Having chosen one of the various investment vehicles, foreign investors can begin the set-up process. Depending on the kind of investment involved, the application, approval and registration procedures for the set-up can vary significantly, as well as the timeframe. While the set-up of a representative office is relatively easy, the complex procedure for establishing a commercial WFOE generally requires several months for completion. During the set-up process for any foreign business entity in China, different authorities will be involved at different stages of the approval procedure. These include the Stage Administration of Industry and Commerce (SAIC), Mofcom, the state and local tax bureaux, and customs authorities.
Depending on the particular industry, the total investment value and location of the project, the set-up process will involve central-, provincial-, or local-level authorities.
Basically, there are two official approvals the foreign investor has to take care of – project approval and establishment approval. The procedures apply to initial approval both for Sino-foreign JVs and WFOEs. However, depending on the nature of the project and the total investment involved, project approval – which is granted by the Nation Development and Reform Commission (NDRC) and its local braches – is often not needed.
Generally speaking, foreign-invested projects with a total investment of more than US$30m need approval from the NDRC; the Commission’s provincial braches issue approval papers for projects worth less than US$30m. in the case of large-scale projects-defined as those with total investment of at least US$500m for encouraged/permitted industries and US$100m for restricted industries-the State Council’s approval is also required. The final approval authority comes from Mofcom, which is the government department charged with ensuring that foreign investment is in line with state policy.
In practice, approval authority is often delegated to Mofcom’s subordinate local bureaux of foreign trade and economic co-operation (Boftecs). In order to promote regional economic growth, Boftecs tend to be more flexible in the approval process than Mofcom itself. As a national commission, Mofcom has to consider an FIE’s impact on China’s broader national economic plans; a Boftec tends to be concerned only with the impact it might have within its local community.
The basic documents required to set up an FIE include a feasibility study report, a joint venture contract ( if not a WFOE) and articles of association. The approval procedure normally takes up to three months for an EJV, six weeks for a CJV and at least one month for a WFOE. The time needed to set up an FIE is not fixed and is subject to a number of variables, such as the time required to complete all the requisite government consultations, approval by local or national Chinese government authorities and business registration. The whole procedure may last from one go five months, or sometimes even longer if central authorities are involved.
Once establishment approval has been granted and the approval certificate has been issued, the FIE must register with SAIC and its local counterparts within one month. Upon completion of registration, the business license will be issued. This license represents the legal establishment of the foreign entity. There may be additional tasks to be carried out before starting business activities, such as opening a bank account and registering with the tax authorities and the State Administration of Foreign Exchange.
In certain industries, apart from the project and establishment approvals, FIEs or representative offices additionally need approval from specific supervisory authorities. For example, the China Banking Regulatory Commission oversees the activities of foreign banking enterprises and financial institutions.