The joint venture agreement must make clear that the General Manager is an employee of the joint venture company employed entirely at the discretion of the Legal Representative (whom you have the power to appoint and remove). The Chinese government prefers the enterprise be established as a Joint Venture with a local Chinese partner. Article 25 The accounting vouchers, books, statements and reports adopted by joint ventures shall be kept in the Chinese language, or in both Chinese In short, a Joint Venture in China is a limited liability company that is created through a partnership between a foreign-invested enterprise (FIE) and Chinese investors, who share the costs, rewards, and the management of the joint venture. This amount is fixed in the articles of association of a JV, and constitutes an investment commitment (subject to any increase or decrease of registered capital approved by the government). For the Service industry, it should be no less than USD 100,000, and the manufacturing industry is no less than USD 150,000. Until now, foreign players could only own up to 49% in a Chinese fund management firm. Get introduced to the right people, and connect with potential business partners and clients by participating in a trade mission or event. Hawksford is an established provider of company registration and outsourced corporate services in China. The project proposal should contain the overall assumptions of the structure in which both sides will be stated as investors. The need for a registered address and the assignment of entities to commercial or industrial locations depends on the specific business and industry that the JV will target. All rights reserved, Entering a new or emerging market with a local ready-made structure, Increasing efficiency by combining assets and operations, Sharing risk in complex and bureaucratic investment projects, Approaching skills, capabilities, and other tangible benefits that only a local structured partner could offer. An EJV is a limited liability company where profits and losses are distributed by the ratio of capital contributions. As an indispensable step before investment decisions and a basis for further work, it analyzes the viability of the idea and meanwhile it gives a reality check to the future cooperation between the two or more investors. After the announcement of new Foreign Investment Law, which is effective on January 1st, 2020, previous distinctions between the Equity Joint Venture (EJV) and Cooperative Joint Venture (CJV) have been abolished. Documents in both languages shall have equal validity. No one understands a business in China like we do, Copyright © 2008-2020 Hawksford. You can find how we use these by clicking “More info” or click “Accept” to agree, Guide - 26 March 2020. when a local partner is able to offer tangible benefits such as: well established government relationships, significant knowledge of the local market, 30,000 RMB if the JV has two or more foreign investors, or, 100,000 RMB if the JV has only one foreign investor, The use of local partner’s existing workforce and facilities, Existing channels for sales and distribution, Use of a partner’s network to build good relationships, avoid red tape and other bureaucratic complexities, Entry into industrial sectors which exclude wholly foreign-owned investment, Cost & complexity of establishment – authorities carefully inspect all documents presented to them and may ask for clarification or changes, Liability associated with inheriting staff, Risks with technology transfer and intellectual property management, an enterprise created with capital investments from both foreign entities and domestic companies, where profits are distributed according to the ratio of contributions, a limited liability company, holding an independent legal identity, much more rigid than that of the CJV, particularly with respect to profit sharing, a minimum of 25% of the investment from the foreign partner, a two-tiered management structure made up of a board of directors and a management team (general manager and deputies) that is contractually appointed and legally responsible for the daily operations of the company, is an enterprise created with capital investment from both foreign entities and domestic companies, where profits are distributed between the investors in a proportion that may differ from the proportionate ownership interest of each investor, can sometimes allow for the recovery of the foreign partner’s capital to be accelerated, was a more common model in the past, when Chinese partners supplied land and labour, while the foreign partner supplied technology and capital, a non-legal person (similar to a partnership formed by contract) where the liabilities of the CJV flow through to the investors of the CJV, A letter of intent or memorandum of understanding must be written and signed by all partners, Submit JV name for approval by the local Administration for Industry and Commerce (AIC), AIC requires one name and two alternates to be submitted, A JV contract and articles of association must be written and signed by all partners, Pre-approval from the National Development and Reform Commission (“NDRC, where the JV will be acquiring land or other fixed assets; or, where the capital investment in the JV will be significant, Certain other government ministries may need to be consulted and to provide approval where the JV is to do business in a relatively regulated industry (for example health or education) or where the collateral impact of the JV’s proposed business activities require review (for example pollution, heavy energy usage). Office relocation requires a tax clearance declaration report, essentially an audit of the company. As certain Chinese markets liberalise and allow foreign investors, the local expertise offered by Chinese joint venture partners could prove invaluable. Take advantage of Canada’s free-trade agreements, foreign investment agreements, WTO agreements, and more. The revamped rules will also permit foreign investment in e-commerce exceeding 50 per cent, and up to 55 per cent in such business operating within the Shanghai FTZ. If the right to the use of the site does not constitute a part of a Chinese joint venturer's investment, the joint venture shall pay the Chinese Government a fee for its use. Differently from WFOEs (Wholly Foreign-owned Entity) and Representative Offices, a joint venture involves at least one Chinese partner which can be either an individual or a corporate. Request a quote now to take the next step towards your dream business. Serving as an entry guide for foreign investors in China, the Negative List refers to a comprehensive manual outlining certain areas where foreign investment and businesses are prohibited or restricted. A joint venture (JV) is a form of foreign invested enterprise (FIE) that is created through a partnership between foreign and Chinese investors, who together share the profits, losses and management of the JV. Against a general trend towards liberalisation, the revised Investment Catalogue imposes new and tighter restrictions on investment in regards to vehicle manufacturing and education. Joint Ventures (JV) are one of the corporate structures available to foreign investors to invest in and have access to the Chinese market. Get access to export-related information and join our mailing list. It is strongly recommended that prior to choosing this form of investment vehicle you consult with the foreign partner of an existing JV in order to better understand the advantages and disadvantages of the JV structure. Joint ventures are usually established to exploit the market knowledge, preferential market treatment, and manufacturing capability of the Chinese side along with the technology, manufacturing know-how, and marketing experience of the foreign partner. Setting up a Joint Venture in China. All applications must be submitted in Chinese and, in addition, may be written in a foreign language. In addition to filling annual taxes, JVs must submit an annual audit report to the AIC. The local Administration of Industry and Commerce (AIC) in the municipality which is responsible for the registered address of JVs normally requires a list of potential company names to be submitted and holds the final say in whether one of those names is approved or not. Once the partners are chosen, several documents need to be drafted or obtained, including the following: After the foreign and Chinese counterparts reach an agreement on establishing a joint venture together, a letter of intent (LOI) should be drafted. For individual investors a passport copy is required (certified by the Chinese Embassy), Capital credit certification from each investor’s bank, Copy of passport for (i) JV’s director, (ii) JV’s legal representative, and (iii) JV’s supervisor, Leasing contract for office space in China, certification of real-estate ownership, landlord’s identification, Letter of authorization (authorizing the JV to accept service in China on behalf of the investor(s)), In some cases, latest annual audit report from the foreign investor provided by a certified public accountant, Any prior reviews or approvals from government branches (for example land-use rights if required), Record establishment of the business and official seal engraving with the Division of Entry & Exit Administration of the local Public Security Bureau, Obtain certificate with the organization’s code number from the Technical Supervision Bureau, Register with and obtain certificates from both the state and local, Tax reports should be submitted to the Tax Administration Department on a monthly, quarterly and annual basis, Register with and obtain a certificate from the, Obtain certificate of financial registration from the local Finance Bureau. Goldman Sachs plans to acquire 100 per cent of its mainland Chinese joint venture, the latest global bank to seek full control of its business as Beijing further opens up the financial sector. Specifically, multinational firms seeking to conduct foreign direct investment (FDI) in China are often required to form legal business relationships with a domestic Chinese partner, typically in the form of international joint ventures (IJVs) that establish a new offshoot firm. In The China Joint Venture Squeeze Out: Coming Soon to a Public Company Near You, we set out the fundamental advice … It is recommended that a clause be added to the lease voiding the contract without penalty should the JV application be rejected. The purpose of a JV contract and Articles of Association is to lay down the principles of the organization, its methods of operation, and management rules or principles to be adopted. There is no commitment to finance this portion of the investment but such debt financing may be obtained at the JV’s discretion. When receiving the approval of the project proposal, a feasibility study shall be prepared by both parties. For Shanghai’s SAIC, 89 percent of the passenger cars it sold last year were from joint ventures with General Motors and Volkswagen. Apply for financial support, or take part in programs that help innovative or growth-oriented firms, and underrepresented groups. This article introduces how to establish a joint venture in China, including basic requirements, procedures, and timeline. For more specific information or questions related to your foreign invested enterprise, please contact us. For industries listed under “restricted” terms, foreign companies are still allowed to invest in China but must meet specific conditions such as limit equity ratio and remaining shareholding under 51%. The regulations state that Chinese joint venture partners cannot steal intellectual property and trade secrets from their foreign partners. A Chinese Commerce Ministry official suggested at a conference in 2013 that the joint venture rule might be lifted, noting that China wanted to see its automakers start exporting to the West. Moreover, JPMorgan has applied to win an auction to purchase the shares needed for a 70 percent majority equity stake in its Chinese futures joint venture. The Income Tax Law of the People's Republic of China Concerning Chinese-Foreign Joint Ventures; Detailed Rules for the Implementation of the Law of the People's Republic of China on Sino-Foreign Contractual Joint Ventures; Rules for the Administration of Employment of Foreigners in China Some of the top Chinese automotive companies are almost entirely dependent on selling overseas brands. The JV’s investors must pay 15% of the registered capital of the JV within the first three months after issuance of the business license (similar to a certificate of incorporation under Canadian law), with the balance due within the first two years. Plan for the tariffs, sanctions, and export/import controls that you may encounter when exporting abroad. If the right to the use of the site does not constitute a part of a Chinese partner's investment, the joint venture shall pay the … At the same time, the Foreign Investment Law, as currently passed, is more h… Access guides, information and other resources to learn about doing business in international markets. JVs should apply for the name registration within 30 days upon receiving the approval of the project proposal. For example, if the joint venture’s products are for export, the high German standards should be upheld. Access the business sectors which are restricted (not prohibited) in equity ownership terms by the Chinese authorities, Gain insights from the local partner’s experience in, Leverage the partner’s existing channels for sales and distribution, Obtain local treatment when participating in official and public tenders, The costly and lengthy process to scout for and engage a proper Chinese partner, The complexity of establishment and ongoing maintenance, Difficulties in merging different company cultures and management styles, Intellectual property protection and management issue, Conflicting interests represented at BoD (Board of Directors) level. If you are interested in setting up a joint venture in China, Hawksford can help. Joint Venture(JV), which can be established in a variety of ways. Readers should take note that the Government of Canada does not guarantee the accuracy of any of the information contained in this report. Though there is no minimum registered capital required, the proportion of the investment contributed by the foreign investors shall generally not be less than 25% of the registered capital of the company. The China Securities Regulatory Commission (CSRC) over the weekend gave formal authorisation for foreign players to apply for a 51% ownership in a Chinese fund management firm, according to guidelines (in Chinese) released by the regulator. Before moving forward, it is important to determine if the foreign company is qualified to create a JV under China’s Negative List. Where the financial and procedures of a joint venture are inconsistent with the provisions of the Tax Law, the tax liability shall be determined according to the provisions of the Tax Law. Once the above documents are ready and accepted by the AIC, the Municipal Commission of Commerce (MOC) will issue a formal approval letter in favor of the Joint Venture incorporation assigning the entity an enterprise code. 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