CHINA
3.3. Which authority oversees competition clearance, when is notification mandatory, and briefly explain the merger clearance process. The Anti-monopoly Bureau (AMB) of MOC oversees competition clearance, and such notification is mandatory after the relevant transaction documents are executed, and before the closing of the transaction takes place (if the thresholds for the antitrust filing are met).
The antitrust review process is typically as follows, which must be completed pre-closing: • initial 30-day review: AMB should complete an initial review of the proposed transaction by the 30th day after AMB’s official acceptance of the filing. Within the 30 days, AMB will either: (i) issue a decision to accept, reject or condition the transaction; or (ii) extend the review period for an additional 90 days.
• second stage review: AMB may decide to extend the review period for an additional 90 days. This typically takes place if AMB believes that the case is relatively complex or the applicant should make supplemental filings.
• further extended review: AMB may further extend its review for an additional 60 days, if: (i) the parties consent to the extension; (ii) the filing is inaccurate and requires further review; or (iii) a material change occurs to the parties after the filings.
As a result of the review, AMB may render a decision to: • approve the transaction; • conditionally approve the transaction, subject to the imposition of certain restrictions or conditions designed to mitigate any perceived negative impact on competition; or • block the transaction.
4. Tax and grants 4.1. Are there tax structures and/or favourable intermediary tax jurisdictions that are particularly useful for FDI into the country? An investor’s particular commercial considerations, any applicable regulatory limitations and home country tax considerations, all play a role in determining the most appropriate form for its investment. That being said, it is common for foreign investors to interpose an overseas holding company to hold a Chinese subsidiary, through which they can obtain business and tax benefits, such as possible lower withholding tax rates and access to beneficial tax treaties. Jurisdictions where such holding companies are often located include Hong Kong, Singapore, Barbados, and Mauritius.
4.2. What are the applicable corporate tax rates? The standard company income tax rate is 25%. Special rates apply to small- scale enterprises (20%), and enterprises with new high-technology status (15%).
4.3. Does the government have any FDI tax incentive schemes in place? The principal incentives include a 15% preferential tax rate applicable to new high-technology enterprises and a 50% super deduction for qualifying research and development expenditure.
There is a geographically-based incentive focused on new high-technology enterprises. Tax exemptions and other preferences apply to the agriculture, forestry, animal husbandry and fishery sectors, software and integrated circuit industries, major infrastructure projects, certain environmental projects and certain transfers of technology.
In addition, encouraged foreign investment projects can enjoy certain tax incentives under prevailing regulations. For instance, equipment and parts imported by an FIE within the encouraged scope can generally be exempted from customs duties.
4.4. Other than through the tax system, does the government provide any other financial support to FDI investors? The local government may also provide financial subsidies to FIEs in its territory, which are usually negotiated on a case by case basis.
5. Operating locally
5.1. What is the most common governing law of contracts and local business language? PRC law is the most common governing law of contracts. We also see that foreign and domestic parties often choose Hong Kong law as a middle ground.
Most business meetings in China are conducted in Mandarin, the official language of China. That being said, English still remains a common business language in major cities such as Beijing and Shanghai.
5.2. Explain any local content or local participation requirements relevant to foreign investors. None.
5.3. How difficult is it for foreign investors to secure expatriate visas for shareholder representatives and workers? An FIE and its expatriate personnel will need to apply with the labour, public security and customs authorities to complete relevant registration and visa formalities. While there is a trend towards tightened working visa requirements by the government, we have not experienced any substantial difficulty in foreign investors securing expatriate visas for shareholder representatives and workers.
5.4. What foreign currency or exchange restrictions should foreign investors be aware of? The Chinese government maintains strict exchange controls, although the general trend has been towards a gradual liberalisation of China’s foreign exchange markets and specific controls over companies and individuals. The foreign exchange authority is the State Administration of Foreign Exchange and its local branches.
5.5. Does the country prohibit domestic companies from doing business in any foreign jurisdictions? Generally no, but outbound investments by domestic companies in certain countries or regions need to be approved by MOC in advance.
6. Legal and regulatory framework
6.1. Are there any other FDI-specific laws that foreign investors must be aware of? There are numerous Chinese laws and regulations governing FDI, the most notable ones being the PRC Company Law and the laws and regulations specifically governing WFOEs, CJVs and EJVs.
6.2. What challenges if any do investors find in getting certainty around local law and regulation? While other challenges do exist, the most difficult ones regard relationships, prohibited and restricted industries and complexity of rules and regulations. There are situations where regulations may be difficult to grasp or inconsistently enforced, which in turn causes confusion or frustration. This is in part due to the multiple authorities involved in oversight, and loosely interpreted regulations.
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IFLR REPORT | FOREIGN DIRECT INVESTMENT 2014
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