LEGAL ISSUES ON DOING BUSINESS IN CHINA

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LEGAL ISSUES ON DOING BUSINESS IN CHINA

• Henry Zhuang
• Henry Zhuang Partners
• 14 January 2008

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Forms of Foreign Direct Investments

• Foreign Investment Enterprises (FIE)
• ? Wholly Foreign Owned Enterprise (WOFE)
• ? Sino-Foreign Equity Joint Venture Enterprise
  (EJV)
• ? Sino-Foreign Cooperative Joint Venture
  Enterprise (CJV)
• Other Forms
• ? Stock Company with Foreign Investment (Listed
  or Unlisted)
• ? Foreign Invested Holding Company
• ? Joint Exploitation
• ? Building, Operation and Transfer (BOT)
• ? Investment in Particular Industries
• ? Foreign Company Branch and Representative
  Office

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Guidance Catalogue of Foreign Investment
Industries

• ? Scope of Business
• ? Guidance Catalogue of Foreign Investment
  Industries
• ? encouraged
• ? permitted
• ? restricted and
• ? prohibited.
• ? Catalogue of Priority Industries for Foreign
  Investment in the Central-Western Region
• ? Special Restrictions

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Wholly Owned Foreign Enterprise (WOFE) ?
Legal Entity ? Non Legal Entity

• Main Differences between EJV and CJV
• ? Legal Person Status
• ? Mode of Investment
• ? Profit Distribution
• ? Recovery of Investment

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Stock Company with Foreign Investment (Listed or
Unlisted)

• ? Registered capital at least RMB30 million
• ? Percentage of foreign shares
• ? Conversion from FIE into stock company
• ? Initial public offer

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Foreign Invested Holding Company

• WOFE or EJV
• Related Legal Requirements

• Exploitation of Petroleum and Mineral Resources

• Inland Petroleum
• Offshore Petroleum
• Other Mineral Resources

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Building, Operation and Transfer (BOT)

• Competitive bidding
• BOT contract
• Project company

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Investment in Particular Industries

• Bank
• Insurance Company
• Joint Venture Securities Company
• Joint Venture Institute
• Joint Venture Hospital
• Others

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Total Investment and Registered Capital

• WOFE, EJV CJV
• Total Investment Registered Capital
• US3 million gt70
• gtUS3 million and US10 million gt50
  (Minimum US2.1 million)
• gtUS10 million and US30 million gt40
  (Minimum US5 million)
• gtUS30 million gt1/3 (Minimum US12
  million)
• Special Requirements
• ? Property Development Company
• ? Stock Company with Foreign Investment
• ? Foreign Invested Holding Company

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Capital Contribution

• Form of Capital Contribution
• In Cash (at least 30)
• In Kind, Industrial Property Rights, Land Use
  Rights, etc.
• (Exclusive of service, credit, name of an
  individual, goodwill, franchise right, assets
  created as security)
• Valuation and Capital Verification Report
• Time Limit

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Borrowing Gap Difference between Total
Investment and Registered Capital

• Limited Liability
• Share Transfer

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Control over a FIE

• Highest Authority Shareholders Meeting or Board
  of Directors
• Quorum of Board Meeting
• Veto Power of Minority Shareholder
• Legal Representative
• Official Stamp

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Establishment

• Company Name Reservation
• Preparation of related documents
• Application to the approval authority for
  approval
• Registration with the company registration
  authority
• Other related registrations

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Acquisition

• Share acquisition Asset acquisition
• Percentage of foreign shares
• Valuation by a valuer qualified in China
• Legal requirements on payment of consideration
• Special regulations on acquisition of state-owned
  shares
• Approval by examination and approval authority
• Anti-trust review
• Acquisition of shares in a listed company by
  foreign strategic investor

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Taxation - Enterprise Income Tax

• Tax Rate
• Preferential Treatment
• agriculture, forestry, animal husbandry and
  fisheries
• infrastructure projects
• environmental protection projects, energy saving
  or water saving projects
• transfer of technology
• small-scale and low profit enterprise
• high and new technology enterprise
• venture capital enterprise
• regional preferential treatment
• transition of existing preferential tax treatments

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Taxation Import Duty Exemption available for
FIE

• Conditions
• Encouraged industries listed in Guidance
  Catalogue of Foreign Investment Industries
• Priority industries listed in Catalogue of
  Priority Industries for Foreign Investment in the
  Central-Western Region
• Import of self-used equipment by a FIE within its
  total investment
• Exceptions
• FIEs foreign shares 25 ------ List of
  Commodities not Exempted from Import Duty for
  Foreign-invested Projects
• FIEs foreign shares lt25 ------ List of
  Commodities not Exempted from Import Duty for
  Domestic-invested Projects

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Dispute Solution

• Litigation and arbitration
• Arbitration committees in China
• Enforcement of foreign judgment
• Enforcement of foreign arbitral award

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Thanks for your attention.

• Contact Us Henry Zhuang
• Henry Zhuang Partners
• 2006, Hua Xia Bank Tower
• 256 Pudong Nan Road
• Pudong, Shanghai 200120
• The People's Republic of China
• Tel [phone]
• Did (86-21) 5115 0908
• Fax [phone]
• E-mail info_at_hzlawyers.com
• Website www.hzlawyers.com