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Print articleChina: Holding Company Regulations Further Revised
January, 2007 -
The Ministry of Commerce (“MOFCOM”) promulgated the Supplementary Regulations Regarding the Establishment of Holding Companies by Foreign Investors on 26 May 2006. The Supplementary Regulations amend and supplement the Regulations on the Investment in and Establishment of Holding Companies by Foreign Business Entities, which became effective on 17 December 2004 (the “Holding Company Regulations”) (as discussed in the 2004.4 issue of China Legal Update).
Holding companies
Holding companies are sometimes also referred to as “investment-type” or “umbrella” companies. They are foreign investment enterprises established for the purpose of holding equity interests in various enterprises established by a single foreign investor in China (“invested enterprises”). Holding companies may provide certain services to its invested enterprises. The requirements in terms of capital contribution and existing investments for setting up a holding company are relatively high.
Timing of capital contributions
The Supplementary Regulations require that the capital contributed to the registered capital of a holding company shall be not less than US$30 million within two years of its establishment. The registered capital must be contributed in full within five years of establishment.
Other changes
Under the Supplementary Regulations, a holding company is permitted to undertake outsourcing service business for overseas companies. The revisions further clarify that a holding company may domestically sell goods by way of commission agent services (excluding auction) and wholesale that it has imported or purchased locally inside China. A holding company is also permitted to take strategic investments in PRC listed companies and will then be treated as an overseas shareholder.
The Supplementary Regulations specifically permit a holding company to entrust other enterprises inside China to produce or process its products or its parent company’s products for domestic and overseas sales. The Holding Company Regulations limited the value of the goods that a holding company was permitted to import within a given year to the amount of capital contributions actually contributed. The Supplementary Regulations have removed this restriction.
Regional headquarter
The Holding Company Regulations permit a holding company to be recognised as the regional headquarter of a multinational company (hereinafter “regional headquarter”). A multinational company refers to the parent company of the group of companies to which the foreign investor in the holding company belongs. The Supplementary Regulations expand the scope of activities in which a regional headquarter may engage. A regional headquarter is permitted to engage in operational and financial leasing services. It may further entrust other enterprises in China to produce or process products and sell its products inside and outside China and engage in consigned processing trade of products all for export. A regional headquarter which acts as a financial centre or fund management centre is permitted to centrally manage the foreign exchange funds of its affiliates in China. Such a regional headquarter may further open offshore accounts with banks in China to centrally manage the foreign exchange funds of its overseas affiliates as well as the foreign exchange funds of its affiliates inside China that have been approved by the foreign exchange bureau to make overseas loans.
Holding companies
Holding companies are sometimes also referred to as “investment-type” or “umbrella” companies. They are foreign investment enterprises established for the purpose of holding equity interests in various enterprises established by a single foreign investor in China (“invested enterprises”). Holding companies may provide certain services to its invested enterprises. The requirements in terms of capital contribution and existing investments for setting up a holding company are relatively high.
Timing of capital contributions
The Supplementary Regulations require that the capital contributed to the registered capital of a holding company shall be not less than US$30 million within two years of its establishment. The registered capital must be contributed in full within five years of establishment.
Other changes
Under the Supplementary Regulations, a holding company is permitted to undertake outsourcing service business for overseas companies. The revisions further clarify that a holding company may domestically sell goods by way of commission agent services (excluding auction) and wholesale that it has imported or purchased locally inside China. A holding company is also permitted to take strategic investments in PRC listed companies and will then be treated as an overseas shareholder.
The Supplementary Regulations specifically permit a holding company to entrust other enterprises inside China to produce or process its products or its parent company’s products for domestic and overseas sales. The Holding Company Regulations limited the value of the goods that a holding company was permitted to import within a given year to the amount of capital contributions actually contributed. The Supplementary Regulations have removed this restriction.
Regional headquarter
The Holding Company Regulations permit a holding company to be recognised as the regional headquarter of a multinational company (hereinafter “regional headquarter”). A multinational company refers to the parent company of the group of companies to which the foreign investor in the holding company belongs. The Supplementary Regulations expand the scope of activities in which a regional headquarter may engage. A regional headquarter is permitted to engage in operational and financial leasing services. It may further entrust other enterprises in China to produce or process products and sell its products inside and outside China and engage in consigned processing trade of products all for export. A regional headquarter which acts as a financial centre or fund management centre is permitted to centrally manage the foreign exchange funds of its affiliates in China. Such a regional headquarter may further open offshore accounts with banks in China to centrally manage the foreign exchange funds of its overseas affiliates as well as the foreign exchange funds of its affiliates inside China that have been approved by the foreign exchange bureau to make overseas loans.
