(Approved by the State Council on October 28, 1990; promulgated by the Ministry of Foreign Trade and Economy Cooperation on December 12, 1990; and amended pursuant to the State Council's Decision concerning the amendment to Detailed Implementing Rules for the Law of the People's Republic of China on Wholly Foreign-Owned Enterprises on April 12, 2001)
CHAPTER 1 GENERAL PROVISIONS
Article 1
These Detailed Implementing Rules are formulated pursuant to Article 23 of the Law of the People's Republic of China on Wholly Foreign-Owned Enterprises.
Article 2
Wholly foreign-owned enterprises shall be governed and protected by the laws of China.
In their business activities in the People's Republic of China, wholly foreign-owned enterprises must abide by the laws and regulations of China and may not harm China's public interest.
Article 3
The establishment of wholly foreign-owned enterprises must be beneficial to the development of China's national economy and yield notable economic benefits. The state encourages to foreign-owned enterprises to adopt advance technologies and equipment, develop new products, save energy and raw materials, upgrade and replace existing products; and encourages to establish such foreign-owned enterprises as shall export all or most of their products.
Article 4
The establishment of wholly foreign-owned enterprises in prohibited or restrained industries shall be subject to the regulations for guiding the direction of foreign investment and the catalog for guiding foreign investment in industry of China.
Article 5
Applications for the establishment of wholly foreign-owned enterprises shall not be approved in any of the following circumstances:
1. China's sovereignty or public interest would be harmed;
2. China's state security would be jeopardized;
3. China's laws and regulations would be violated;
4. the requirements for the development of China's national economy would not be satisfied; or
5. environmental pollution might be caused.
Article 6
Wholly foreign-owned enterprises shall enjoy autonomy, and shall not be subject to interference, in their operation and management activities when operating within their approved scope of business.
CHAPTER 2 ESTABLISHMENT PROCEDURES
Article 7
The examination and approval of applications for the establishment of wholly foreign-owned enterprises shall be carried out by the Ministry of Foreign Economic Relations and Trade; upon examination and approval, an approval certificate shall be issued.
The State Council authorizes the People's Government of the provinces, autonomous regions, municipalities directly under the central government, municipalities with independent development plans and Special Economic Zones to examine and approve applications, and to issue approval certificates, for the establishment of wholly foreign-owned enterprises in the following situations:
1. the total amount of investment does not exceed the maximum amount which the State Council has authorized the People's Government in question to examine and approve; and
2. the state will not need to allocate raw materials, and the nationwide comprehensive balance of energy, communications, transportation, foreign trade export quotas, etc. will not be affected.
Within 15 days after the People's Government of a province, autonomous region, municipality directly under the central government, municipality with independent development plans or Special Economic Zone has approved the establishment of a wholly foreign-owned enterprise within its authority as delegated by the State Council, it shall report its approval to the Ministry of Foreign Economic Relations and Trade for the record (the Ministry of Foreign Economic Relations and Trade and the People's Governments of the provinces, autonomous regions, municipalities directly under the central government, municipalities with independent development plans and Special Economic Zones are hereinafter collectively referred to as "examination and approval authorities").
Article 8
For the approval of applications for the establishment of wholly foreign-owned enterprises whose products would involve export licenses, export quotas or import licenses or would be products the import of which is restricted by the state, prior consent shall be obtained from the department for foreign economic relations and trade in accordance with the limits of administration authority.
Article 9
Prior to applying for the establishment of a wholly foreign-owned enterprise, foreign investors shall submit a report covering the following matters to the local People's Government at or above county level of the place where they intend to establish the enterprise. The contents of such report shall include: the purpose of the wholly foreign-owned enterprise to be established; the scope and scale of business; the products to be produced; the technology and equipment to be used; the area of and requirements for the land to be used; the conditions for and quantities of the water, electricity, coal, coal gas or other energy sources required; requirements for public facilities; etc.
Local People's Governments at or above county level shall reply to the foreign investors in writing within 30 days after the date of receipt of their reports.
Article 10
A foreign investor which wishes to establish a wholly foreign-owned enterprise shall apply and submit the following documents to the examination and approval authorities through the local People's Government at or above county level of the place where it intends to establish the enterprise:
1. an application for the establishment of a wholly foreign-owned enterprise;
2. a feasibility study;
3. the articles of association of the wholly foreign-owned enterprise;
4. the name of the legal representative (or a list of the names of the members of the board of directors) of the wholly foreign-owned enterprise;
5. the legal certificates and a certificate of creditworthiness of the foreign investor;
6. the written reply from the local People's Government at or above county level of the intended place of establishment of the wholly foreign-owned enterprise;
7. a list of the supplies requiring to be imported; and
8. other documents to be submitted.
The documents mentioned under items (1) and (3) of the preceding paragraph must be written in Chinese. Those mentioned under items (2), (4) and (5) may be written in a foreign language, but, if written in a foreign language, shall be accompanied by Chinese translations.
Where two or more foreign investors jointly apply for the establishment of a wholly foreign-owned enterprise, a duplicate of the contract between them shall be submitted to the examination and approval authorities for the record.
Article 11
Examination and approval authorities shall decide whether to approve or to disapprove an application for the establishment of a wholly foreign-owned enterprise within 90 days from the date of receipt of all the documents pertaining to such application. If the examination and approval authorities find that not all of the aforementioned documents have been submitted or that they are not in order, it may demand that the missing document(s) be submitted or that the submitted documents be amended within a specified period of time.
Article 12
Upon approval by the examination and approval authorities of an application for the establishment of a wholly foreign-owned enterprise, the foreign investor shall, within 30 days from the date of receipt of the approval document, apply to the administration of industry and commerce authorities for registration and obtain a business license. The date of issuance of the business license of the wholly foreign-owned enterprise shall be the date of establishment of the enterprise.
The approval certificate for a wholly foreign-owned enterprise shall expire automatically if the foreign investor has failed to apply to the administration of industry and commerce authorities for registration within a full 30 days from the date of issuance of the approval certificate.
A wholly foreign-owned enterprise shall carry out tax registration with the tax authorities within 30 days after the date of its establishment.
Article 13
Foreign investors may entrust Chinese service organizations for foreign investment enterprises or other economic organizations with handling on their behalf the matters set forth in Article 9, the first paragraph of Article 10 and Article 11, provided that they enter into a contract of entrustment.
Article 14
Written applications for the establishment of a wholly foreign-owned enterprise shall include the following:
1. the name, address and place of registration of the foreign investor and the name, nationality and position of its legal representative;
2. the name and address of the wholly foreign-owned enterprise to be established;
3. the scope of business, types of product and scale of production;
4. the total amount of investment, registered capital and sources of funds of, and the method and time limit of contribution of capital to, the wholly foreign-owned enterprise to be established;
5. the form of organization, structure and legal representative of the wholly foreign-owned enterprise to be established;
6. the main equipment to be used and the age of such equipment; and the level and source of the production technology and production process to be used;
7. the targeted buyers and areas of sale of the products and the sales channels and methods;
8. the arrangements for the receipt and expenditure of foreign exchange;
9. the establishment and staffing of the relevant structure, and arrangements for the employment, training, wages, welfare benefits, insurance, labor protection, etc. of staff and workers;
10. the possible degree of environmental pollution and the measures to solve such problem;
11. the selection and area of the land to be used;
12. the funds, energy and raw materials for capital construction, production and operation, and the methods for obtaining the same;
13. the schedule of implementation of the project; and
14. the term of operation of the wholly foreign-owned enterprise to be established.
Article 15
The articles of association of a wholly foreign-owned enterprise shall cover the following matters:
1. the name and address;
2. the purpose and scope of business;
3. the total amount of investment, registered capital and time limit for contribution of capital;
4. the form of organization;
5. the internal organizations and their powers and rules of procedure; and the duties and limits of authority of such personnel as the legal representative, the general manager, the chief engineer and the chief accountant;
6. the principles and systems for financial affairs, accounting and auditing;
7. labor management;
8. the term of operation, termination and liquidation; and
9. the procedure for amendment of the articles of association.
Article 16
The articles of association of a wholly foreign-owned enterprise, and any amendments thereto, shall become effective upon approval by the examination and approval authorities.
Article 17
If a wholly foreign-owned enterprise is divided or merges or if a major change in its capital occurs due to any other reason, approval must be obtained from the examination and approval authorities, and a Chinese registered accountant shall be engaged to verify the event and to issue a capital verification certificate. Upon approval by the examination and approval authorities, the change shall be registered with the administration of industry and commerce authorities.
CHAPTER 3 FORM OF ORGANIZATION AND REGISTERED CAPITAL
Article 18
The form of organization of wholly foreign-owned enterprises shall be a limited liability company. Upon approval, they may also have other forms of liability.
In wholly foreign-owned enterprises that are limited liability companies, the liability of the foreign investors vis-¨¤-vis the enterprises shall be limited to the amounts of capital contributed by them.
In wholly foreign-owned enterprises with other forms of liability, the liability of the foreign investors in respect of the enterprises shall be as specified in the laws and regulations of China.
Article 19
The term "total amount of investment of a wholly foreign-owned enterprise" means the total amount of funds required to set up a wholly foreign-owned enterprise, i.e. the sum of the capital construction funds and the working capital required to be invested in order to realize its scale of production.
Article 20
The term "registered capital of a wholly foreign-owned enterprise" means the total amount of capital for the establishment of a wholly foreign-owned enterprise as registered with the administration of industry and commerce authorities, i.e. the total amount of capital subscribed by the foreign investor.
The amount of the registered capital of a wholly foreign-owned enterprise shall correspond to its scale of business. The ratio between the registered capital and the total amount of investment shall conform to the relevant regulations of China.
Article 21
Wholly foreign-owned enterprises may not reduce their registered capital during their term of operation. But if the registered capital must be reduced due to the change of total investment and business scale, approval in advance by the examing and approving authorities is required.
Article 22
The increase or assignment of the registered capital of a wholly foreign-owned enterprise must be approved by the examination and approval authorities. Upon approval, such change shall be registered with the administration of industry and commerce authorities.
Article 23
The mortgage or assignment by a wholly foreign-owned enterprise to a foreign party of its property or interest must be approved by the examination and approval authorities and reported to the administration of industry and commerce authorities for the record.
Article 24
The legal representative of a wholly foreign-owned enterprise shall be the responsible person who, pursuant to the enterprise's articles of association, has the power to represent the enterprise.
If the legal representative is unable to exercise his powers, he shall appoint an agent, in writing, to exercise his powers on his behalf.
CHAPTER 4 METHODS AND TIME LIMITS FOR CONTRIBUTION OF CAPITAL
Article 25
Foreign investors may make their capital contributions in freely convertible foreign currencies, and also by valuating and contributing machinery, equipment, industrial property, proprietary technology, etc.
Upon approval by the examination and approval authorities, foreign investors may also use as capital contribution Renminbi profits derived by them from other foreign investment enterprises established in the People's Republic of China.
Article 26
Machinery and equipment valuated and used as capital contribution by a foreign investor must be the equipment required indeed by the foreign-owned enterprise.
The amounts at which such machinery and equipment are valuated may not exceed the current normal prices on the international market for the same kind of machinery and equipment.
With respect to valuated machinery and equipment to be contributed, a detailed list of valuated contributions shall be made. Such list shall include the descriptions, types, quantities, valuation, etc. of the machinery and equipment. The list shall be annexed to, and submitted to the examination and approval authorities along with, the application for establishment of the wholly foreign-owned enterprise.
Article 27
The title of industrial property and proprietary technology valuated and used as capital contribution by a foreign investor must be owned by the foreign investor.
The valuation of such industrial property and proprietary technology shall be consistent with common international principles of valuation, and the amount at which they are valuated shall not exceed 20 percent of the registered capital of the wholly foreign-owned enterprise.
Detailed information shall be prepared with respect to the valuated industrial property and proprietary technology to be contributed. Such information shall include copies of certificates pertaining to ownership and details of their validity, information on the technical performance and practical value, the basis and standards of valuation, etc. The said information shall be annexed to, and submitted to the examination and approval authorities along with, the application for establishment of the wholly foreign-owned enterprise.
Article 28
When valuated machinery and equipment contributed as capital have arrived at the Chinese port, the wholly foreign-owned enterprise shall request a Chinese commodity inspection organization to inspect the same. Such commodity inspection organization shall issue an inspection report.
In the event of discrepancies between the kinds, quality and quantities of valuated and contributed machinery and equipment and the kinds, quality and quantities of the machinery and equipment specified on the list of valuated contributions submitted by the foreign investor to the examination and approval authorities, the examination and approval authorities shall have the power to demand the foreign investor to rectify such discrepancies within a specified period of time.
Article 29
The examination and approval authorities shall have the power to conduct an inspection after valuated industrial property and proprietary technology contributed as capital have been put in use. In the event of discrepancies between such industrial property and proprietary technology and the information originally supplied by the foreign investor, the examination and approval authorities shall have the power to demand the foreign investor to rectify such discrepancies within a specified period of time.
Article 30
The time limit within which foreign investors are to contribute their capital shall be stated in the applications for establishment of a wholly foreign-owned enterprise and the enterprise's articles of association. Foreign investors may contribute their capital in instalments, provided that the final instalment is contributed within three years from the date of issuance of the business license. The first of such instalments may not account for less than 15 percent of the amount of capital to be contributed by the foreign investor and shall be contributed in full within 90 days from the date of issuance of the business license of the wholly foreign-owned enterprise.
If a foreign investor fails to contribute the first instalment of its capital contribution within the time limit set forth in the preceding paragraph, its approval certificate shall automatically expire upon the expiry of such time limit. In such event, the wholly foreign-owned enterprise shall cancel its registration with, and turn over its business license for cancellation to, the administration of industry and commerce authorities. If the wholly foreign-owned enterprise fails to cancel its registration and to turn over its business license for cancellation, the administration of industry and commerce authorities shall revoke its business license and make a public announcement.
Article 31
Foreign investors shall contribute according to schedule all instalments following the first instalment of their capital contributions. If and when a capital contribution is 30 days overdue without legitimate reason, the matter shall be handled pursuant to the second paragraph of Article 31 hereof.
If a foreign investor requests an extension of the time limit for its capital contribution for legitimate reasons, such extension shall be agreed to by the examination and approval authorities and reported to the administration of industry and commerce authorities for the record.
Article 32
After a foreign investor has contributed all instalments of its capital contribution, the wholly foreign-owned enterprise shall engage a Chinese registered accountant to verify the contribution and to issue an investment verification report, which shall be submitted to the examination and approval authorities and the administration of industry and commerce authorities for the record.
CHAPTER 5 USE OF LAND AND FEES THEREFORE
Article 33
The land to be used by wholly foreign-owned enterprises shall be arranged for by the local People's Governments at or above county level of the locations of the enterprises upon examination in the light of local circumstances.
Article 34
Within 30 days from the date of issuance of their business licenses, wholly foreign-owned enterprises shall carry out land use procedures with and obtain a land certificate from the land administration department of the local People's Governments at or above county level of the places where they are located, on the strength of their approval certificates and business licenses.
Article 35
The land certificates shall be the legal certificates on the strength of which wholly foreign-owned enterprises may use land. Without approval, wholly foreign-owned enterprises may not assign their land use rights during their terms of operation.
Article 36
When collecting their land certificates, wholly foreign-owned enterprises shall pay land use fees to the land administration departments of the places where they are located.
Article 37
Wholly foreign-owned enterprises using developed land shall pay land development fees.
The land development fees mentioned in the preceding paragraph shall include the requisitioning, demolition, removal and resettlement expenses and the construction expenses incurred when linking the wholly foreign-owned enterprise to the existing infrastructure. Land developers may charge the land development fees as a lump sum or in annual instalments.
Article 38
Wholly foreign-owned enterprises using undeveloped land may develop the land themselves or entrust relevant Chinese units with such development. The construction of infrastructural facilities shall be centrally arranged by the local People's Governments at or above county level of the places where the wholly foreign-owned enterprises are located.
Article 39
The scales for the land use fees and land development fees charged to wholly foreign-owned enterprises shall be set in accordance with the relevant regulations of China.
Article 40
The term of the use of land by a wholly foreign-owned enterprise shall be the same as its approved term of operation.
Article 41
In addition to obtaining land use rights in accordance with this Chapter, wholly foreign-owned enterprises may obtain such rights pursuant to other laws and regulations of China.
CHAPTER 6 PURCHASES AND SALES
Article 42
Wholly foreign-owned enterprises shall have the right to decide on their own on the purchase of machinery, equipment, raw materials, fuel, spare parts, accessories, components, devices, means of transportation, office articles, etc. for their own use (hereinafter referred to as "supplies").
When purchasing supplies in China, wholly foreign-owned enterprises shall be granted terms equal to those granted to Chinese enterprises, given that conditions are equal.
Article 43
Wholly foreign-owned enterprises may sell their products in China. The state encourages wholly foreign-owned enterprises to export their products.
Article 44
Wholly foreign-owned enterprises shall have the right to export their own products, and they may also entrust Chinese foreign trade companies or companies outside the People's Republic of China with selling their products on their behalf.
Wholly foreign-owned enterprises shall have the right to sell their own products in China, and they may also entrust Chinese commercial organizations with selling their products on their behalf.
Article 45
For those of the machinery and equipment contributed as capital by foreign investors for which China requires an import license, the wholly foreign-owned enterprises shall, either directly or through an appointed agency, apply for import licenses to and obtain the same from the licensing authorities, on the strength of the enterprises¡¯ approved lists of imported equipment and supplies.
With respect to the supplies imported by wholly foreign-owned enterprises within their approved scopes of business which are required for use in their own production and for which China requires an import license, the enterprises shall draw up annual import plans and, once every six months, apply for import licenses to and obtain the same from the licensing authorities.
For those of the products exported by wholly foreign-owned enterprises for which China requires an export license, the enterprises shall draw up annual export plans and, once every six months, apply for export licenses to and obtain the same from the licensing authorities.
Article 46
The prices of the supplies and technical services imported by wholly foreign-owned enterprises may not exceed the arm's length prices of the same supplies and services on the international market at that time. The prices of products exported by wholly foreign-owned enterprises shall be set by wholly foreign-owned enterprises themselves by reference to the prices on the international market at that time, provided that they may not be lower than reasonable export prices. The tax authorities shall have the power to investigate pursuant to the tax laws the legal liability of wholly foreign-owned enterprises evading taxes by such means as importing at high prices and exporting at low prices, etc.
Article 47
Wholly foreign-owned enterprises shall provide statistical information and submit statistical statements in accordance with the Statistics Law of the People's Republic of China and China's regulations concerning the system for statistics on the use of foreign investment.
CHAPTER 7 TAXATION
Article 48
Wholly foreign-owned enterprises shall pay taxes in accordance with the laws and regulations of China.
Article 49
The staff and workers of wholly foreign-owned enterprises shall pay individual income tax in accordance with the laws and regulations of China.
Article 50
Wholly foreign-owned enterprises shall be exempt from duties and taxes in accordance with Chinese relevant taxation laws on the following imported supplies:
1. machinery, equipment, spare parts and building materials, and the materials required for the installation and reinforcement of machinery, used by the foreign investors as capital contribution;
2. machinery, equipment, spare parts, means of transportation for use in production and production management equipment imported by wholly foreign-owned enterprises with funds from their total amounts of investment and required for their own production;
3. raw materials, auxiliary materials, components, spare parts and packaging materials imported by wholly foreign-owned enterprises for the production of export products.
If, upon approval, the imported supplies mentioned in the preceding paragraph are sold in the People's Republic of China rather than being exported or are used for the production of products to be sold in the People's Republic of China rather than for the production of export products, duties and tax shall be paid in accordance with China's tax laws.
Article 51
Export products produced by wholly foreign-owned enterprises other than products the export of which is restricted by China, shall be exempt from duties and taxes in accordance with Chinese taxation laws.
CHAPTER 8 EXCHANGE CONTROL
Article 52
The foreign exchange matters of wholly foreign-owned enterprises shall be handled in accordance with the relevant exchange control regulations of China.
Article 53
On the strength of their business licenses issued by the administration of industry and commerce authorities, wholly foreign-owned enterprises may open accounts with banks in the People's Republic of China allowed to engage in foreign exchange business. The payments into and out of such accounts shall be supervised by the banks with which they have been opened.
The foreign exchange revenue of wholly foreign-owned enterprises shall be deposited in the foreign exchange accounts with their banks. Foreign exchange expenditure shall be paid out of their foreign exchange bank accounts.
Article 54
Wholly foreign-owned enterprises which wish to open foreign exchange accounts with banks outside the People's Republic of China for reasons of production and business needs must obtain approval from China's exchange control authorities and regularly report details of the foreign exchange receipts and payments and submit the banks¡¯ statements in accordance with the regulations of China's exchange control authorities.
Article 55
Upon payment of tax in accordance with China's tax laws, the wages and other lawful foreign exchange income of the expatriate, Hong Kong, Macao and Taiwan staff and workers of wholly foreign-owned enterprises may be freely remitted out of the country.
CHAPTER 9 FINANCIAL AFFAIRS AND ACCOUNTING
Article 56
Wholly foreign-owned enterprises shall establish a financial and accounting system in accordance with the laws and regulations of China and the regulations of China's financial authorities and shall submit such system to the financial and taxation authorities of the place where they are located for the record.
Article 57
The fiscal year of wholly foreign-owned enterprises shall commence on January 1 of the Gregorian calendar and end on December 31 of the same year.
Article 58
Wholly foreign-owned enterprises shall make allocations to a reserve fund and a bonus and welfare fund for staff and workers from their profits after paying income tax in accordance with China's tax laws. The rate of allocations to the reserve fund may not be lower than 10 percent of the after-tax profits; once the cumulative amount of allocations equals 50 percent of the registered capital, no further allocations need be made. The rate of allocations to the bonus and welfare fund for staff and workers shall be determined by the wholly foreign-owned enterprises themselves.
Wholly foreign-owned enterprises may not distribute profits until the losses from preceding fiscal years have been made up. Retained profits from preceding fiscal years may be distributed together with the distributable profits of the current fiscal year.
Article 59
Accounting vouchers, books and statements printed by wholly foreign-owned enterprises themselves shall be written in Chinese. Those written in a foreign language shall include notes in Chinese.
Article 60
Wholly foreign-owned enterprises shall keep independent accounts.
The annual accounting statements and liquidation accounting statements of wholly foreign-owned enterprises shall be prepared in accordance with the regulations of China's financial and taxation authorities. If accounting statements are prepared in a foreign currency, Renminbi accounting statements shall be prepared simultaneously by translating such foreign currency amounts into Renminbi.
Chinese registered accountants shall be engaged to verify the annual accounting statements and liquidation accounting statements of wholly foreign-owned enterprises and to issue a report thereon.
The annual accounting statements and liquidation accounting statements of wholly foreign-owned enterprises described in the second and third paragraphs, together with the reports issued by the Chinese registered accountants, shall be submitted within the prescribed time limits to the financial and taxation authorities and, for the record, to the examination and approval authorities and the administration of industry and commerce authorities.
Article 61
Foreign investors may engage at their own expense Chinese or foreign accounting staff to inspect the accounting books of their wholly foreign-owned enterprises.
Article 62
Wholly foreign-owned enterprises shall submit annual balance sheets and profit and loss statements to the financial and taxation authorities and, for the record, to the examination and approval authorities and the administration of industry and commerce authorities.
Article 63
Wholly foreign-owned enterprises shall maintain their accounting books in the place where they are located. Such accounting books shall be subject to supervision by the financial and taxation authorities.
If a wholly foreign-owned enterprise violates the provisions of the preceding paragraph, the financial and taxation authorities may impose a fine on it and the administration of industry and commerce authorities may order it to suspend business or revoke its business license.
CHAPTER 10 STAFF AND WORKERS
Article 64
Wholly foreign-owned enterprises shall enter into labor contracts with the staff and workers they employ in the People's Republic of China, in accordance with the laws and regulations of China. Such contracts shall specifically cover such matters as employment, dismissal, remuneration, welfare, labor protection, labor insurance, etc.
Wholly foreign-owned enterprises may not employ children as laborers.
Article 65
Wholly foreign-owned enterprises shall be responsible for the business and technical training of their staff and workers and establish an assessment system, in order that the production and management skills of their staff and workers are sufficient to meet the enterprises¡¯ production and development requirements.
CHAPTER 11 LABOR UNION
Article 66
The staff and workers of wholly foreign-owned enterprises shall have the right to establish basic-level labor unions and carry on labor union activities in accordance with the Law of the People's Republic of China on Labor Unions.
Article 67
The labor union of a wholly foreign-owned enterprise shall represent the rights and interests of the staff and workers. It shall have the right to enter into a labor contract with the enterprise on behalf of the staff and workers and to supervise the implementation thereof.
Article 68
The basic tasks of the labor union of a wholly foreign-owned enterprise shall be to protect the lawful rights and interests of the staff and workers in accordance with the laws and regulations of China, to assist the enterprise in arranging and using the bonus and welfare fund for staff and workers in a rational way; to organize the staff and workers to engage in political, scientific, technological and vocational study; to organize cultural and athletic activities; and to teach the staff and workers to observe labor discipline and make efforts to accomplish the various economic tasks of the enterprise.
When a wholly foreign-owned enterprise studies and decides on matters such as rewards, punishment, the wage system, welfare benefits, labor protection, labor insurance, etc., of staff and workers, a representative of its labor union shall have the right to attend the meeting. Wholly foreign-owned enterprises shall listen to the opinions of their labor unions and obtain their cooperation.
Article 69
Wholly foreign-owned enterprises shall actively support the work of their labor unions and, in accordance with the Law of the People's Republic of China on Labor Unions, provide them with the necessary premises and equipment for office work and meetings and for use in organizing collective welfare, cultural and athletic activities for staff and workers. Wholly foreign-owned enterprises shall each month allocate labor union funds at the rate of 2 percent of the total take-home pay of their staff and workers. Such funds shall be used by their labor unions in accordance with the measures for the use of labor union funds formulated by the All-China Federation of Trade Unions.
CHAPTER 12 TERM, TERMINATION AND LIQUIDATION
Article 70
The term of operation of wholly foreign-owned enterprises shall be set forth by the foreign investors in their applications for the establishment of a wholly foreign-owned enterprise, on the basis of the specific circumstances of the industries and enterprises in question, and shall be approved by the examination and approval authorities.
Article 71
The term of operation of wholly foreign-owned enterprises shall be reckoned from the date of issuance of their business licenses.
If the term of operation of a wholly foreign-owned enterprise needs to be extended upon expiry, a written application for extension of the term of operation shall be submitted to the examination and approval authorities 180 days prior to expiry. The examination and approval authorities shall decide whether to approve or reject the application within 30 days from the date of receipt thereof.
Wholly foreign-owned enterprises which have obtained approval to extend their term of operation shall register the change with the administration of industry and commerce authorities within 30 days from the date of receipt of the approval document for such extension.
Article 72
A wholly foreign-owned enterprise shall be terminated in any of the following circumstances:
1. its term of operation has expired;
2. it suffers heavy losses due to mismanagement and the foreign investor decides to dissolve it;
3. it suffers heavy losses due to an event of force majeure such as a natural disaster, war, etc.;
4. it becomes bankrupt;
5. it is lawfully closed because it has violated the laws and regulations of China, thereby harming the public interest; or
6. another reason for dissolution as specified in the wholly foreign-owned enterprise's articles of association has arisen.
In any of the circumstances mentioned under items (2), (3) and (4) of the preceding paragraph, the wholly foreign-owned enterprise shall voluntarily submit a written application for termination to the examination and approval authorities for approval. The date of the examination and approval authorities¡¯ approval shall be the date of the enterprise's termination.
Article 73
A wholly foreign-owned enterprise which has been terminated pursuant to items (1), (2), (3) or (6) of Article 75 shall make a public announcement and notify its creditors within 15 days from the date of termination. In addition, it shall, within 15 days from the date of issuance of the public announcement of termination, submit a proposal to the examination and approval authorities concerning the procedure and principles of liquidation and the candidates for the liquidation committee, and implement the same upon examination and approval by the examination and approval authorities.
Article 74
A liquidation committee shall be composed of the legal representative of the wholly foreign-owned enterprise, representatives of its creditors and representatives of the relevant competent authorities. In addition, accountants, lawyers, etc. registered in China shall be invited to serve on the committee.
The liquidation expenses shall be paid out of the property currently held by the foreign-owned enterprise on a priority basis.
Article 75
A liquidation committee shall exercise the following powers:
1. convene creditors¡¯ meetings;
2. take over the management of and sort out the enterprise's property, and prepare a balance sheet and a property list;
3. valuate the property and state the basis for the calculation of the values assigned;
4. prepare the liquidation plan;
5. redeem the enterprise's claims and satisfy its debts;
6. recover any amounts to be contributed by the shareholders which have not yet been contributed;
7. distribute the balance of the property; and
8. represent the wholly foreign-owned enterprise when it sues or is being sued.
Article 76
Prior to completion of the liquidation of a wholly foreign-owned enterprise, the foreign investor may not remit or carry the enterprise's funds out of the People's Republic of China and may not dispose of the enterprise's property on its own authority.
Upon completion of the liquidation of a wholly foreign-owned enterprise, if the sum of the net amount of its assets and the balance of its property exceeds its registered capital, the portion in excess shall be regarded as profit, and income tax shall be paid on such portion in accordance with China's tax laws.
Article 77
Upon completion of the liquidation of a wholly foreign-owned enterprise, procedures for the cancellation of registration shall be carried out with, and its business license shall be returned for cancellation to, the administration of industry and commerce authorities.
Article 78
When wholly foreign-owned enterprises liquidate and dispose of their property, Chinese enterprises or other organizations shall have a preemptive right to purchase the same, provided that conditions are equal.
Article 79
A wholly foreign-owned enterprise which is terminated pursuant to item (4) of Article 75 shall be liquidated by reference to the relevant laws and regulations of China.
A wholly foreign-owned enterprise which is terminated pursuant to item (5) of Article 75 shall be liquidated in accordance with the relevant regulations of China.
CHAPTER 13 SUPPLEMENTARY PROVISIONS
Article 80
All items of insurance of wholly foreign-owned enterprises shall be taken out from insurance companies in the People's Republic of China.
Article 81
Economic contracts between wholly foreign-owned enterprises and other companies,enterprises or other economic organizations and persons shall be governed by the Contract Law of the People's Republic of China.
Economic contracts between wholly foreign-owned enterprises and foreign companies, enterprises or individuals shall be governed by the Foreign Economic Contract Law of the People's Republic of China.
Article 82
Matters concerning wholly-owned enterprises established in Mainland China by companies, enterprises, or other economic organizations and individuals from Hong Kong, Macao and Taiwan or by Chinese citizens resident abroad shall be handled by reference to these Detailed Implementing Rules.
Article 83
Expatriate, Hong Kong, Macao and Taiwan staff and workers of wholly foreign-owned enterprises may carry in reasonable quantities of means of transport and daily necessities for their own use. Such staff and workers shall carry out customs formalities for such goods in accordance with the regulations of China.
Article 84
These Detailed Rules shall be implemented as from the date of promulgation.
This translation, together with any explanatory material, is provided courtesy of Lehman Tax & Accounting.
