|Doing business in China
Wholly Foreign Owned Enterprise Law
of the People's Republic of China
(Adopted at the Fourth Session of the Sixth National People's
congress, promulgated by Order No. 39 of the President of the
People's Republic of China and effective as of April 12. 1986)
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Article 1. With a view
to expanding economic cooperation and technical exchange with
foreign countries and promoting the development of China's national
economy, the People's Republic of China permits foreign enterprises,
other foreign economic organizations and individuals (hereinafter
collectively referred to as "foreign investors") to
set up enterprises with foreign capital in China and protects
the lawful rights and interests of such enterprises.
Article 2. Article 2 As
mentioned in this Law, 'enterprises with foreign capital' refers
to those enterprises established in China by foreign investors,
exclusively with their own capital, in accordance with relevant
Chinese laws. The term does not include branches set up in China
by foreign enterprises and other foreign economic organizations.
Article 3. Enterprises
with foreign capital shall be established in such a manner as
to help the development of China's national economy; they shall
use advanced technology and equipment or market all or most of
their products outside China. Provisions shall be made by the
State Council regarding the lines of business which the state
forbids enterprises with foreign capital to engage in or on which
it places certain restrictions.
Article 4. The investments
of a foreign investor in China, the profits it earns and its other
lawful rights and interests are protected by Chinese law. Enterprises
with foreign capital must abide by Chinese laws and regulations
and must not engage in any activities detrimental to China's public
Article 5. The state shall
not nationalize or requisition any enterprise with foreign capital.
Under special circumstances, when public interest requires, enterprises
with foreign capital may be requisitioned by legal procedures
and appropriate compensation shall be made.
Article 6. The application
to establish an enterprise with foreign capital shall be submitted
for examination and approval to the department under the State
Council which is in charge of foreign economic relation and trade,
or to another agency authorized by the State council. The authorities
in charge of examination and approval shall, within 90 days from
the date they receive such application, decide whether or not
to grant approval.
Article 7. After an application
for the establishment of an enterprise with foreign capital has
been approval, the foreign investor shall, within 30 days from
the date of receiving a certificate of approval, apply to the
industry and commerce administration authorities for registration
and obtain a business license. The date of issue of the business
license shall be the date of the establishment of the enterprise.
Article 8. An enterprise
with foreign capital which meets the conditions for being considered
a legal person under Chinese law shall acquire the status of a
Chinese legal person, in accordance with the law.
Article 9. An enterprise
with foreign capital shall make investments in China within the
period approved by the authorities in charge of examination and
approval. If it fails to do so, the industry and commerce administration
authorities may cancel its business license. The industry and
commerce administration authorities shall inspect and supervise
the investment situation of an enterprise with foreign capital.
Article 10. In the event
of a separation, merger or other major change, an enterprise with
foreign capital shall report to and seek approval from the authorities
in charge of examination and approval, and register the change
with the industry and commerce administration authorities.
Article 11. The production
and operation plans of enterprises with foreign capital shall
be reported to the competent authorities for the record. Enterprise
with foreign capital shall conduct their operations and management
in accordance with the approved articles of association, and shall
be free from any interference.
Article 12. When employing
Chinese workers and staff, an enterprise with foreign capital
shall conclude contracts with them according to law, in which
matters concerning employment, dismissal, remuneration, welfare
benefits, labor protection and labor insurance shall be clearly
Article 13. Workers and
staff of enterprises with foreign capital may organize trade unions
in accordance with the law, in order to conduct trade union activities
and protect their lawful rights and interests. The enterprises
shall provide the necessary conditions for the activities of the
trade unions in their respective enterprises.
Article 14. An enterprise
with foreign capital must set up account books in China, conduct
independent accounting, submit the fiscal reports and statements
as required and accept supervision by the financial and tax authorities.
If an enterprise with foreign capital refuses to maintain account
books in China, the financial and tax authorities may impose a
fine on it, and the industry and commerce administration authorities
may order it to suspend operation or may revoke its business license.
Article 15. Within the
scope of the operations approved, enterprises with foreign capital
may purchase, either in China or from the world market, raw and
semi-processed materials, fuels and other materials they need.
When these materials are available from both sources on similar
terms, first priority should be given to purchases in China.
Article 16. Enterprises
with foreign capital shall apply for insurance companies in China
for such kinds of insurance coverage as are needed.
Article 17. Enterprises
with foreign capital shall pay taxes in accordance with relevant
state provisions for tax payment, and may enjoy preferential treatment
for reduction of or exemption from taxes. An enterprise that reinvests
its profits in China after paying the income tax, may in accordance
with relevant state provisions, apply for refund of a part of
the income tax already paid on the reinvested amount.
Article 18. Enterprises
with foreign capital shall handle their foreign exchange transactions
in accordance with the state provisions for foreign exchange control.
Enterprises with foreign capital shall open an account with the
Bank of China or with a bank designated by the state agency exercising
foreign exchange control. Enterprises with foreign capital shall
manage to balance their own foreign exchange receipts and payments.
If, with the approval of the competent authorities, the enterprises
market their products in China and consequently experience an
imbalance in foreign exchange, the said authorities shall help
them correct the imbalance.
Article 19. The foreign
investor may remit abroad profits that are lawfully earned from
an enterprise with foreign capital, as well as other lawful earnings
and any funds remaining after the enterprise is liquidated. Wages,
salaries and other legitimate, income earned by foreign employees
in an enterprise with foreign capital may be remitted abroad after
the payment of individual income tax in accordance with the law.
Article 20. With respect
to the period of operation of an enterprise with foreign capital,
the foreign investor shall report to and secure approval from
the authorities in charge if examination and approval. For an
extension of the period of operation, an application shall be
submitted to the said authorities 180 days before the expiration
of the period. The authorities in charge of examination and approval
shall,within 30 days from the date such applications is received,
decide whether or not to grant the extension.
Article 21. When termination
its operations, an enterprise with foreign capital shall promptly
issue a public notice and proceed with liquidation in accordance
with legal procedure. Pending the completion of liquidation, a
foreign investor may not dispose of the assets of the enterprise
except for the purpose of liquidation.
Article 22. At the termination
of operations, the enterprise with foreign capital shall nullify
its registration with the industry and commerce administration
authorities and hand in its business license for cancellation.
Article 23. The department
under the State Council which is in charge of foreign economic
relations and trade shall, in accordance with this Law, formulate
rules for its implementation, which shall go into effect after
being submitted to and approved by the State Council.
Article 24. This Law
shall go into effect on the day of its promulgation.
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