Haworth & Lexon Law Newsletter

??Corporate and Investment??

No.3, 2005 (Total:No.6)    May 10th, 2005

Edited by Haworth & Lexon

??Haworth & Lexon Newsletter?? (Corporate and Investment) is issued every month, mainly introduce the legal change in the corporate laws, investment with necessary comment. None of the comments are legal opinion of our firm and the firm is not legally liable for such comment.

New Regulation on Domestic Resident Investing Overseas

has been Promulgated

State Administration of Foreign Exchange(SAFE) promulgated Notice on Related Issues of Domestic Residents Investing Overseas Registration and Exchange Registration for M&A with Foreign Investments on Apr 8, 2005 (??Notice??), the Notice makes supplementary on the Notice on Relevant Issues on Improving Foreign Exchange Administration for M&A with Foreign Investment promulgated on Jan 24, 2005 (??1.24 Regulation??).

The Notice stipulates that, if the domestic resident had already invested foreign enterprise with domestic assets or shares, and the domestic enterprise has also got Certificate of Approval for foreign invested enterprises, the domestic resident shall make a complementary registration in the foreign exchange bureau by submitting a Registration Form stating the overseas investment.

According to the Notice, the newly established foreign invested enterprise shall clearly state that its foreign investor has not been directly or indirectly held by domestic resident or enterprise during its foreign exchange registration.

Besides, the Notice makes penalties for those foreign invested enterprises that make false and misleading description to obtain exchange registration. They shall assume the illegal remittance responsibility of foreign exchange for all the remitted out profit and other capital amount from its registration day.

SAFE also makes restrains for foreign exchange profit of those overseas enterprises invested by domestic residents:

Except for those overseas listing companies, special-purpose companies are not allowed to withhold exchange profit; special-purpose companies mean those companies established and held directly or indirectly by domestic residents for the overseas financing of their domestic enterprises. Domestic resident shall remit his exchange profit gaining by special-purpose company into china within 30 days from obtaining such profit.

This Notice is actually a supplementary of ??1.24 Regulation??, and has settled the problem of legality for the overseas investment by domestic investors before ??1.24 Regulation??. According to this Notice, SAFE has actually obtained the exchange profit of the already established overseas enterprise under its supervision. However, the Notice still doesn??t make clear execution stipulations for the registration of domestic resident investing aboard required by 1.24 Regulation.

Haworth & Lexon Law Office has rich experience in the fields of corporate and investment. If you have any queries on the above legal matters, we are happy to provide you with our advice. Please contact Mr. Chambers Yang, the Attorney and Partner of the firm at: Tel: 8621-6887 9696 Fax: 8621-6887 8766 Email:    chambers@hllawyers.com