Application Procedures for Foreign Investors Investing in Commercial Sector Businesses

Scope for Foreign-invested Commercial Enterprises:
(a) Retailing
‧ Retailing commodities;
‧ Importing commodities for own sale;
‧ Sourcing domestic products for export;
‧ Other related businesses.
(b) Wholesaling
‧ Wholesaling commodities;
‧ Commission agent services (except auctions);
‧ Importing and exporting of commodities;
‧ Other related businesses.
(c) Franchising
Foreign-invested commercial enterprises may engage in one or more of the businesses listed above.

Requirements for Foreign-invested Commercial Enterprises
(a) Minimum registered capital should comply with the requirements under the Company Law.
(b) Registered capital and total investment should be in line with those required for FlEs.
(c) The operation period of foreign—invested commercial enterprises should generally not exceed 30 years, or 40 years for those in the central and western regions.

Approval and Examination Procedures for Establishment of Foreign-invested Commercial Enterprises and Their Shop:

Step 1: Application for Establishment
An investor interested in establishing a foreign-invested commercial enterprise or a foreign—invested commercial enterprise interested in setting up shop should submit the required application documents to the provincial commerce authorities at the place where the foreign—invested commercial enterprise is registered.

Step 2:
After making a preliminary examination of the submitted documents, the Provincial commerce authorities would forward the application to the Ministry of Commerce within one month from the receipt of all the application documents.
The Ministry of Commerce should decide whether or not to approve the application within three months from the receipt of all the application documents and should issue an Approval Certificate for Foreign-invested Commercial Enterprises to the successful applicant.
Provided that all the conditions are met and that the scope of business does not involve TV, telephone, mail—order, Internet, vending machines, books, newspapers, periodicals, refined oil products, pharmaceuticals or automobiles, applications from retail foreign-invested commercial enterprises for setting up shop in areas within the Provincial jurisdiction of the place where they are located may be examined and approved by the respective provincial commerce authorities. The applications would then be reported to the Ministry of Commerce for the record.

Conditions:
1. The business area of any single shop should not exceed
5,000sqm and the number of shops not exceeding three, while similar shops set up by the foreign investor through its foreign—in vested commercial enterprise across China should not total more than 30;
2. The business area of any single shop should not exceed 3,000sqm and the number of shops not exceeding five, while similar shops set up by the foreign investor through its foreign-invested commercial enterprise across China should not total more than 50.
3. For single shops, the business area should not exceed 300sqm.

Step 3: Application for Registration
The investor should produce the Approval Certificate for Foreign-invested Corn mercial Enterprises and apply to the adm in istration for industry and corn merce for registration within one month upon receipt of the approval certificate.
Documents Required for Applying for Foreign-invested Commercial Enterprise Establishment:
Application letter; feasibility study report jointly signed by all the investors; contract and articles of association (contract only for foreign commercial enterprises) complete with append ices; bank credit reports, registration certificate (photocopy), Proofs of statutory representatives (photocopy), and identification papers (for individual foreign investors only) for each of the investors; audit reports by accounting firms for the latest year on each of the investors; assessment reports on state assets for Chinese investors intending to enter into a Sino—foreign equity or contractual iv commercial enterprise; catalogue of import and export commodities of the proposed foreign-invested commercial enterprise; list of directors of the proposed foreign- invested commercial enterprise and appointment letters for directors from each of the investors; notification of pre-approval of enterprise name from the administration for industry and commerce; Proofs of right to use the land on which the Proposed shops are to be set up (photocopy) and/or tenancy agreement (photocopy) except for shops with a business area of less than 3,000sqm; documents indicating compliance with urban development and urban commercial development requirements issued by the local commerce authorities at the places where the shops are to be set up.
Documents Required for Setting up Shops by Foreign-invested Commercial Enterprises:
Application letter; new contract and articles of association, if revised; feasibility study report on setting up shops; resolution of the board of directors to set LII) shops; audit report for the latest year by an accounting firm; credit report on the enterprise (photocopy); proofs of registration (photocopy) and proofs of statutory representatives (photocopy) from each of the investors; proofs of right to use the land on which the proposed shops are to be set up (photocopy) and/or tenancy agreement (photocopy) except for shops with a business area of less than 3,000sqm; documents indicating compliance with urban development and urban commercial development requirements issued by the local government at the places where the shops are to be set up.

Establishment of Foreign-invested Foreign Trade Enterprises
(a) Relevant regulations and conditions for the establishment of foreign trade companies

‧ Under the Measures for the Administration of Foreign Investment in the Commercial Sector implemented since June 2004, foreign investors are allowed to set up wholly foreign—owned enterprises for commodity import and export and distribution business after 11 December 2004. Foreign-invested commercial enterprises engaged in wholesaling may engage in import and export business, while those engaged in retailing may import or export their own goods or purchase domestic products for export. The new measures have lowered market access thresholds for wholesale and retail distribution and lifted restrictive requirements on the annual sales turnover and assets of foreign investors. Only two requirements are imposed on their registered capital:
(1) their minimum registered capital must conform to the relevant Provisions of the Company Law; and
(2) they must conform to the provisions on the ratio between registered capital and total investment.

‧ According to the Interim Measures for the Establishment of Sino—Foreign joint-Venture Foreign Trade Companies, CEPA and the Supplementary Provisions on the Interim Measures for the Establishment of Sino—Foreign joint-Venture Foreign Trade Companies, Hong Kong service providers may set LIP foreign trade companies on the mainland in the form of equity or contractual joint ventures or wholly— owned operations after 1 January 2004.

‧ Hong Kong service providers applying to establish foreign trade companies must have an average annual trade volume of no less than US$10 million with the mainland in the three preceding years, or US$5 million if they apply to establish such companies in the central and western regions. The registered capital of foreign trade companies should not be less than Rmb 20 million, and not less than Rmb 10 million in the central and western regions.

‧ According to the Supplementary Provisions on the Establishment of Investment Companies by Foreign Investors which took effect on 1 July 2006, an investment company will have partial import—export rights and domestic sales rights once it is designated as a regional head office (for national-level regional head office, the paid-up registered capital must not be less than US$100 million, or the paid-up registered capital must not be less than US$50 million with the total assets of the invested enterprise no less than Rrnb3 billion and total profits no less than Rmb 100 million during the year before its submission of application). As such, it may import and distribute products of the multinational company (parent company). It may also import raw and auxiliary materials and spare parts and components essential for the provision of maintenance services to products produced by its invested enterprise and the multinational company, undertake to provide services outsourced by domestic and foreign enterprises, and engage in logistics distribution services.

(b) Establishment procedures:
For procedures for the establishment of foreign—invested foreign trade companies. After completing business registration, the company should file and register its foreign trade rights and take the stamped Foreign Trade Operator File Registration Form to the customs, entry—exit inspection and quarantine, foreign exchange administration and taxation departments to complete the necessary formalities.

Procedures for the filing and registration of foreign trade rights:
Step 1: Collect a Foreign Trade Operator File Registration Form from the local file registration organ or down load the form from the website of MOFCOM at http://www. mofcom.gov.cn.
Step 2: Fill in the form after carefully reading the terms and conditions at the back. The completed form must be signed and stamped by the legal representative of the enterprise.
Step 3: The file registration organ should complete the registration formalities within five clays after receiving the required documents and put the registration stamp on the form.
Documents required: Registration form, photocopy of business license and photocopy of the enterprise code certificate. For FIEs, photocopy of the FIE Approval Certificate must also be submitted; enterprises that have registration, proofs of a legal authority must for foreign (regional) completed their business funds and credit issued 1w also be submitted.

Other Points to Note for Foreign-invested Commercial Enterprises

(a) Foreign—invested commercial enterprises engaging in retail i n g are not all owed to deal in chemical fertilizers before 11 December 2006.
(b) Foreign-invested commercial enterprises engaging in wholesaling are not allowed to deal in salt and tobacco while those engaging in retailing are not allowed to deal in tobacco.
(c) For any single foreign investor which has set up a total of more than 30 shops, its equity ratio may not exceed 49% if the commodities hand led include books, newspapers, magazines, automobiles (restriction lifted on 11 December 2006), pharmaceuticals, pesticides, mulching films, chemical fertilizers, refined oil products, grains, vegetable oil, sugar and cotton of different brands from different suppliers.

All the information and data above is only for reference, for further information, please feel free to contact us.