Reporting Procedures for Foreign Investments

CBL’s Introduction

Foreign investments into China must comply with information reporting requirements intended to allow regulatory agencies to screen for national security concerns. All of these reports can be submitted through the specified online portal. Annual reporting thereafter is required, but the process is streamlined with other business reporting requirements to reduce burdens on filers.

The three separately issued regulations governing this one topic are consolidated below, comprising one set of administrative procedures describing the rules for the filing, along with two supplemental circulars that specify additional requirements for filing a report in compliance with China’s national security law.

Contents

Information Reporting Procedures

• Reporting Party, Content, and Submission Methods
• Information Reporting, Disclosure, and Correction
• Liability

Foreign Investment Information Report Circular

Consolidated Annual Reports Circular

Foreign Investment Information Reporting Procedures

Chapter 1 General

Section 1 These procedures have been issued to further develop China’s internationalization, improve foreign investment attraction, protection, and administration, optimize foreign investment policies and procedures, and improve the overall business environment under the Foreign Investment Act of the People’s Republic of China and the Foreign Investment Act Administrative Regulations of the People’s Republic of China.

Section 2 All foreign investors or foreign owned entities must report their investment to the jurisdictional commerce agency if foreign investors directly or indirectly invest in China.

Section 3 The Ministry of Commerce is responsible for administrating and directing all foreign investment information reporting in China.

Commerce agencies at or above the county level, as well as those having jurisdiction over pilot free trade zones and national economic and technological development zones are responsible for all foreign investment information reporting in their respective jurisdictions.

Section 4 Foreign investors or their entities must report their investment information to their jurisdictional commerce agency via the business entity filing system and the National Business Credit Lookup System.

Market regulatory agencies will then promptly forward information reports submitted by foreign investors and foreign owned entities to the Ministry of Commerce.

The Ministry of Commerce has set up a Foreign Investment Information Reporting System in order to receive and process investment information forwarded by jurisdictional market regulatory agencies, and share information with other agencies.

Section 5 The National Administration of Market Regulation (the National Administration) is responsible for planning and guiding the implementation of the business entity filing system and National Business Credit Lookup System to ensure that foreign investment information reporting is accomplished.

Section 6 Jurisdictional commerce and market regulatory agencies at all levels should set up interagency cooperation. The jurisdictional commerce agency is responsible for providing guidance to foreign investors and entities reporting their investments.

Section 7 Foreign investors and foreign owned entities are required to report up-to-date, true, accurate, and complete investment information free of any false information or material omissions or misstatements.

Chapter 2 Reporting Party, Content, and Submission Methods

Section 8 Foreign investors or foreign owned entities are required to submit their primary, change, termination, and annual reports pursuant to these Procedures.

Section 9 Foreign investors forming entities in mainland China shall submit their primary reports via the business entity filing system during entity formation and registration.

Primary reports must also be submitted via the business entity filing system when registering changes in entities acquired by foreign investors.

Section 10 Primary reports filed by foreign investors should include a basic description of the business, investor and ultimate controller details, and investment transaction details.

Section 11 Foreign owned entities must submit change reports via the business entity filing system when registering (filing) any changes to the information included in their primary report.

Any entity changes not requiring filing may be included in a change report submitted via the business entity filing system within 20  business days of the change taking place.   Unless otherwise required by laws governing the effectiveness of such changes, any changes to matters included in an entity’s articles of incorporation shall be deemed as having taken place on the date the resolution was passed.

Any changes to investor and shareholding information for foreign owned companies listed on the National Equities Exchanges and Quotations system only need to be reported when changes are made to the company’s shareholding structure, foreign investors hold over 5% equity, or changes are made to foreign investment shareholding ratios or control.

Section 12 Change reports filed by foreign investors should include any changes to the basic description of the business, investor and ultimate controller details, and investment transaction details.

Section 13 The termination of a foreign owned entity or its conversion to a domestic entity shall only be deemed effective after the foreign investor files their termination or change report. The market regulatory agency will then forward such reports to the jurisdictional commerce agency, and foreign owned entities are not required to submit multiple reports to multiple agencies.

Section 14 Business entities that have foreign investors must submit their annual reports via the National Business Credit Lookup System between January 1 and June 30 of the following year.

Any foreign owned entities formed during the current reporting period shall submit their annual reports in the following year.

Section 15 In addition to the basic description of the business, investor and ultimate controller details, and investment transaction details, entities in industries limited by the exceptions list in the Special Administrative Procedures for Admission of Foreign Investment are also required to submit any industry approvals obtained together with their annual reports.

Section 16 The Ministry of Commerce may adjust the matters required to be reported in primary, change, and annual reports as necessary based on actual foreign investment conditions and laws governing entity registration and information disclosure, and any such changes will be publicly announced.

Chapter 3 Information Reporting, Disclosure, and Correction

Section 17 The jurisdictional commerce agency and other appropriate agencies will create and implement a foreign investment information reporting process based on information reporting requirements.

Unless otherwise provided by law or central government regulations, the above agencies must promptly report all foreign investment information obtained during the course of their work to the jurisdictional commerce agency.

Section 18 Any foreign owned entity investment information required to be publicly disclosed under the Temporary Regulations on Entity Information Reporting or that the entities agree to disclose will be disclosed to the public via the National Business Credit Lookup System and the Foreign Investment Information Reporting System.

Section 19 Foreign investors and foreign owned business entities must promptly submit additional information or make the necessary corrections if they fail to report the necessary investment information or any misstatements or omissions of reported investment information are discovered. Supplemental information or corrections to annual reports filed by foreign-invested entities must comply with Section 9 of the Provisional Regulations on Entity Information Reporting.

The jurisdictional commerce agency will notify foreign owned entities to file the necessary supplemental information or corrections within 20 business days of the discovery of any overdue reports or misstatements or omissions in reported investment information.

Where information is required to be disclosed publicly, both the initially reported information and any subsequent corrections made will be disclosed.

Chapter 4 Oversight and Administration

Section 20 The jurisdictional commerce agency is responsible for foreign owned entity oversight and inspection to ensure compliance with these Procedures.

The jurisdictional commerce agency and other appropriate agencies may achieve oversight through randomized inspections, based on either reports received or referrals and reports from other appropriate agencies or justice agencies, or may take appropriate action at their own initiative.

Section 21 The jurisdictional commerce agency shall oversee foreign owned entities’ compliance with their reporting obligations through randomized audits, where both the entity and auditor selection shall be randomized. The audit and their results will then be disclosed via the foreign investment information reporting system’s public portal.

Citizens, legal entities, or other organizations may report any violations of these Procedures to the jurisdictional commerce agency.     The jurisdictional commerce agency will then promptly resolve any written reports that clearly includes the names of the violators, facts, and evidence pursuant to law.

Other appropriate agencies and justice agencies shall report any violations of these Procedures by foreign owned entities discovered during the course of their work to the jurisdictional commerce agency, who will then promptly resolve such violations pursuant to law.

The jurisdictional commerce agency shall also be entitled to audit foreign investors and foreign owned business entities who fail to fulfill their reporting obligations under these Procedures, report false or misleading information, refuse to cooperate with general oversight and inspections, or refuse to comply with any administrative penalties imposed.

Section 22 The jurisdictional commerce agency may achieve oversight and inspection either through on-site inspections or through written interrogatories, and is entitled to obtain any information necessary to verify the authenticity, accuracy, and integrity of investment information reported by foreign investors to other agencies. The jurisdictional commerce agency is also entitled to require entities being inspected to provide additional information pursuant to law, and such entities shall cooperate with such requirements and provide truthful information.

Section 23 Oversight and inspection by the jurisdictional commerce agency may not interfere with an entity’s routine business operations, and the commerce agency shall not accept any money or services offered by such entities or solicit any other improper benefits.

Section 24 The jurisdictional commerce and market regulatory agency shall maintain the confidentiality of any foreign owned entity trade secrets obtained during the course of their work pursuant to law.

Chapter 5 Liability

Section 25 The jurisdictional commerce agency will notify foreign investors and foreign owned entities who fail to report investment information under these Procedures or fail to provide corrections or supplemental information pursuant to Section 19 of these Procedures to provide such within 20 business days or face a penalty of 100,000 to 300,000 Yuan. Those who do not make the necessary corrections or provide the additional information required within the time limit and fall under any of the following circumstances are subject to a penalty of 300,000 to 500,000 Yuan:

(a) Foreign investors or business entities that have foreign investors intentionally violate their reporting obligations, conceal the truth, or provide false or misleading information when reporting information;

(b) Foreign investors or their entities intentionally submit incorrect industry information, regardless of whether the industry in question is governed by the Special Administrative Regulations for Admission of Foreign Investments, or submit incorrect investor or ultimate controller information;

(c) Foreign investors or their entities violate the requirements of these Procedures within 2 years of receiving administrative penalties for failing to report investment information pursuant to the same requirements;

(d) Other major circumstances specified by the jurisdictional commerce agency.

Section 26 Any failures by foreign investors or foreign owned entities to fulfill legally required reporting obligations will also be recorded in the foreign investment information reporting system to improve credit oversight pursuant to law.

The jurisdictional commerce agency may also publish instances of foreign investors or foreign owned entities receiving administrative penalties for failing to fulfill reporting obligations on the foreign investment information reporting system and add it to the entity’s record in the National Business Entity Credit Lookup System pursuant to law.

Data on foreign investors or foreign owned entities’ fulfillment of information reporting obligations and any administrative penalties imposed, may be shared from jurisdictional commerce agency, to other interested agencies, including those for market oversight, foreign exchange, customs, and tax.

Section 27 Foreign investors and foreign owned entities who discover incorrect or incomplete investment information submitted to the foreign investment information reporting system may report any corrections or provide additional information to the jurisdictional commerce agency. Any such corrections or additional information will then be verified and added.

Foreign investors and foreign owned business entities may request the jurisdictional commerce agency remove any records of violations from the foreign investment information reporting system’s public portal when such violations have been cured and all reporting obligations are fulfilled in the year following the violation. Any such violations will be removed following verification.

Chapter VI  Miscellaneous

Section 28 Entities that have foreign investors or those investing in Chinese companies (including investments made through intermediaries) are not required to submit separate annual reports following formation and registration with the market regulatory agency, and the market regulatory agency will share all necessary information directly with the jurisdictional commerce agency.

Section 29 Investment information must be disclosed pursuant to Chapter 2 of these Procedures for any foreign investment held by an investment company or partnership, or where a partnership is formed in Mainland China primarily for investment purposes.

Section 30 Unless their information is obtainable through interagency sharing, foreign investment made without an entity must disclose investment information pursuant to Chapter 2 of these Procedures.

Section 31 Foreign investors and foreign owned entities forming entities whose registration, modification, or termination is governed by law or central government regulations must submit the appropriate approval documents to the market regulatory agency when applying for registration.

Section 32 These Procedures shall also govern any foreign investment in banking, securities, insurance, and other financial industries in China.

Section 33 Investments by investors from Hong Kong Special Administrative Region, Macao Special Administrative Region, and Taiwan, and Chinese citizens resident overseas shall also be reported pursuant to these Procedures.

Section 34 These Procedures shall be subject to the interpretation of the Ministry of Commerce and the National Administration for Market Regulation.

Section 35 The Procedures shall take effect on January 1, 2020.   The Temporary Procedures for Filing for the Formation and Changes of Foreign Invested Entities will be repealed as of the date these Procedures take effect.

Foreign Investment Information Report Circular

The purpose of this Circular is to implement the following CPC Central Committee and the State Council directive and plans: to promote foreign investment, establish an open economic system, modernize the foreign investment administrative process & its capability, establish the foreign investment information reporting process and the Foreign Investment Information Reporting Procedures, and provide guidelines to facilitate report investment information for foreign investment.

1. In accordance with the Foreign Investment Information Reporting Procedures, primary and change Reports must be submitted online via the entity registration system and annual reports must be submitted via the National Business Credit Statistics System for the following: foreign investors that structure direct investment in China as a business entity or partnership; a foreign company directly operating in China; or a foreign company that establishes a permanent representative office. Foreign investors and foreign owned entities are not required to file the cancellation report separately, because the National Administration for Market Regulation shares such information related to the with the Ministry of Commerce. Investment information must be disclosed pursuant to the preceding paragraph for any foreign investment held by an investment company or partnership, or where a partnership is formed in Mainland China primarily for investment purposes.
2. Domestic entities not designated as a foreign owned entity must submit a primary report online to reclassify as a foreign owned entity.
3. The following registration changes no longer require submission to the jurisdictional market regulation agency: change of entity’s beneficial owner, equipment tax exemption information, SEZ change without domicile change, and changes to an entity’s shareholders basic information. A change report must be submitted through the Business Filing System within twenty business days of such changes taking effect. Foreign investors or entities change report need only include change information; do not resubmit unchanged information.
4. Foreign owned entities with domestic investments (including through intermediaries) do not need to send separate reports, because the National Administration of Market Regulation sends copies to the Ministry of Commerce for the primary report, change report, cancellation report, and annual report.
5. Foreign investors and entities must report or correct any unreported matters, errors, or omissions in the primary and amended reports through the Entity Registration System. Foreign investors and entities must report or correct annual reports with mistakes or inaccuracies through the National Business Credit Lookup System  before June 30. Beginning on July 1, foreign investors or entities that discover errors or omissions in the annual reports must submit additions or corrections to jurisdictional commerce agency on the foreign investment information reporting system (online). After July 1, regulations of the jurisdictional agencies for commerce and market regulation will specify action required of a foreign investor or entity that fails to submit annual reports on time.
6. An option will be made available on the Foreign Investment Administration System for foreign owned entities formed and registered with the jurisdictional market regulation agency prior to December 31, 2019. (online) This option will also be available to entities that or registered for changes under Articles 6 and 7 of the Temporary Procedures for Filing for the Formation and Changes of Foreign Owned Entities, unless said entities are subject to the Special Administrative Procedures for Admission of Foreign Investments. Filings about formation or changes are waived for foreign owned entities formed or filed after January 1, 2020, instead they must only follow the Foreign Investment Information Reporting Procedures and this Circular. Regional commerce agencies will facilitate for foreign investors and entities reporting work by listing a contact person’s information on the entity registration system and the National Business Credit Lookup System.

 

Consolidated Annual Reports Circular

The Administration, Ministry of Commerce and State Administration of Foreign Exchange passed the Consolidated Annual Report reform in 2019 to facilitate the Central Party Committee’s and State Council’s red tape reduction reform, implement the Foreign Investment Information Reporting System under the Foreign Investment Act, and continue reducing the burden on companies, lower institutional transaction costs, improve credit regulation, and optimize the business environment.     This circular covers the following:

1. Specific Reporting Requirements.

From 2019, foreign owned entities (or organizations) will be required to submit a Consolidated Annual Report via the National Business Credit Lookup System (www.gsxt.gov.cn, hereinafter the “Lookup System”) in accordance with the Foreign Investment Act.    In addition to the current report submitted to the Administration, additional information required by the jurisdictional commerce agency and State Administration of Foreign Exchange (please refer to the annual report in Exhibit 1) will be added to the report, and the new Consolidated Annual Report will no longer be made available to the public.

“Foreign owned entities (or organizations)” in this Notice refers to any companies or partnerships directly invested in and formed by foreign investors in China, foreign (regional) companies producing and operating in China, foreign (or regional) company offices in China, foreign owned businesses, venture capital companies, and foreign investment partnership entities formed in China to invest in mainland Chinese entities.

The Administration will share the annual report information submitted by foreign owned entities with the Ministry of Commerce.    Entities are required to submit their 2019 Consolidated Annual Reports between January 1 and June 30, 2020.     The jurisdictional regulatory agency will add any companies who fail to submit their annual reports by June 30 as to their List of Untrustworthy Entities.

1. Ensuring a Smooth Transition

2020 is the first year foreign owned entities (or organizations) would be required to submit Consolidated Annual Reports via the Lookup System, so cooperation is needed to ensure a smooth transition and a successful reform.

(1) Lookup System Upgrade: Market regulatory agencies in all provinces (including autonomous regions and municipalities) will upgrade the Lookup System according to the requirements provided in the Notice, so that entities (organizations) would be able to submit their consolidated annual reports under the new requirements as of January 1, 2020.    Technical plans (Attachment 2), data specifications (Attachment 3), website demos (Attachment 4), and aggregated data structures (Attachment 5) can be downloaded via the Administration business portal (172.16.1.48/saicport).   Entities (or organizations) submitting additional information for annual reports dated 2018 or earlier can submit such in compliance with the original rules and via the original channels.

(2) Improving Publications and Training: Local market regulatory, commerce, and foreign exchange agencies should improve publications and training for the new foreign owned entity Consolidated Annual Report, particularly for reporting channels, new information requirements, and submission times for the 2019 annual reports, to better assist entities complete and submit their annual reports according to the new requirements. Training for employees responsible for submitting annual reports should be improved to ensure they understand the new policies for consolidated annual reports, know how to correctly prepare annual reports, and know how to properly answer questions to streamline the implementation of the new report process.

III. Creation of New Systems

(1) List Management System: Market regulatory agencies shall group foreign owned entities based on the established rules and focus on upgrading annual report submission functionality in the Lookup System. Commerce agencies and market regulators should coordinate to quickly resolve any cases where foreign owned entities cannot be grouped to ensure they can submit their annual reports without issue.

(2) Information Sharing Process: Provincial market regulatory agencies (including autonomous regions and municipalities) will share consolidated annual reports submitted by foreign owned entities (institutions) with the Administration via the centralized Publicity System portal, and the Administration will share the same with the Ministry of Commerce within 48 hours of their submission. The Administration will then share annual reports submitted by Chinese businesses invested in by foreign investors (including pass-through entities) with the Ministry of Commerce within one month of the completion of all annual report work. The Administration will share any additional report information submitted by foreign-invested entities with the Ministry of Commerce within 48 hours of its submission.

(3) Emergency Response Process: Foreign owned entities unable to submit consolidated annual reports via the Lookup System and whose annual reports do not contain any new matters required to be reported shall submit their reports to their jurisdictional commerce agency, who will then verify details such as the entity’s unified social credit code, commercial enterprise type, and registration time before escalating the matter to the Ministry of Commerce before 12:00 every Monday. The Ministry of Commerce and the Administration will resolve any such issues based on their individual responsibilities.

(4) Inquiry Response Process: The Administration, Ministry of Commerce and the State Administration of Foreign Exchange should focus on consolidated annual report policy guidance and advice to resolve any matters that may arise, improve coordination, and divide work appropriately to ensure the success of the consolidated annual report reform.    Jurisdictional market regulatory agencies will be responsible for providing guidance on matters related to annual reports and Lookup System technical issues, while jurisdictional commerce agencies will be responsible for providing guidance to foreign owned entities (organizations) submitting their consolidated annual reports, as well as assisting any entities unable to submit their reports. Inquiry phone numbers for all provincial (including autonomous regions and municipalities) commerce agencies will be published via the Lookup System.

(5) Internal Review Process: National market regulatory, commerce, and foreign exchange agencies may conduct internal reviews of the information submitted to jurisdictional market regulatory, commerce, and foreign exchange agencies in compliance with regulatory requirements and to ensure all work is being performed as it should. New information reported by foreign owned businesses will not be included in the internal reviews conducted by regulatory agencies. The Administration, Ministry of Commerce, and the State Administration of Foreign Exchange will actively share the results of any internal reviews conducted, and jurisdictional regulatory, commerce, and foreign exchange agencies may then conduct additional inter-agency reviews to lower the burden on entities and improve review efficiency.

1. Improving Interagency Cooperation

With 2020 being the first year for both the new Foreign Investment Act and consolidated annual reports system for foreign owned entities, regulatory, commerce, and foreign exchange agencies across the country need to focus on improving organizational management and implementing the consolidated annual report reform in line with the requirements to ensure its success.    Further coordination and collaboration between market regulators, commerce, and foreign exchange agencies across the country is necessary to develop a sound administrative process, divide responsibilities, and promptly resolve any issues encountered during the consolidated annual report reform, while also assisting foreign owned businesses.

Those agencies must also submit contact details for those responsible for the new consolidated annual report system to the credit regulatory agency under the Administration, the foreign investment agency under the Ministry of Commerce, and the capital management agency under the State Administration of Foreign Exchange before December 20, 2019 to create a smooth communication process. Please contact the above agencies should you encounter any issues.

National Administration for Market Regulation, Ministry of Commerce, and National Administration of Foreign Exchange