at the 77th executive meeting of the State Council on August 19, 2009, which shall come into effect as of March 1, 2010 (“the Foreign Partnership Measures”). The Foreign Partnership Measures is regarded as supplementary to the Partnership Business Law of the People's Republic of China (“the Partnership Law”), article 108 of which provides that the measures for the administration on the establishment of partnership business by foreign enterprises or individuals shall be formulated by the State Council. Therefore the Partnership Law is the basic law for foreign enterprises or individuals (collectively “foreign partners”) to establish the partnership business in China (“foreign partnership”).

　The initial effort to formulate this kind of measures with the authorization of the Partnership Law can be tracked to January 2007 when the Ministry of Commerce of the People’s Republic of China (MOC), as requested by the Legislative Affair Office of the State Council, promulgated a draft of the Measures for the Administration on the Foreign Funded Partnership Business (“the Draft”) for public consultation. The Draft mostly reflect the intention of the MOC to remain the approval authority for the foreign partnerships as it does in the setup of the other three types of FIEs, such as equity joint venture, contractual joint venture and wholly foreign owned enterprise (i.e., EJV, CJV and WFOE, collectively FIEs). But the final Foreign Partnership Measures kick the MOC and its local branches (“the MOC local branches”) out from the charging authority with the replacement by the local authorized branch of the State Administration of Industry and Commerce (SAIC local branch), which is unexpected to but welcome by the professionals and entrepreneurs. This article will do analysis on the Foreign Partnership Measures from four perspectives: foreign partnership models, foreign partners’ qualification, thresholds and registration of the foreign partnership, in aiming to describe a clear foreign partnership roadmap for foreign partners.


Foreign Partnership Models

　Foreign partners can set up the foreign partnership in China in three models: a. with the other foreign partners; b. with the Chinese individuals, legal persons and the other organizations registered and located in Mainland China; c. through participating the existing domestic partnership.

　In the models above, the foreign partners have the option to take the form of general partnership, limited liability partnership or limited partnership stipulated by the Partnership Law, among which the limited liability partnership is only for the professional institutions such as law firms and accounting firms. Comparing with model a and b, model c seems more feasible and time-and-cost saving for the foreign partners. A complete due diligence will be conducted in order to minimize the risk from the operation of the domestic partnership before the participation date of the foreign partners. In consideration of the current administration and nature of the partnerships, lack of credibility and the other elements in China, it will be difficult to get a complete due diligence report satisfied with the foreign partners. Therefore, models a and b are highly recommended. Which model of a or b take needs the consideration and balance of the foreign partners based on their business plan, legal structuring, such as whether foreign partners themselves intend to do the business competing with the foreign partnership and how to exit by transferring the contribution in the partnership, ect., and the thresholds discussed below.

Foreign Partners’ Qualification

　The difference in the expression on the partners from overseas and China should be noted. Foreign partners only include foreign enterprises and individuals. The Chinese partners include Chinese individuals, legal persons and the other organizations. There is no unified legal interpretation on the “enterprise”, though mostly it refers to the profitable organizations. This uncertainty may come from the prudency of the legislator of China on the qualifications of foreign partners. Under article 184 of the Opinions of the Supreme People’s Court on Several Issues concerning the Implementation of the General Principles of the Civil Law of the People’s Republic of China for Trial (“the Opinions”), this expression of “enterprise” on the foreign partners allow the SAIC local branch more discretion to judge whether the foreign partner is a qualified “enterprise” or not in accordance with the relevant Chinese laws. In this scenario, the foreign partners need to note that they should not fall into the types of entities prescribed in article 3 of the Partnership Law if they aim to be a general partner, which says that wholly state-funded company, state-owned company, listed company, public-welfare-oriented institution or social organization may not become a general partner.

　Regarding the foreign individuals, they must have full capacity for civil conduct in accordance with article 14 of the Partnership Law. The international private law problem will also be involved here. Pursuant to article 180 of the Opinions, the foreign individuals who conduct civil activities in the territory of China, shall be regarded as having full capacity for civil conduct if they have that in accordance with China laws, no matter what their national laws requires for their capacity for civil conduct. Foreign individuals at or above the age of 18 years old are qualified to be the foreign partners if they are not mentally ill.

Thresholds for Foreign Partnership

　Some thresholds, such as the approval by the MOC, imposed on the FIEs are lifted for foreign partnership. This means that the foreign partnership and the domestic partnership will be treated with unified threshold in the aspect of approval, which will definitely reduce the criticism from the international community, but may cause more from the domestic public (including those FIEs). But it does not mean that there will be no thresholds review on foreign partnership.

　Article 3 of the Foreign Partnership Measures lists the general thresholds for the foreign partnerships. The establishment of foreign partnership shall abide by the Partnership Law and the other relevant laws, regulations and rules, and comply with the industrial policies for foreign investment. These general thresholds need to be analyzed together with the reference to the other relevant laws, regulations, rules and policies.

　First, the threshold provided by the Partnership Law is the pre-approval on the business scope. Where the business cope of a foreign partnership contains any item, for example oil distribution, that is subject to approval prior to registration according to laws or regulations, such approval shall be sought in advance and submitted at the time of registration with SAIC local branch. These pre-approvals involve , but not limited to, the Ministry of Land, the Ministry of Transport, the China Securities Regulatory Commission, the China Banking Regulatory Commission and the China Insurance Regulatory Commission, etc., which depends on the business of the foreign partnership.

　Second, the Provisions on Guiding the Orientation of Foreign Investment (2002) and the Catalogue for the Guidance of Foreign Investment Industries (revised in 2007) (collectively “foreign investment industrial policies”) set up the industrial threshold for the foreign partnerships, which are the industrial policy basis for the SAIC local branch to review registration application to establish foreign partnership in China. This will obviously increase the working load of the SAIC local branches since they are lack of the experience in this kind of foreign investment industrial policies review. We may also anticipate that there might be different explanation and implementations on the above two documents, which will be the problem faced by those foreign partners who submit the application in the first half year after the Foreign Partnership Measures comes into force on March 1, 2010.

　The third threshold is that the verification is required if the project invested by the foreign partners falls into the scope described in the Provisional Measures Governing Verification of Foreign Invested Projects. The charging authority is the National Development and Reform Commission and its local branches, which depending on the amount of the total investment and the nature of the project.

　It is necessary to note the forth threshold hidden in the important expression in article 3 of the Foreign Partnership Measures, which put the “rules” as the legal basis for the establishment of foreign partnerships. In the legal system of China, it indicates that the State Council authorizes the ministries or departments under the State Council (“the Ministries”) to issue necessary “rules” applicable to foreign partnerships. It also reflects that the existing valid “rules” issued by the Ministries, including those applicable to the representative offices opened by foreign law firms in China, are still the barrier for the foreign partners to access the local market in China.

　The final threshold comes from the commitment of China in its WTO accession. Although the State Council encourages those foreign partners who have advanced technology and management experience to establish foreign partnership in China with the purpose to facilitate the development of the modern service industry, at this stage, the services industries may only limited to those listed in the Schedule of Specific Commitments on Services (Annex 9 of the Protocol on the Accession of the People’s Republic of China) and the openness will not be wider than the commitments therein.

Registration of the Foreign Partnership

　In the FIEs regime, all investments by foreign investors need the pre-approvals of the MOC or MOC local branches. In the approval process, the MOC or MOC local branches will review, but not limited to, the content of the application, the article of associations of FIEs and contracts signed by the parties if any. Generally, this approval procedure will take 5 working days to 90 working days depending on the nature and total investment of the project. In this regard, the cancel of this approval for the foreign partnership will significantly escalate the speed of the establishment in the procedural stage and to a great extent reduce the uncertainty from the MOC or MOC local branches.

　The Foreign Partnership Measures stipulates that the representative or agent of all the partners shall submit the establishment application only to the SAIC local branch and not the SAIC. The submission shall include, besides the documents required by the Regulations on the Administration of Registration of Partnership Business (revised in 2007, “Partnership Registration Regulation”), the explanation on compliance of the foreign partnership with the foreign investment industrial policies, which will ease the review by the SAIC local branch. In this regard, the review may not be limited to the formality as provided in article 16 of Partnership Registration Regulation. It seems impossible for the SAIC local branch to issue the license to the foreign partnership on the spot. In this scenario, the SAIC local branch shall make a decision on whether to issue the license to the foreign partnership within 20 working days after the date it accepts the complete application.

　The Foreign Partnership Measures is the second case for MOC and MOC local branches to lose approval authority in the recent years. The first case is for the representative office opened by most of foreign enterprises in China since 2004. Although the loss of approval authority, the MOC local branches at the same level with the SAIC local branches accepting the application for establishment of foreign partnership shall be advised the registration information (including the establishment, alteration and cancel) of the foreign partnerships by the latter.

Conclusion

　For those foreign partners not interested in establishing professional foreign partnerships such as law firms in China, they are now can access the Chinese market with a presence in the option of partnership. The approval procedures involved with the MOC or its local branches as set up for FIEs has been removed. The minimum investment (registered capital) requirement for FIEs has been reduced to RMB30,000 (RMB100,000 for one-person limited liability company) by the Company Law of the People's Republic of China (revised in 2005), the Foreign Partnership Measures leave the minimum investment open to the partners. The foreign partners can contribute with the currency (freely exchanged foreign currency or legally earned RMB), in kind, IPR, land use right, the other properties or labor service (limited to general partners) to the foreign partnerships. All these will minimize the cost for foreign partners to achieve their goal of profit maximization in China. But those enterprises focusing on the investment business, such as the foreign-funded venture capital investment enterprises and foreign-funded investment companies, are excluded from the Foreign Partnership Measures due to lack of experience in administrating this kind of enterprises by the government.

国家税务总局 国家发展和改革委员会


国家税务总局 国家发展和改革委员会关于印发《外商投资项目采购国产设备退税管理试行办法》的通知
国税发[2006]111号



各省、自治区、直辖市和计划单列市国家税务局、发展和改革委员会，新疆生产建设兵团发展和改革委员会：
根据国务院有关规定，国家税务总局、国家发展和改革委员会联合制定了《外商投资项目采购国产设备退税管理试行办法》。现印发给你们，请认真贯彻执行。



附件：1.符合国家产业政策的外资项目确认书
2.项目采购国产设备清单
3.外商投资项目采购国产设备退税申报表





国家税务总局 国家发展和改革委员会

二○○六年七月二十四日







外商投资项目采购国产设备退税管理试行办法

第一章 总则

第一条　为鼓励外商投资项目使用国产设备,明确职责和操作程序,规范和加强外商投资企业采购国产设备退税的审批管理,根据国务院有关规定，制定本办法。
第二条　发展和改革委员会（包括国家、省级，下同）负责办理《符合国家产业政策的外商投资项目确认书》（见附件1，以下简称“项目确认书”）和作为项目确认书必备附件的《项目采购国产设备清单》（见附件2，以下简称“设备清单”）；国家税务局（包括省级、地市级，下同）负责外商投资企业采购国产设备退税的认定、审批工作。

第二章 享受退税的范围

第三条　享受国产设备退税的企业范围是指，被认定为增值税一般纳税人的外商投资企业和从事交通运输、开发普通住宅的外商投资企业以及从事海洋石油勘探开发生产的中外合作企业。外商投资企业包括中外合资企业,中外合作企业和外商独资企业。
外商投资企业以其分公司（分厂）的名义采购的自用国产设备，由该分公司（分厂）向所在地主管退税机关申请办理退税。
对外合作开采海洋石油资源的中外合作油气田项目，由合作油气田的作业者、作业机构或作业分公司申请办理退税。
按规定应实行扩大增值税抵扣范围的外商投资企业在投资总额内采购的国产设备不实行增值税退税政策。

第四条 享受退税的项目范围

属于《外商投资产业指导目录》中鼓励类和《中西部地区外商投资优势产业目录》（以上两个目录简称“鼓励外资目录”，下同）的外商投资项目（简称“鼓励类外商投资项目”，下同）所采购的国产设备享受增值税退税政策。调整鼓励外资目录时，项目采购国产设备实行退税政策以项目核准时施行的鼓励外资目录为准。
鼓励类外商投资项目在国内采购的国产设备，凡属于《外商投资项目不予免税的进口商品目录》（简称不予免税目录，下同）的，不实行退税政策。国家调整不予免税目录时，设备是否属于不予免税目录范围以购进国产设备的增值税专用发票开具时施行的不予免税目录为准。
鼓励类外商投资项目中的工程项目，若外商投资企业以包工包料方式委托其他企业承建，外商投资企业可与承建企业签订委托购买国产设备协议，其委托由承建企业采购的国产设备并取得增值税专用发票，交由外商投资企业按规定申请办理退税。
第五条　本办法所称国产设备是指鼓励类外商投资项目采购的在中华人民共和国境内生产、作为固定资产管理的设备，包括按照购货合同随设备购进的配套件、备件等。　　

第三章 项目确认书和设备清单的办理


第六条 发展和改革委员会按照规定权限出具项目确认书。投资总额3000万美元及以上的鼓励类外商投资项目，由国家发展改革委出具项目确认书；投资总额3000万美元以下的鼓励类外商投资项目，由省、自治区、直辖市和计划单列市及新疆生产建设兵团发展改革委（以下简称“省级发展改革委”）出具项目确认书。具体范围包括：
（一）中外合资项目、中外合作项目、外商独资项目；
（二）中外合资企业、中外合作企业和外商独资企业通过增加外方注册资本扩大项目投资总额的增资项目；
　　（三）中外合作开采的海洋石油勘探开发生产项目。
　　第七条 项目确认书的办理，需在项目按规定核准并在采购国产设备清单确定以后，由项目业主单位在项目核准后一个月内按程序向省级发展改革委提出申请，并附以下材料。
　　（一）项目核准文件复印件；
（二）加盖项目单位和初审部门印章的项目采购国产设备清单一式五份（见附件2）；
　　（三）包括采购国产设备清单的项目申请报告一份；
　　（四）其他需要说明或提供的材料。
　　限额以上项目，由省级发展改革委对项目单位、投资总额、采购国产设备总额、设备清单、执行年限、适用产业政策条目进行初审后，向国家发展改革委正式报文提出申请。
　　第八条 同时符合以下条件的项目，由国家发展改革委外资司或省级发展改革委按照权限出具项目确认书（附设备清单）一式四份（一份存档，三份下发）。
　　（一）项目属于外商投资产业政策鼓励类；
　　（二）项目核准符合国家现行外商投资项目管理规定；
　　（三）申请内容符合项目核准文件要求；
　　（四）项目符合其他外商投资相关法律法规的要求。
第九条 设备清单原则上应在办理项目确认书时一次办理。
　　第十条 已经出具项目确认书的项目，在执行中确需变更项目单位、投资总额、采购国产设备额、执行年限和采购国产设备清单等主要事项的，由原出具部门审核同意后出具项目确认书和（或）设备清单变更证明。

第四章 备案登记管理


第十一条 享受采购国产设备退税政策的外商投资企业，应按本办法第十二、十三条规定向其所在地主管退税机关申请办理退税备案登记，其采购的国产设备方可办理退税。已办理完毕出口退税认定手续的，不再单独办理采购国产设备的退税备案登记。
　　第十二条　外商投资企业在取得发展改革委出具的项目确认书后30日内，应持以下资料,到其所在地主管退税机关申请办理购买国产设备的退税备案登记。
（一）企业营业执照副本复印件；
（二）企业税务登记证副本复印件；
（三）符合国家产业政策的外商投资项目确认书原件；
（四）税务机关要求的其他资料。
第十三条　外商投资企业如发生撤并、变更情况，须于有关管理机关批准撤并、变更之日起30日内，向所在地主管退税机关办理注销或变更购买国产设备的退税认定手续。

第五章 退税申报、审核

第十四条　属于增值税一般纳税人的外商投资企业购买国产设备后,应自购买设备开具增值税专用发票的开票之日起30日内 ,到其主管征税机关认证，未经过认证或认证未通过的一律不予办理退税。
第十五条 外商投资企业应自购买设备开具增值税专用发票的开票之日起90日内，填写《外商投资项目采购国产设备退税申请表》（见附件3）,同时附送以下资料向其所在地主管退税机关申请办理国产设备的退税手续。
(一)增值税专用发票（抵扣联）或“机动车销售统一发票”（仅限于特殊用途的机动车辆）；
(二) 发展改革委出具的《符合国家产业政策的外商投资项目确认书》；
　　（三）发展改革委出具的《项目采购国产设备清单》；
　　（四）税务机关要求的其他资料。
第十六条　主管退税机关接到外商投资企业采购国产设备退税的申请后，须将《符合国家产业政策的外商投资项目确认书》与鼓励外资目录的鼓励类外商投资项目及不予免税目录进行核对，对有关凭证进行审核，并实地调查核实设备的购进情况，对审核无误的按增值税专用发票上注明的税额办理退税。如《符合国家产业政策的外商投资项目确认书》与鼓励外资目录的鼓励类外商投资项目及不予免税目录内容不符，主管退税机关不予办理退税，并将有关情况逐级上报国家税务总局。
属于增值税一般纳税人的外商投资企业的退税申请，须在增值税专用发票稽核信息核对无误的情况下，方可办理退税；属于交通运输、开发普通住宅的外商投资企业以及海洋石油勘探开发生产的中外合作企业的退税申请，主管退税机关应对其增值税专用发票进行发函调查，在确认发票真实、发票所列货物已按规定申报纳税后，方可办理退税。

第六章 退税监管

　　
第十七条 主管退税机关在外商投资企业办理退税认定后，应根据《符合国家产业政策的外商投资项目确认书》的有关内容，建立台账，将外商投资企业的项目确认书、设备清单、采购国产设备总额、购进国产设备名称、数量、金额等有关情况登记造册。
第十八条 外商投资企业购进的国产设备，由主管退税的税务机关负责监管，监管期为5年。在监管期内发生转让、赠送等设备所有权转移行为,或者发生出租、再投资等行为的,外商投资企业须按以下计算公式，向主管退税机关补缴已退税款。
应补税款=增值税专用发票上注明的金额×（设备折余价值÷设备原值）×适用增值税税率
设备折余价值=设备原值-累计已提折旧
设备原值和已提折旧按企业会计核算数据计算。

第七章 附 则

第十九条 发展改革委要严格按照有关权限和政策规定出具项目确认书和设备清单。税务机关要严格按照发展改革委出具的项目确认书和设备清单列明的国产设备范围，在对购进国产设备的增值税专用发票审核无误的情况下办理退税。
第二十条　各省、自治区、直辖市和计划单列市国家税务局应于每年7月15日前和次年1月15日前将上半年和上年下半年的外商投资项目采购国产设备退税的有关情况上报国家税务总局。
第二十一条　外商投资企业采取伪造、涂改项目确认书和设备清单等手段骗取国产设备退税款的,主管退税机关按照《中华人民共和国税收征收管理法》第六十三条或相关规定处罚。
第二十二条　本办法自2006年7月1日起执行，在此之前已按本办法第三条、第四条范围批准的项目，凡未办理退税的，均应按本办法的规定向发展和改革委员会补办项目确认书和采购国产设备清单，并按本办法的其他规定办理退税手续。过去的规定与本办法不一致的，按本办法执行。