12 Oct 2016
Business Scope of Foreign-invested Commercial Enterprises
According to the Measures for the Administration of Foreign Investment in Commercial Sector, foreign investors may establish distribution companies in the form of wholly foreign-owned operation, Chinese-foreign equity joint venture or Chinese-foreign co-operative joint venture, to engage in wholesaling, commission agents’ services, retailing and franchising operations across the country.
Business activities that are open to foreign-invested commercial enterprises
- Retailing commodities;
- Importing commodities for own sale;
- Sourcing domestic products for export;
- Other related businesses.
- Wholesaling commodities;
- Commission agents’ services (except auctions);
- Importing and exporting of commodities;
- Other related businesses.
- Franchising: Authorising third parties to open franchise shops
Foreign-invested commercial enterprises may engage in one or more of the business activities listed above.
According to the Measures for the Administration of Foreign Investment in Commercial Sector, in addition to commodity retailing, foreign-invested retailing enterprises may also import commodities for own sale and source domestic products for export; and foreign-invested wholesaling enterprises may also engage in commodity import-export. In other words, foreign-invested wholesaling or retailing enterprises may engage in the distribution of imported commodities (except items that are subject to state control).
Requirements for Foreign-invested Commercial Enterprises
- According to laws and regulatory documents such as the Company Law (effective on 1 March 2014) passed for amendment at the 6th Meeting of the 12th NPC Standing Committee on 28 December 2013, the Circular of the State Council on the Plan for Reforming the Registered Capital Registration System (Guo Fa No.7 ), and the Circular of the Ministry of Commerce on Improving the Administration of Foreign Investment Approval (Shang Zi Han No.314 ), restrictions on the minimum registered capital of companies have been lifted, except where there are other provisions governing the minimum registered capital of specific industries stipulated in laws, administrative rules and State Council decisions.
- The operation period of foreign-invested commercial enterprises should generally not exceed 30 years, or 40 years for those in the central and western regions.
Approval and Examination Procedures for Establishment of Foreign-invested Commercial Enterprises and Their Shop
Step 1: Application for Establishment
An investor interested in establishing a foreign-invested commercial enterprise or a foreign-invested commercial enterprise interested in setting up shop should submit the required application documents to the provincial commerce department at the place where the foreign-invested commercial enterprise is registered.
The commerce department at the place of registration is responsible for examining and approving FIEs not involving a shop; for those involving a shop, the case should be referred to the provincial commerce department.
The provincial commerce department should, as from the day the documents are received, authorise the commerce department at the place where the shop is located to carry out commercial outlet examination and approval, and to grant approval for FIE establishment and issue the Approval Certificate for Foreign-invested Commercial Enterprises after the examination and approval procedure.
Provided that all the conditions are met and that the scope of business does not involve TV, telephone, mail-order, internet, vending machines, books, newspapers, periodicals, refined oil products, pharmaceuticals or automobiles, applications from foreign-invested retailing enterprises for setting up shop in areas within the provincial jurisdiction of the place where they are located may be examined and approved by the respective provincial commerce department. The applications would then be reported to the Ministry of Commerce for the record.
- The business area of any single shop should not exceed 5,000 square metres and the number of shops not exceeding three, while similar shops set up by the foreign investor through its foreign-invested commercial enterprise across China should not total more than 30;
- The business area of any single shop should not exceed 3,000 square metres and the number of shops not exceeding five, while similar shops set up by the foreign investor through its foreign-invested commercial enterprise across China should not total more than 50.
- For single shops, the business area should not exceed 300 square metres.
Step 3: Application for Registration
The investor should produce the Approval Certificate for Foreign-invested Commercial Enterprises and apply to the industry and commerce administration department for registration within one month upon receipt of the approval certificate.
Documents Required for Applying for Foreign-invested Commercial Enterprise Establishment:
Application letter; feasibility study report jointly signed by all the investors; contract and articles of association (contract only for foreign-invested commercial enterprises) complete with appendices; bank credit reports, registration certificate (photocopy), proofs of statutory representatives (photocopy), and identification papers (for individual foreign investors only) for each of the investors; audit reports by accounting firms for the latest year on each of the investors; assessment reports on state assets for Chinese investors intending to enter into a Sino-foreign equity or contractual JV commercial enterprise; catalogue of import and export commodities of the proposed foreign-invested commercial enterprise; list of directors of the proposed foreign-invested commercial enterprise and appointment letters for directors from each of the investors; notification of pre-approval of enterprise name from the industry and commerce administration department; proofs of right to use the land on which the proposed shops are to be set up (photocopy) and/or tenancy agreement (photocopy) except for shops with a business area of less than 3,000 square metres; documents indicating compliance with urban development and urban commercial development requirements issued by the commerce department of the place where the shops are to be set up.
Documents Required for Setting up Shops by Foreign-invested Commercial Enterprises:
Application letter; new contract and articles of association, if revised; feasibility study report on setting up shops; resolution of the board of directors on setting up shops; audit report for the latest year by an accounting firm; credit report on the enterprise (photocopy); proofs of registration (photocopy) and proofs of statutory representatives (photocopy) from each of the investors; proofs of right to use the land on which the proposed shops are to be set up (photocopy) and/or tenancy agreement (photocopy) except for shops with a business area of less than 3,000 square metres; documents indicating compliance with urban development and urban commercial development requirements issued by the local government at the places where the shops are to be set up.
Liberalisation Measures under CEPA
Since 1 June 2016, with the exception of reserved restrictive measures, distribution companies established by Hong Kong service suppliers on the mainland are eligible for national treatment when they engage in commission agents’ services, wholesale trade services, retailing services (except wholesaling and retailing services of books, newspapers, magazines, cultural relics), and franchising and other distribution services (except the auction of cultural relics). Contractual service providers employed by Hong Kong service suppliers may also, in the mode of movement of natural persons, provide wholesaling and retailing services on the mainland.
For details of CEPA provisions on distribution services, please visit the website of Hong Kong Trade and Industry Department.