With the continuous deepening of China’s market opening and the implementation of the Foreign Investment Law of the People’s Republic of China, procedures for the establishment, merger and acquisition, modification, and deregistration of foreign-invested enterprises (FIEs) in China have become more streamlined and standardized. Foreign exchange (FX) compliance plays a critical role in ensuring the legality and regulatory integrity of foreign investment activities throughout this process.
This guidance note analyzes key legal and operational aspects of FX compliance requirements applicable to foreign investors establishing FIEs through new incorporation or mergers & acquisitions (M&A) in China. It is intended as a reference for overseas investors and professional advisors. This guide applies to the following scenarios:
- Basic information registration of newly established FIEs (including investment in new entities using legally acquired onshore profits);
- Registration of FIEs established through acquisition of domestic enterprises (e.g., via equity transfer or capital increase);
- Changes in capital structure such as capital increase, reduction, or equity transfer;
- Non-capital-related changes to basic information of an FIE;
- Deregistration of an FIE’s basic information.
I. Legal and Regulatory Framework #
1. Primary Legislative Basis #
Foreign Investment Law of the PRC (Promulgated January 2019, Effective January 1, 2020): Establishes the foreign investment legal regime based on pre-establishment national treatment plus a negative list.
Regulations on Foreign Exchange Administration (State Council Decree No. 532): Provides the legal foundation for FX receipts, payments, and cross-border capital flows.
Provisions on the Merger and Acquisition of Domestic Enterprises by Foreign Investors (MOFCOM Order No. 6 of 2009): Sets forth the procedures and requirements for foreign investors entering China via M&A.
2. Foreign Exchange Regulatory Instruments #
SAFE Notice [2013] No. 21: Regulations on Foreign Exchange Administration of Direct Investment in China by Foreign Investors – key operational rules for new establishment, capital increase, and M&A.
SAFE Notice [2014] No. 37: Regulations on FX Administration of Outbound Investment and Round-Tripping Investment via Special Purpose Vehicles by PRC Residents.
SAFE Notice [2015] No. 13: Simplifies procedures for FX registration in direct investment.
Announcement [2021] No. 19 by the State Taxation Administration and SAFE: Facilitates e-filing and tax certificate issuance for cross-border service and trade payments.
Currently, banks are authorized to handle basic information registration, modification, and deregistration of FIEs directly under SAFE delegation.
II. Registration for New Establishment or M&A #
1. Review Principles #
- FIEs must register their basic information with a bank within the jurisdiction of the relevant SAFE branch after obtaining a business license.
- For equity acquisition (M&A), the relevant registration certificates must be provided both to the transferor and the foreign investor.
- For investment-type FIEs reinvesting FX funds into newly established enterprises or jointly investing with other foreign investors, registration should follow the applicable rules. Investment-type FIEs will be treated as domestic shareholders.
- The applicant must truthfully disclose whether PRC residents directly or indirectly hold or control the foreign investor. If so, it must be flagged in the system as round-tripping investment.
- FIEs must fully register the type and amount of foreign investors’ capital contributions. The aggregate cross-border FX and RMB inflows may not exceed the registered quota.
- Equity acquisitions must be commercially reasonable and priced at fair market value. Banks must conduct due diligence to verify the authenticity and compliance of the transaction and pricing.
- Depending on the contribution method, banks must register the capital contribution under one of the following SAFE capital item codes:
- Profit reinvestment;
- Non-profit reinvestment (e.g., proceeds from equity transfer, liquidation, reserves, or bond conversion);
- Other (e.g., guarantee margin converted into capital);
- Onshore transfer (e.g., original currency transfer from another capital account).
- Pre-incorporation expenses:
- Unsettled pre-incorporation expenses may be transferred to a capital account in the original currency and registered as an inbound FX contribution;
- Previously settled amounts may be registered as capital under pre-incorporation FX settlement.
- For equity-based M&A:
- Where the transferred capital is already paid-in: record as actual internal equity swap;
- Where unpaid: record as an obligation to contribute.
- If business registration data is insufficient, banks may use the National Enterprise Credit Information Publicity System (NECIPS) or supporting documents such as articles of association, shareholder agreements, etc.
- This guidance applies to non-corporate FIEs or project-based foreign investment entities.
2. Required Documentation #
- Written application and the completed Basic Information Registration Form (Form I).
- Business license (or updated license in case of M&A).
- Where foreign investors use onshore profits for reinvestment, tax payment certificates (e.g., Tax Filing Form for Outbound Payments of Trade in Services) must be submitted (unless exempt). Electronic filings may be verified online by the bank.
- If the entity is subject to a paid-in capital registration system, relevant industry approval documents or supporting evidence must be provided.
III. Change of Registration #
1. Review Principles #
- Changes must be registered at the bank within the jurisdiction of the provincial SAFE branch. If system functionality is insufficient, consult with the local SAFE office. Change types include:
- Basic information changes (e.g., name, address, legal representative, business scope, relocation);
- Investment information changes (e.g., capital amount, method, investor structure, M&A, spin-off).
- Changes must continue to disclose whether the foreign investor is controlled by PRC residents and update round-tripping status accordingly.
- In capital reduction, only reductions in paid-in capital may be remitted or reinvested. Reserves and undistributed profits are excluded.
- Mergers and spin-offs:
- Merger: the surviving company registers a capital increase; the absorbed company registers for deregistration. New entities must note “merger” in the registration.
- Spin-off: the original company registers a capital reduction; new entities register with a “spin-off” notation.
- Equity transfers must be priced fairly, and banks must verify authenticity and compliance.
- Banks must verify paid-in capital contributions and update records accordingly in case of reduction or equity transfer.
- All capital contributions must be registered in full; cross-border inflows must not exceed the registered quota.
- For equity-based contributions: the investee company must complete equity change registration before the recipient entity registers its capital increase or equity conversion.
- For cross-border capital movements related to equity changes, registration must be completed before FX remittance.
- If public information is insufficient, banks may request articles of association, shareholder agreements, and retain records.
- This guidance also applies to non-corporate or project-based FIEs, excluding foreign representative offices.
2. Required Documentation for Capital Changes (Capital Increase, Reduction, Equity Transfer) #
- Written application with completed Form I and supporting transaction documents.
- Updated business license (unless not required under applicable law).
- Tax payment certificate for reinvestment of onshore profits (where applicable); banks may verify online.
- If under the paid-in capital system, provide industry authority approvals or relevant documents.
3. Documentation for Non-Capital Information Changes #
- Written application and relevant transaction certificate.
- Updated business license (if required).
IV. Deregistration Procedures #
1. Review Principles #
- FIEs that are deregistering due to bankruptcy, dissolution, expiration, merger, or spin-off must complete FX deregistration at the bank before canceling the business license.
- For standard deregistration: submit liquidation public announcement.
- For simplified deregistration: submit printed NECIPS no-objection page with company stamp.
- Where the foreign investor exits via capital reduction, equity transfer, pre-return of investment, or divestment in listed entities, and the entity is converted to domestic status, only a change registration is needed.
- For merger/split-related deregistration, choose “reinvestment” as the method of handling liquidation proceeds for the foreign shareholder.
- If the business license has been canceled but the company seal has not been destroyed, proceed as usual. If the seal has been destroyed, a notarized power of attorney from all shareholders (or authorized legal entity shareholder) must be provided.
2. Required Documentation for Deregistration #
- Written application with Form I and business transaction certificates.
- If company deregistration has not been completed:
- Submit public liquidation notice per Company Law or Partnership Law;
- Provide written confirmation of completed debt settlement and absence of equity freezes, pledges, or encumbrances;
- OR submit business license revocation notice or court dissolution ruling.
- If deregistration has been completed:
- Submit the Notice of Approval of Deregistration issued by the market regulation authority.
- Tax deregistration certificate (unless exempt).
- Liquidation audit report issued by a certified accounting firm (unless due to merger with no liquidation gains); or court ruling on liquidation.
Conclusion #
Foreign investment in China requires strict adherence to the country’s foreign exchange laws and regulations. A solid understanding of the Foreign Investment Law, related regulations, and FX registration procedures for establishment, changes, and deregistration is essential for the success of cross-border investments.
Compliant, transparent, and timely reporting not only meets regulatory expectations but also contributes to long-term, sustainable business operations in China. Given the complexity of FX compliance, foreign investors are encouraged to work closely with local banks, intermediaries, and professional advisors to ensure that all FX-related matters are properly managed and legally sound.
Sample: Form I
This article is for informational purposes only and does not constitute legal advice. For case-specific consultation, please contact us. Read our full Legal Disclaimer, which also includes information on translation accuracy.
