Haworth & Lexon Law Newsletter
No.12, 2002 (Total:No.16) December 20th, 2002
Edited by Haworth & Lexon
Guidelines
P.R.C will open its construction industry to foreign investors, as of Dec 1, with breakthrough and restrictions
New regulations on taxation treatment for foreign invested corporations offering services to its subsidiaries
Latest news and regulations
The Supreme people's Court's reply concerning applicable law on guarantee
Notice on further opening up of road transportation investment area
Regulations on Administration of Foreign-Invested Construction and Engineering Design Enterprises
The Supreme people's Court promulgated the Provisions on Some Issues Concerning the Application of Law in Trial of Administrative Cases Relating to Antidumping and Anti subsidy
P.R.C will open its construction industry to foreign investors, as of Dec 1, with breakthrough and restrictions
Recently, Ministry of Construction and Ministry of Foreign Trade and Economic Cooperation jointly promulgated Regulations on Administration of Foreign-Invested Construction and Engineering Design Enterprises; the regulation shall be effective on 1st Dec 2002. The implementation of this management provision indicates that P. R.C opens its door construction industry to foreign investors, which is demonstrated in the following provisions:
I- It states that foreign investors may invest in construction industry in the form of a wholly foreign-owned construction and engineering design enterprise, or a Sino-foreign equity construction and engineering design joint venture or a Sino-foreign cooperatively construction and engineering design enterprise.
II- It makes the procedure of foreign investment in construction Industry much clear. A foreign investor, which intends to establish a foreign-invested construction and engineering design enterprise within the territory of the People's Republic of China and carry out construction and engineering design business shall, in accordance with laws, obtain the foreign-invested enterprise approval certificate from the relevant foreign trade and economic cooperation administration department and register with the State Administration of Industry and Commerce or its authorized administration of industry and commerce at local levels, and also obtain the qualification certificate of construction and engineering design enterprise from the relevant construction administration department.
III- It should be highly noted that, according to this new regulation, the documents which should be submitted by the applicants have been fully and entirely listed rather than leaving some room as usually done by many other kinds of regulations previously.
IV- There is a clear division of powers within the administrative system. The examination and approval of the establishment of a foreign-invested construction and engineering design enterprise, and the qualifications shall be administered by using a grading and categorizing system. In case that an applicant is to apply for Grade A qualification for construction and engineering design or other Grade A or Grade B, the establishment of the foreign-invested construction and engineering design enterprise shall be examined and approved by the Ministry of Foreign Trade and Economic Cooperation and its qualification shall be examined and approved by the construction administration department of the State Council. In case that, an applicant is to apply for Grade B qualifications for construction and engineering design or other Grade C or lower qualifications, the establishment of the foreign-invested construction and engineering design enterprise shall be examined and approved by the Department of Foreign Trade and Economic Cooperation under the province government, the autonomous region or the directly administered municipality and its qualification shall be examined and approved by the construction administration department under the province, the autonomous region or the directly administered municipality. It also regulates relevant application procedure.
V- this regulation also allows that in case that any foreign enterprise, which has acquired the qualification certificate before this regulation, shall apply for corresponding grade qualification certificates.
At the same time, there are some restrictions as follows:
1) The total capital contribution of the Chinese party to a Sin-foreign equity construction and engineering design joint venture or a Sino-foreign contractive construction and engineering design joint venture shall not be less than 25% of the registered capital.
2) The Wholly foreign-owned enterprises are only allowed to contract projects within the qualified scopes as follows:
i) Construction projects wholly invested, donated by foreign countries;
ii) Construction projects sponsored by international financial institution and granted through international bidding according to loan terms and conditions;
iii) Jointly construction projects in which the amount of foreign investment is equal to or above 50 percentage; or sino-foreign joint projects, approved by construction department of the province government, the autonomous region or the directly administered municipality, in which the foreign investment accounts for below 50 percentage, and owing to technical barriers, Chinese enterprises cannot contract, independently; and
iv) Construction projects invested by Chinese enterprises, but on account of technical difficulty, Chinese enterprises can not perform independently. After approval by construction department of the province government, the autonomous region or the directly administered municipality, such projects could be contracted jointly by foreign and Chinese enterprises.
It is a considerate progress. Because, according to the commitments to the WTO made by China, it is permitted that a wholly foreign owned architecture enterprise may be established within 5 years after China's access to the WTO. Importantly it is really a huge step that China has allowed a wholly foreign owned enterprise to be established just immediately after the first year as of its entry of the WTO.
New regulations on taxation treatment for foreign invested corporations offering services to the subsidiaries
The State Taxation Bureau issued the "Notice on taxation treatment for foreign invested corporations offering services to the subsidiaries" on Sept. 28th, 2002, which will enter into its force on Jan 1st, 2003.
Firstly, the notice clarifies a principle: foreign invested corporations, which provide services to the subsidiaries should take price or charge fees in compliance with normal rules regarding independent entities; if not, the tax authorities may make an adjustment.
Secondly, it is required that, when a foreign invested corporation renders its services to the subsidies, it should sign a service contract, which should specify the content, charge for the service and so on, furthermore, revenue tax and income tax should be levied in compliance with relevant provisions.
Certainly, if a foreign invested company renders the same kind of services to several subsidiaries, the total amount of charge could be decided basing on the actual expenses, or such charges could be proportioned among all concerning subsidiaries. The notice also clearly states how to ascertain and proportion the expenses, and approve tax rate. For example, the total amount of charge is equal to actual expenses divided by one minus revenue tax rate and approved profit rate, and if the service is provided to domestic subsidiaries, the approved profit rate is 5 percent
Under this notice, any investment decision and strategies, investment interest, compensations for the management personnel, office expenses and other expenses or losses arising from the investment should not be included in the business expense or loss, and therefore should not be deducted from the taxable income, or proportionately allocated among the subsidiaries. And foreign investment company is strictly forbidden to charge or proportionately allocate the management fees among its subsidiaries in any form.
Lastly, the notice has made some regulations about the taxation treatment in relation to deals, in which, the foreign investment company signs the contract for and behalf its subsidiaries, and receives services jointly with its subsidiaries.
Latest news and regulations
The supreme people's court promulgated "Reply concerning the right of Guarantor who has taken guarantee responsibilities to ask for compensation from other guarantors" and "Reply concerning the Application of the Judicial Interpretation relating to Guarantee Dispute Cases and the Ascertainment of the Means of Guarantee Responsibility", the two replies will enter into force respectively on Dec 5th,and Dec 6th 2002.
Under the reply, the guarantors that have taken guarantee responsibilities are entitled to ask for compensation from other guarantors, although such guarantors have not been claimed relevant responsibilities during their guarantee period.
The Reply also sets out that, if the guarantee contract concluded before the coming into force of the Guarantee Law does not state or clearly state the means of guarantee responsibility, such guarantee shall be ascertained as general guarantee. If the contract has clear clauses that guarantor will take the guarantee responsibility when the debtor does not have the ability to fulfill its commitment, such guarantee shall be treated as general guarantee. If the contract clearly states that the guarantor is obliged to take guarantee responsibility when the debtor refuses to perform his obligation and there is no evidence from which the intention of the contracting parties to adopt general guarantee can be inferred, such guarantee shall be deemed as the guarantee with joint and several responsibility.
Ministry of Transportation issued the "Notice on further opening up of road transportation investment area" on Nov 28th, 2002, the notice states that as of Dec 1st, after the approval by Ministry of Transportation, companies, enterprises and other economic entities and individuals of foreign countries, Hong Kong, Macao and Taiwan region are allowed to run road transportation corporations in the form of equity joint venture in the area of road cargo transportation, road cargo removal and load and unload, road cargo storage and other auxiliary services, during which, foreign investors can hold 75 percentage of the investment. The proportion of foreign investment can be properly broadened in some qualified foreign invested road transportation enterprises. After the approval of Ministry of transportation, foreign invested enterprises are allowed to re-invest in cooperation with enterprises in the west region to establish equity road transportation joint venture, but the proportion of foreign investment cannot be below 25 percent in the newly established enterprises.
III- Ministry of Construction and Ministry of Foreign Trade and Economic Cooperation jointly promulgated Regulations on Administration of Foreign-Invested Construction and Engineering Design Enterprises on Sept. 17th, 2002, and the regulation will enter into force on Dec 1st, 2002. The regulation sets out that foreign investors shall invest in construction industry in the form of a wholly foreign-owned or a Sino-foreign equity joint venture or a Sino-foreign contractive construction and engineering design enterprise. The foreign investor or the foreign service provider of a foreign-invested construction and engineering design enterprise shall be an enterprise engaged in construction and engineering design or a certified architect or a certified engineer in his or her home country. The total capital contribution of the Chinese party to a Sin-foreign equity joint venture or a Sino-foreign contractive construction and engineering design joint venture shall not be less than 25% of the registered capital. The regulation also states that the application for and examination and approval of the establishment of a foreign-invested construction and engineering design enterprise and the qualifications shall be administered by using a grading and categorizing system. This regulation also sets out the procedure, materials, which should be submitted to The Ministry of Construction and the Ministry of Foreign Trade and Economic Cooperation, and the requirement for the number of foreign service suppliers who have been certified architect and certified engineer in P.R.C when applying for construction design enterprises.
The Supreme People's Court promulgated "Provisions on Some Issues Concerning The Application of Law in Trial of Administrative Cases Relating to Antidumping" and "Provisions on Some Issues Concerning the Application of Law in Trial of Administrative Cases Relating to Anti subsidy" on Nov. 2002 and both will enter into force on Jan. 1st 2003. The two judicial interpretations have, regarding the anti-dumping and anti-subsidies cases, set out the scope of trial, the participant of litigation, the trial court, the legality principle and the allocation of proof burden referring to the civil procedure relating to foreign litigation. Under the two interpretations, the first instance of the above-said cases should be tried in the following courts: The intermediate people's court designated by the high people's court administrating the area or The high people's court administrating the area where the defendant is located. The court only ascertains the issues on the legality of facts and laws. During the trial, the proof burden shall be on the defendant, but the plaintiff has the obligation to submit evidence for the fact he claimed. Furthermore, if the defendant requests the plaintiff to supply evidence in compliance with the concerning procedure during the antidumping administrative investigation procedure, and the plaintiff rejects to supply the evidence without proper reason, or supplies false ones or interferes with the investigation by other means, the court will never admit the evidence.
