Pudong Issues Rules on Foreign Invested Equity Investment Enterprises

August 14, 2009 Posted by China Briefing Reading Time: 2 minutes

SHANGHAI, Aug. 14 – Pudong New Area authorities have just issued guidelines for foreign private equity companies opening in the area.

According to the circular, foreign-invested equity investment management enterprises (FIEIMEs) can establish offices in the following forms: contractual joint venture; equity joint venture; or wholly foreign-owned enterprise.

Registered capital for is pegged at a minimum of US$2 million but is prohibited from use as equity investment and can only be utilized as working capital. It must be noted that registered capital is also the limited liability amount, and that decreasing it via expenditure may have additional investment implications in the event of insolvency.

The total registered capital, as is normal, should be injected within two years after obtaining the business license with the initial payment being no less than 20 percent of the total required amount.

Firms should have at least one investor or shareholder who, either directly or via a related party, is approved to be engaged in equity investment or equity investment management under Chinese law, and should additionally possess a minimum of two further qualified senior executives.

The local government also issued incentives for FIEIME investors including a three-year subsidy that is equal to 1.5 percent of the total office rental expenses as long as the office is located in the Pudong New Area; a 100 percent refund of business tax paid by FIEIMEs and retained as local tax revenue by Pudong New Area in the first three years; and a 50 percent refund for the following three years plus a one-off individual income tax rebate of RMB20,000 to the senior management of the FIEIME.

The Pudong New Area is an economic development zone being groomed to be China’s global financial hub. It includes the Lujiazui finance and trade zone and the Shanghai Stock Exchange.

Foreign investors interested in establishing an FIEIME in Pudong can email Hank Bourg, head of the North American desk at the Dezan Shira & Associates Shanghai office, at shanghai@dezshira.com.