Investment FAQ

Q1. How many organizations are responsible for the examination and approval of foreign investment projects in Shanghai? What are the detailed regulations? 

There are altogether 24 organizations dealing with the examination and approval of foreign investment projects in Shanghai. The Shanghai Foreign Investment Commission examines and approves projects with an investment between USD 10 million & USD 30 million as well as projects which do not need the State’s overall balance and with an investment over USD 30 million listed in Encouraged Industries. The Foreign Economic and Trade Commissions of district-level and of county-level are responsible for examination and approval of foreign investment projects with an investment under USD 10 million. Local municipality can examine and approve projects located in municipal level industrial zones and with a total investment of less than USD 30 million listed in Encouraged Industries. For the encouraged or permitted projects with an investment of above USD100 million as well as the restricted projects with an investment of above USD50 million, the applicant must first submit its “Project Application Report” to the State Development and Reform Commission for approval. Upon approval, the applicant submits the “Contracts and Articles of Association” to the Ministry of Commerce. Upon approval, the Ministry of Commerce issues the certificate of approval. The foreign investments in relevant service trade industries shall be subject to the specific State regulations then in effect. If pre-examination and approval are required from relevant State departments, they shall be submitted to relevant State departments for examination and approval.

Q2. What are the procedures for the examination and approval of a foreign invested enterprise?

( 1 ) Sino-foreign joint ventures:

1. Draft the project proposal. The project proposal can either be drafted by the Chinese party (partner) and then be submitted to the examination and approval authority or be handled by a consulting institution or local law firm. 
2. Apply for the registration of enterprise’s name. Once the project proposal is ratified, the Chinese party (partner) shall apply to the Industrial and Commercial Administration Bureau (ICAB is used hereafter) for the registration of the enterprise’s name.
3. Work out the feasibility study report, contract and articles of association. The Chinese and foreign parties shall jointly prepare a feasibility study report, draft the contract and articles of association, which are then to be submitted to the examination and approval authority by the Chinese party.
4. Apply for the issue of the approval certificate. After the feasibility study report, contract and articles of association being approved, the Chinese party shall apply for the issue of the approval certificate from the examination and approval authority.
5. Apply for the business license. Once the approval certificate is obtained, the Chinese party may register with the Shanghai Industrial and Commercial Administrative Bureau and apply for the business license.

 
( 2 ) Procedures for establishing enterprises operated solely with foreign capital:

1. To establish a wholly foreign-invested enterprise ( WFOE ), the foreign investor is required to entrust an authorized consulting agency like local law firm with the application and documents submission procedures.
2. The procedures for establishing Sino-foreign joint ventures and Sino-foreign cooperative enterprise can be consulted as a reference for the establishment of wholly foreign-invested enterprise.

 
Q3. In what areas are overseas businessmen most welcomed to invest in Shanghai?

Principles on Encouraging Foreign Investment:

1. Projects which bring in new technology to agriculture or involve comprehensive agricultural development or engage in the development of energy, transportation, municipal infrastructures, and essential raw materials industries;
2. Projects which involve hi-tech or advanced technology, or are able to improve the performance of products, boost R&D ability, save energy and raw materials, enhance enterprise’s technological and economic benefits, produce new machinery or new materials that are scarce in the domestic market;
3. Projects which can upgrade products so as to meet the demands of international market and therefore increase China’s foreign exchanges earning through increased export;
4. New technology and new equipment projects which make comprehensive use of natural resources and resources capable of being recycled, and prevent environmental pollution;
5. Projects which are supportive to the development of Shanghai’s 6 pillar industries, namely, auto industry, communication information equipment, power station equipment, petrochemical and fine chemical industry, consumer electronics and steel industry; projects which involve the development of computer and IC, current bio-technology and medicine, new materials, new type of building materials and environmental protection equipment;
6. Projects which are compatible with the city’s plan to rearrange the industry within the city’s inner-ring road and which are conducive to relocation of enterprises within the inner-ring road to the city’s industrial development zones in the six suburban counties and three suburban districts;
7. Projects in the real estate sector which can develop large scales of land or which can demolish old, shabby, deteriorated houses and build new ones in the urban areas for local residents through purchase of land use right;
8. Projects which are encouraged by the State law and regulations. Projects if deemed encouraged enjoy preferential treatment in accordance in accordance with related State laws and regulations. Besides, those engaged in the building and operation of energy and transportation infrastructure (such as electric power, local railway, high way, and port) which need a big amount of investment and a long period of capital return can widen their related business scope upon approval.

 
Q4. What shall be included in the project proposal of a Sino-foreign joint venture?

1. The Chinese partner: it shall include the name of the Chinese partner, a briefing about its production and business, the legal address, the name and title of the legal address, the name and title of the legal person as well as the name of the authoritative bureau (department).
2. The purpose of cooperation: The emphasis shall be laid on the necessity and the probability of exporting to make profit & introducing technologies.
3. The foreign partner: it shall include the name of the foreign company, the registered country, the legal address and legal person together with his name, title and nationality.
4. The business scope and scale: The necessity of the project construction, the demand of the product both at home and abroad, the production as well as sales areas or regions of the product shall be emphasized.
5. Investment estimation: it refers to the total amount of fixed assets and circulation fund required.
6. The prospect of investment & the source of capital: it shall include both the ratio of investment and ratio of capital formed by both parties.
7. Production techniques & main equipment: emphasis is laid on the superiority, suitability and reliability of the technology and equipment as well as important technological and economic indexes.
8. The quantity and source of major raw materials, water, electric power, gas and transport shall be included.
9. The number, formation and source of labor shall be included.
10. Economic analysis with emphasis on arrangement of foreign exchange balance shall be included.
11. Main documents:
1. The contract of cooperation signed by both parties;

2. The credibility investigation of the foreign investors.

Q5. What shall be included in the contract of a Sino-foreign joint venture?

1. The general;
2. Each party of the joint venture;
3. The establishment of the corporation;
4. The purpose, scope and scale of production and management;
5. Total investment and registered capital;
6. The responsibility of each party;
7. Technological transfer;
8. Sales of product;
9. Board of directors;
10. Management organization;
11. Purchase of equipment;
12. Preparation and construction;
13. Management of production;
14. Taxation, finance and audit;
15. Term for joint venture;
16. Handing of property after the term of joint venture expires;
17. Insurance;
18. Modification, alteration and termination of the contract;
19. Responsibility for breaking the contract;
20. Suitability for law;
21. Settlement of disputes;
22. Wording;
23. Effect of the contract and others.

Q6. What other formalities should be done after a foreign invested enterprise gets its business license?

1. to apply for the official seals at Shanghai Public Security Bureau;
2. to apply for the foreign exchange registration certificate at the Shanghai Foreign Exchange Administration Bureau;
3. to open the RMB and foreign currency account;
4. to go through the tax registration at the Tax Bureau;
5. to apply for Corporation Code Certificate at the Shanghai Technology Supervising Bureau;
6. to go through the Customs registration;
7. to go through the Commodity Inspection registration at the Commodity Inspection Bureau;
8. to go through the registration at the Shanghai Statistic Bureau;
9. to go through the employee recruitment procedure at the Labor Bureau and overseas person’s working procedure at the Foreign Working Administration Office or Taiwanese, Hong-kongese and Macanese Working Administration Office in the Labor Bureau.

Q7. ( a ) What are the regulations on foreign investor’s capital proportion in a Sino-foreign joint venture?

( b ) What is the lowest investment quota of overseas businessmen in a jointly invested or solely foreign-funded enterprise?

( a ) A foreign investor’s investment cannot be less than 25% of the registered capital in a Sino-foreign joint venture.

( b ) The lowest investment of an overseas businessman in a Sino-foreign joint venture or a wholly foreign-invested enterprise shall be no less than USD 100,000 and that in a foreign funded enterprise shall be no less than USD 200,000.

Q8. Can a foreign invested enterprise which has already been registered reduce or increase its registered capital?

A foreign-invested enterprise can increase its registered capital during its operation period, but the increase must be unanimously approved and decided by board meeting and then it must be submitted to the original approval authority for examination and approval.

If the increased amount exceeds the authority of the original examination and approval authority, the application should be submitted to a higher authority by the original examination and approval authority. A foreign-invested enterprise usually is not allowed to reduce its registered capital during its operation period. If there are justified reasons, the application should be submitted to the original examination and approval authority according to relevant laws and regulations of the State.

Q9. Can a joint venture or a cooperative enterprise be transformed to a wholly foreign owned enterprise?

If permitted by the government policies and unanimously approved by the board meeting, a joint venture or a cooperative enterprise can apply to the original examination and approval authorities for the transformation to a wholly foreign-owned enterprise.

Q10. Are there any government regulations concerning the ratio between the total investment and registered capital of a foreign invested enterprise?

The State Industrial and Commercial Administration Bureau (ICAB) has formulated the following regulations about the radio of a Sino-foreign joint venture’s registered capital and its total investment
 

1. The registered capital of a joint venture with a total investment under USD 3 million (including 3 million) shall make up at least seven tenths.
2. The registered capital of a joint venture with a total investment under USD 3 million to USD 10 million (including 10 million) shall make up at least50%. But if the total investment is under USD 4.2 million, the registered capital shall not be less than USD 2.1 million.
3. The registered capital of a joint venture with a total investment from USD 10 million to 30 million (including 30 million) shall make up at least two fifths. But if the total investment is under USD 12.5 million, the registered capital shall not be less than USD 5 million.
4. The registered capital of a joint venture with a total investment from USD 30 million shall make up at least one third, but if the total investment is under USD 36 million, the registered shall not be less than USD 12 million.

 
Q11. Can a foreign invested enterprise purchase State-owned enterprise or collective-owned enterprises?

If a foreign investor wants to purchase State-owned or collective-owned enterprises in Shanghai, the investor should go to the Shanghai Property Exchange and foreign investment examination and approval authority for approval.

Q12. Can foreign invested enterprises establish sales company?

The foreign invested companies can establish sales company if they satisfy the following requirements:

1. The foreign invested companied have already established investment companies in China;
2. The paid registered capital of the investment company should be no less than USD 30 million;
3. The investment company’s share in the registered capital of the companies it invests should be no less than 10%.

Q13. Can foreign invested enterprises reinvest in China?

Foreign invested enterprises that have paid off their registered capital and begin to make a profit and without an illegal record can reinvest in China. Accumulated domestic investment capital of foreign invested enterprises cannot be more than 50% of its net asset value.

Q14. How can a joint venture prolong its term after it expires?

If all the parties of the joint venture are willing to prolong the term when it expires, the joint venture shall submit its application for the extension of the term to the original office for approval six months prior to the termination of the contract. Once approved, the joint venture can have its term prolonged and be registered at the Industrial and Commercial Administration Bureau (ICAB).

Q15. How many forms of foreign investment?

Main forms of foreign investment in Shanghai are loans, commodity credit, direct foreign investment, transfer and grant of land use rights for valuable consideration.

Q16. What procedures shall the foreign invested enterprises follow to exchange the foreign currencies at the bank?

The Foreign Invested Enterprises should apply to their account-opening bank for handling the foreign exchange and then provide the necessary documents such as Application Form for exchanging foreign currency, payment voucher of foreign currency or cheque according to the bank’s requirements.

Q17. What should foreign invested enterprises do to establish branches?

The Foreign Invested Enterprises should apply to original Registration Administration Bureau for Industry and Commerce for the establishment of branches in China according to the relevant regulations. The Foreign-Invested Enterprise shall have paid its registered capital periodically according to regulation and have started production if it wants to establish branches in China, and it should have paid all its registered capital if it wants to establish any operative branches.

Q18. How can a trademark be registered in China?

Applying for a trademark registration should be classified according to Commodity Classification Table and the application shall be handed by a trademark agency or local law firm. 

Q19. What’s the provision about the legal person of a foreign invested enterprise?

Chairman of the Board is the legal representative of the enterprise.

Q20. Can a foreign investor remit abroad his share of profit from the foreign invested enterprise?

Yes, he can.

Q21. Shall a foreign investor be levied on his hare of profit from the foreign invested enterprise?

He’s exempt form the income tax because his share of profit from the foreign invested enterprise belongs to the profit after taxation.

Q22. How does a foreign management staff in a foreign invested enterprise pay personal income tax?

The income of foreigners now working in China should be taxed. The taxable income is monthly income with 4,800RMB reduction.

Q23. What preferential policy can foreign investors enjoy if they reinvest the after-tax profit got in the high-tech or export-oriented enterprises in China?

Foreign investors can get refund of company income tax imposed on the amount of reinvestment through application to and approval by the tax bureau if they reinvest the after-tax profit in the high-tech or export-oriented enterprises in China with at least five-year operation period. For an ordinary manufacturing project, the refund percentage is 40%.

Q24. Can a foreign invested enterprise apply for a loan from a bank in China and what’s the interest rate upon loans?

According to the needs of business, a foreign-invested enterprise can apply for a loan of either foreign exchange or RMB form bank inside China. The interest rate is promulgated by the People’s Bank of China.

Q25. How a dispute is solved between the two parties of either a Sino-foreign joint venture or a Sino-foreign cooperative enterprise? What shall be done if there are disputes about production between a foreign invested enterprise and its employees?

Any dispute that occurs in the explanation or implementation of the joint ventures agreement, contract and Articles of Association had better be solved through negotiation between the enterprise and its trade union or conciliation. If negotiation or conciliation fails, it can be brought to the court of arbitration or administration of justice. According to the written-agreement on arbitration, each party of the association can have their dispute solved by the court of arbitration. Arbitration can be handled in accordance with the arbitration procedures of the China’s Arbitration Committee of International Trade and Commerce. With the consent of each party concerned, the dispute can also be handled by an arbitrary organization in the country prosecuted or in a third country, following its arbitration procedures. If there is no written agreement on arbitration between the parties of the negotiation, either party can bring the dispute to the People’s Court of Justice according to law.

If labor disputes cannot be solved, either party of the disputes or both parties can seek arbitration from the Shanghai Labor Dispute Arbitrary Committee. Either party who is still unconvinced can bring it to the Shanghai People’s Court of Justice for legal prosecution.

Q26. Can foreign businessmen working for foreign invested enterprises apply for a multi-time exit and re-entry visa?

Yes. After getting the working permission from the Labor Bureau, foreign businessmen can apply to the Exit and Entry Department of Shanghai Municipal Bureau of Public Security.

Q27. Can foreign employees of a foreign invested enterprise remit their pay abroad?

Yes. The foreign employees of a foreign-invested enterprise can remit abroad their salaries and other proper incomes after fully paying the income tax.

Q28. Can a foreign invested enterprise open a bank account at a foreign bank in China?

With the business license issued by the State Industrial and Commercial Administration Bureau (ICAB)，any foreign-invested enterprise can open bank accounts of both foreign exchange and RMB at any bank or at any other financial institution, which is permitted to handle foreign exchange business by the State Foreign Exchange Administration Department.

Q29. What sort of employee’s welfare shall a foreign invested enterprise responsible for?

1. A foreign invested enterprise shall pay to the government social insurance administration department 25.5% of the total net income of all the Chinese employees as their pension insurance fund and 4.5% as medical insurance every month.
2. A foreign invested enterprise shall pay to the labor service company of the district or county where it is located 10% of the total net income of all the Chinese employees as laid-off pension insurance fund every month.

Q30. Can a foreign invested enterprise engage employees itself? What shall be done if disputes arise?

Under the guidance of Labor and Personnel departments, a Foreign-Invested Enterprise can take on employees by itself. The original enterprises of the employees enrolled shall support it and allow them to transfer. If any dispute arises, it can be harmonized and arbitrated by Shanghai Labor Bureau and Shanghai Personnel Bureau.

Q31. Can a foreign invested enterprise engage employees from outside Shanghai?

With the consent of the Labor and Personnel Departments of the province or autonomous region or municipal city where it is located, a foreign-invested enterprise can take on employees from outside Shanghai if it cannot find suitable technical engineers, business administrators or skilled workers needed locally.

Q32. What is the labor cost in Shanghai?

The monthly average salary of employees in Shanghai is RMB2,235；the average HR monthly salary of foreign-invested enterprise is RMB11,800. The minimum monthly salary standard in Shanghai is RMB850; the monthly guide salary for various graduates in Shanghai is RMB1,000-7,000 and the medium is RMB2,014.

Q33. ( a ) How to apply for employment permit, expert certificate and residence permit?

( b ) How to apply for Profession Visa?

1. A foreign-invested enterprise, which is intending to employ expatriates, may apply for a License at the Shanghai Labor and Social Security Bureau with business license, enterprise’s certificate of approval, application report, and the expatriate’s personal documents. With the License, the enterprise may apply for professional visa notification at the Shanghai Municipal Foreign Economic Relations & Trade commission. The expatriates may apply for profession visa to China at a local Chinese embassy or consulate with the fax copy of profession visa notification from the authorized authorities in China and the License. After entering China, the expatriate can apply for employment permit at the Shanghai Labor and Social Security Bureau with profession visa, the License, employment contract, health certificate and photos of the expatriates within 15 days. With the employment permit, the expatriate can apply for residence permit at the Division of Exit and Entry Administration of Shanghai Pubic Security bureau with the employment permit.
2. Shanghai agents, who provide service to foreign enterprises for establishing residential representative offices in Shanghai, can apply to Shanghai Municipal Foreign Economic Relations & Trade Commission for profession visa notification for the chief representatives and representatives on behalf of the foreign enterprises. After receiving the profession visa notification, the chief representative and representatives may apply for profession visa to China at a local Chinese embassy or consulate. Upon entering China, they can apply to Shanghai Administration for Industry and Commerce for work permit. The representatives can then apply to Shanghai Labor and Social Security Bureau for employment permit with profession visa, work permit, health certificate, and photos. Then, they can apply for residence permit at the Division of Exit and Entry Administration of Shanghai Public Security bureau with the employment permit.

Q34. What are the procedures for establishing residential representative offices?

Submit application with documents, examination and approval, registration. A foreign enterprise that intends to establish a residential representative office in Shanghai may entrust an agency authorized by the Shanghai Municipal Foreign Economic Relations & Trade Commission to submit the application on its behalf to the above-mentioned commission. The applicant shall complete the “Application Form for Establishing Representative Office by Foreign Enterprise” and present the following documents:
 

1. an application duly signed by the Chairman of the board or General Manager of the foreign enterprise, with the following detail: name of the residential representative office, names of the person-in-charge, business scope, residential duration and address;
2. an incorporation certificate issued by the competent authorities of the country or region where the applicant is located;
3. a letter issued by a bank that has business relations with the applicant testifying its financial and credit standing;
4. poser of attorney issued by the applicant for the staff of its office and their curriculum vitae and photos.

The Shanghai Municipal Foreign Economic Relations and Trade Commission will examine the application of the foreign enterprises for setting up residential representative offices in Shanghai. If the establishment is approved, the Commission will issue the relevant certificate to the applicant. With the certificate of approval and all the documents ready, the applicant can register its residential representative office with the Shanghai Administration for Industry and Commerce to obtain a registration certificate as well as a representative card.

Q35. What are the commercial costs in Shanghai?

Salary, social insurances, individual income tax, land use fee, public utility fees are just some of the commercial costs in Shanghai.

Q36. Is there a social insurance system in Shanghai?

Yes. It is divided into 3 categories-“urban”, “suburban” and “comprehensive insurance for out-of-town employees”.

Q37. What is the land use fee rate in Shanghai?

Land use fee means the expenses from use of land resources, excluding relocation and placement expenses and infrastructure construction expenses. Land use fee is determined according to geographical environment conditions and purpose of land and divided into 5 categories and 10 levels. Fee rate is from RMB0.5/m²/year to RMB170/m²/year. The rate of each level is ratified by the land administration department of Shanghai. The land in Shanghai is divided into 12 levels depending on different locations: downtown area, level 1-3;inside Inner Ring Road, levels 4-5;between Inner Ring Road and Outer Ring Road, levels 4-7;outside Outer Ring Road, above level 7.

Compiled by Cherry Qiu
Legal Assistant
Allen & John Law Firm