100 Questions Concerning Foreign Investment (Shanghai)

GENERAL BACKGROUND OF SHANGHAI
The city of Shanghai, also known as "Hu" or "Shen" for abbreviation, is located at Longitude 121"29"east and latitude 31 "14" north. Lying on the western coast of the Pacific Ocean, it stands at the mid-point of China's north-south coastal line where the Yangtze River and the Qiantangjiang River converge and pour themselves into the sea. Surrounded by the Yangtze River on the north, the East China Sea on the east, the Hangchow Gulf on the south and Jiansu and Zhejiang provinces on the west, Shanghai enjoys great advantages in its easy transportation, vast territory and ideal location. All these factors have made Shanghai an excellent port.
Except for such hills in the south-west as She Shan and Tianma Shan, most of the region of Shanghai lies in the broad and even alluvial plain of the Yangtze Delta, rising around 4 meters on average above the sea level. Within Shanghai's territory are the Chongming Island, the 3rd largest island in China, and other isles such as Changxing and Hengsha. The suburban areas are densely spotted with natural river ports. Winding its way through the city, the Huangpu River, together with the Suzhou Creek as its tributary, provides significant navigation channels for the Tai Lake water system.
Of monsoon climate in the northern subtropical zone, Shanghai enjoys a comfortably warm and humid climate, sufficient rainfall and distinct changes of seasons. Yearly temperature averages 16.5t Celsius, with the lowest monthly average at about 5.1t in January and the highest at 28t in July or August. Frost-free period contains about 24 days every year, and the annual rainfall is registered to be 1304 millimeters.
The city of Shanghai is composed of 1 new area, 15 urban administrative districts and 3 suburban counties. The new area is the Pudong New Area; the 15 urban administrative districts are: Huangpu, Luwan, Xuhui, Changning, Jing'an, Puto, Zhabei, Hongkou, Yangpu, Baoshan, Jiading, Jinshan, Minhang, Songjiang and Qinpu, respectively; and the 3 suburban counties are Nanhui, Fengxian and Chongming.

A. Investment Policies & Relevant Regulations
In Pudong New Area and Other Development Zones, Industrial Zones and Export Proussing Zones

1. Where is Pudong New Area?
Triangular in shape and adjacent to the city center, Pudong New Area lies in the east of Shanghai, I.e. to the east of the Huangpu River and to the southwest of the mouth of the Yangtze. It is planned to develop an area of 522 sq.kms., most of which is within a 15 km radius from the city's downtown area.

2. What sort of tax preferential policies can foreign investors enjoy in pudong New Area?
(1) The income tax of foreign-invested manufacturing enterprises shall be levied at a reduced rated of 15%.
(2) Foreign-invested enterprises scheduled to operate for a period over 10 years shall be exempted from income tax in the first two years starting from the profit-making year and be granted a 50% reduction in the next three years.
(3) "High-tech Projects" invested by foreign investors in Pudong New Area can enjoy 10% income tax rate for another three years after the period of tax exemption and tax reduction. Export enterprises with foreign investment shall pay their income tax at a reduced rate of 10% when their annual export sales value amounts to more than 70% of the annual sales value.
(4) The income tax of foreign-invested enterprises in the field of ports, energy and transportation shall be levied at a reduced rate of 15%. If the operation period of the above-mentioned enterprises is over 15 years, the income tax shall be exempted for the first 5 years starting from the first profit-making year and allowed a 50% reduction in income tax for the next 5 years.
(5) The buildings or houses built or purchased by foreign investors for their own use shall be exempted from house property tax for five years, starting from the date when the transaction is done.
(6) The foreign-invested banks and JV banks with its injected capital over USD10 million or its operating fund allocated by its headquarters over USD10 million, after approval, can enjoy a reduced income tax rate at 15%. And starting from the first profit-making year, the above-mentioned enterprises can enjoy income tax exemption for one year and 50% income tax reduction for another two years.

4. How do you apply for the establishment of duty-free warehouses and duty free processing factories?
To apply for the establishment of a duty free warehouse, you will have to submit your application and business license issued by the Industrial and Commercial Administration Office together with relevant documents issued by the competent department of the Foreign Economic and Trade Commission to the Customs House. Once examined, spot-investigated and approved, the Customs House will promulgate a Duty-Free Warehouse Registration Certificate. Only then can you start the business.
To set up a duty free processing factory, you shall entrust either an authoritative department ratified by the government dealing with import and export businesses or an enterprise engaged in the business of processing registered and ratified by the Industrial and Commercial Administration
Department to submit your application and relevant documents to the local Customs House. Once the examination result by the Customs House is in accordance with the related laws and regulations, once you have a special factory or workshop and a special warehouse or ground, once
you have facilities for supervision and inspection of the customs, once you ensure that you'11 abide by the Customs law of P.R.C. and all regulations concerning duty-free factories drawn by the Customs and once you promise to shoulder the responsibilities which you are supposed to fulfil, the Customs House will approve and issue the Duty-Free Registration Certificate.

5. What are the standard fees for land and for leasing or purchasing factory buildings in Pudong New Area?
The Land fees for Pudong Development Zones and Towns:
Name of Enterprises Transferring Leasing
USD/M2 USD/M2/year
Lujiazui finacial and Trade Zone 550-500 --
Jinqiao Export Processing Zone 95 7.8
Zhangjiang Hi-tech Park 50-75 6
Waigaoqiao United Development Co., Ltd. 120 10
Waigaoqiao New Development Co., Ltd. 95 8
Wangaoqiao Third United Development Co., Ltd. 100 6-8
Huaxia Cultural Tourism Zone 54-82 1.3
Wangqiao Industrial Zone 50 5
Modern Agricultural Development Zone 27-36 0.2
Liuli Modern Life Park 250 --
Xinhuo Development Zone 20-25 2.2
Pudong Land Development (Holding) Company 80-300 --
Xinyuan Zhangjiang Co., Ltd. 80 6
Jingqiao Tengtian Co., Ltd. 90 8
Pufa Jinqiao Co. Ltd. 80 --
Luyang Economic Development Co., Ltd. 230-270 --
Lianyang Land Development Co., Ltd. 220-270 --
Jinyang Real Estate Co., Ltd. -- --
Jinjin Real Estate Co., Ltd. 95 7.8
Zhangqiao Town 90 5
Wanggang Town 50 4.2
Heqing Town 55 1.8
Sunqiao Town 51 3.5
Huandong Town 51 3.5
Liutuan Town 36 --
Gulu Town 45 --
Beicai Town 45 2.7
Cailu Town 30 1
Jiang Town 45 0.37
■ The Factory Building Prices for Pudong Development Zones and Towns
Purchasing Leasing
Name of Enterprises USD/M2 USD/M2/year
Luuiazui Finacial and Trade Zone -- --
Jinqiao Export Processing Zone 300-400 45
Zhangjiang Hi-tech Park -- 70
Wangaoqiao United Development Co., Ltd. 420-470 45-60
Wangaoqiao New Development Co., Ltd. 400 46-50
Wangaoqiao Third United Development Co., Ltd. 350 45
Huaxia Cultural Tourism Zone -- --
Wangqiao Industrial Zone 210-260 35-38
Modern Agricultural Development Zone -- --
Liuli Modern Life Park -- --
Xinhuo Development Zone 160 31
Pudong Land Development (Holding) Company -- --
Xinyuan Zhangjiang Co., Ltd. -- --
Jingqiao Tengtian Co., Ltd. -- --
Pufa Jinqiao Co. Ltd. -- --
Luyang Economic Development Co., Ltd. -- --
Lianyang Land Development Co., Ltd. -- --
Jinyang Real Estate Co., Ltd. 320 39
Jinjin Real Estate Co., Ltd. -- --
Zhangqiao Town 270 5
Wanggang Town 60-145 13-35
Heqing Town 145 18
Sunqiao Town 193 34
Huandong Town 193 34
Liutuan Town 120 22
Gulu Town 72-180 26
Beicai Town -- 30
Cailu Town 60 18
Jiang Town 84-170 13-18

6. What are the standard fees for electricity, gas and water in Pudong New Area?
■ Charges For Water Supply
● Charges for water supply: RMB0.90/cubic metre for non-resident users, industrial users and hotels supplied by the water company, at the same time drainage fee is charged.
● The charge for over-rated consumption shall be levied on users ten times of its basic price.
● Charges for engineering:
1. Installation charges: from the water pipe networks of municipal roads or neighborhoods to the user's water-metre;
2. Pipe arrangement fee: water pipes involving municipal roads or neighborhoods must be implemented according to planning.
The above-mentioned water pipes, equipment and the property right belong to the water supply department.
● The user should pay maintenance fee for fire protection water systems installed in user's place.
● Charges for water disposal: RMB 0.34/cubic metre
1. Anybody that discharges waste water into the city drainage or sewage shall pay the water discharge system using fee to the water company entrusted by Shanghai City Drainage Co.; the fee for groundwater and self-provided water discharge will be levied by drainage company.
2. The volume of sewage is computed as 90% of the water usage. For enterprises that primarily rely on water or are engaged in production in which much vaporization occurs, the volume of sewage is computed by deducting the water content of the products and the degree of vaporization from the total volume of water usage. The disposal of waste shall be supervised by the Shanghai Municipal Public Works Department.
● Standard of Charges for an Increase in Water Supply
(unit: RMB yuan)
Nature of User Maximum daily use Price
Hotel, High-class Restaurant cubic metre 1300
Plants, Enterprises, Business Cubic metre 825
Organization, Non-profit Organization cubil metre 450
● The Standard Charges at Peak and Valley Point
Unit: yuan/kvh
Watt-hour peak Piont use Time Line of Business 0.4kv 10kv 35kv >110kv
08:00-11:00 Industry 0.871 0.865 0.859 0.853 18:00-21:00 Hotel 1.021 1.015 1.009
Commerce 0.901 0.895 0.889
Fee Normal 06:00-800 Industry 0.568 0.562 0.556 0.550
Piont 11:00-19:00 Hotel 0.676 0.670 0.664
21:00-22:00 Commerce 0.644 0.638 0.632
Valley 22:00-next day Industry 0.295 0.289 0.283 0.277
Point 0.6:00 Hotel 0.346 0.340 0.334
Commerce 0.306 0.300 0.294
Basic
Electricity According to Maximum quantity 18.00 18.00 18.00 18.00
Fee required (KVA/month

Charges for Coal Gas and Liquefied Petroleum Gas
1. The supply pressure of piped gas for ordinary places is 1200PA or over,
and the calorific value is 14.63-15.88 megajoule per cubic metre.
2. Users shall bear all the costs for installation from the existing gas pipe networks, but the property right belongs to the Gas Company.
3. The charge for over-rated gas consumption levied on users shall be RMB 0.6/cubic meter.
● Standard of Charges for Coal Gas and Liquefied Petroleum Gas
Unit: Yuan (RMB)
Nature of User Unit of Measurement Price
Organization cubic metre 1.30
Business, Non-profit Apr-Nar.1.20
Organization, Industry cubic metre Del-Mar.150
● Standard of charges for an increase in gas supply
Nature of user Unit of measurement for maximum daily use Price
Hothe, High-class restaurant cubic metre 800
Plants, Enterprises, Business cubic meter 450
Organization, Non-profit
Organization cubic metre 300

Item basic Monthly Rental Telephone Fee in
Operation Area
Household 24 RMB yuan 0.16 RMB yuan every
Three minutes
Institution 37 RMB yuan 0.22 RMB yuan every
Three minutes
Relay Line 111 RMB yuan 0.22 RMB yuan every
Three minutes

7. How can the land-using right be granted in development zones, industrial zones and export processing zones?
The state-owned land within development 20nes and industrial 20nes may be obtained subject to payment of consideration. Land users obtain land-using right through public bidding, and negotiation and then pay fees for the granting of land-using right. The land-using right obtained may also be transferred, leased, pawned, inherited according to the law or be used for other economic activities permitted by the law.

8. Can foreign invested enterprises in Pudong New Area be exempt from Customs duty in importing manufacturing equipment for self use?
Whether in Pudong New Area or Puxi Area, projects, which are verified by examination and approval authority and are listed in the Encouraged Industries, can enjoy the duty-free policy for their imported self-use equipment.

9. Are there any differences with regard to foreign investment policies between Pudong New Area and Minhang, Caohejing, Hongqiao Development Zones and Forward High-tech Park in Puxi Area?
Except for very few policies of Waigao Free Trade Zone in Pudong New Area, policies of all these zones are basically the same.

10. How many industrial zones are there in Shanghai?
The following are the state level development zones: Pudong new area (including Lujiazui Finance & Trade Zone, Jinqiao Export Processing Zone, zhangjiang High-Tech Park, Waigaoqiao
Free Trade Zone, Sunqiao Modern Agriculture Development Zone), Hongqiao Economic and Technological Development zone, Caohejing High-tech Park, Minhang Economic and Technological Development Zone, Songjiang Export Processing Zone, Forward Hi-Tech Park.
Apart from above mentioned, the following are the municipal level development zones qpproved by Shanghai Municipal Government: Songjiang Industrial Zone, Jiading Industrial Zone, Qingpu Industrial Zone, Xinzhuang Industrial Zone, Shanghai all-around Industrial Development
Zone of Fengxian, Shanghai Chemical Industry Zone, Kangqiao Industrial Zone, Pudong Xinhuo Development Zone, Baoshan Industrial Zone, Jinshanzui Industrial Zone, Chongming Industrial Zone.

11.What are the differences between investing in Songjiang Export Processing Zone and in Waigaoqiao Free Trade Zone?
Export Processing Zone Free Trade Zone
Business Scope
1. Only the processing trade of self-produced goods is permitted.
2. Over 70% of the Products should be sold to other countries.
1. Enterprises can be engaged in international trade, domestic trade and manufacturing and processing.
2. All products can be sold out domestically.
Taxation
1. The entrance of spare parts and raw materials from enterprises outside the zone to the zone is regarded as export and VAT can be refunded.
2. Customs duty will be levied according to ready-made products sold domestically and manufactured by enterprises in the zone with spare parts and raw materials from abroad.
1. VAT on spare parts and raw materials entering the zone from enterprises outside will not be refunded.
2. Customs duty will be levied according to the standard of spare parts and raw materials from abroad on those ready-made products sold domestically and manufactured by enterprises in the zone with spare parts and raw materials from abroad.
Customs Inspection
1. Cancellation of verification is carried out every half year or whole year.
1. Cancellation of verification is carried out upon each contract.

B. Guidance and Examination & Approval of Foreign Invested Enterprises

12. What kind of organization is Shanghai Foreign Investment Commission (SFIC)? What is SFIC responsible for?
SFIC, a comprehensive and authoritative body, is established by the Shanghai Municipal Government to improve Shanghai's investment environment and streamline procedures of project examination and approval. Major functions of SFIC are: to implement relevant laws and regulations of the State and carry out the State's policy on industrial preferences; to examine and
approve foreign direct investment projects; to oversee foreign invested projects of the whole city on a macro basis; to introduce Shanghai's investment environment and policy; and to coordinate and solve problems encountered by foreign invested enterprises throughout their establishing and operating periods.

13. How many organizations are responsible for the examination and approval of foreign investment projects in Shanghai? What are the detailed regulations?
There are altogether 24 organizations dealing with the examination and approval of foreign investment projects in Shanghai. Shanghai Foreign Investment Commission examines and approves projects with an investment between USD 10 million & USD 30 million as well as projects which do not need the State's overall balance and with an investment over USD 30 million listed in Encouraged Industries. Foreign Economic and Trade Commissions of district-level and of county-level are responsible for examination and approval of foreign investment projects with an investment under USD 10 million. Local municipality can examine and approve projects located in municipal level industrial zones and with a total investment of less than USD 30 million listed in Encouraged Industries. Pudong Administrative Committee and Free Trade Zone administrative Committee are responsible for examination and approval of projects with and investment under USD 30 million.

14. How to handle the projects which go beyond the power of the Shanghai Municipal Government?
Manufacturing projects with a total investment of over USD 30 million, which are regarded as Encouraged projects but need the State's overall balance, will be submitted to the authoritative department of the State Council for approval after being examined by the SIC together with related offices.

15. What kind of organization is Shanghai Foreign Investment Development Board (SFIDB)?
Under the leadership of Shanghai Foreign Investment Commission, SDIDB is an investment promotion organization approved by Shanghai Municipal People's Government to develop foreign investment in Shanghai.
The major functions of SFIDB are:
Participating in formulating the industrial guidance and relevant policy for attraction foreign investment; publicity and information release with regard to foreign investment; organizing various foreign information release with regard to foreign investment; organizing various foreign
investment promotion activities; collecting, exhibiting and releasing investment projects information; guiding district and county level foreign investment promotion organizations; establishing and managing overseas investment promotion representative offices.

16. What services can Shanghai Foreign Investment Service Center (SFISC) offer?
Shanghai Foreign Investment Service Center (SFISC) was founded in October 1991 by the Government of Shanghai Municipality to improve investment environment and to promote the opening up of Shanghai and the development of Pudong New Area.
SFISC is a specialized and comprehensive service institution for overseas investors. Under the leadership of Shanghai Foreign Investment Commission, SFISC aims to provide whole-course, multi-level and efficient services for overseas investors.
◆Introducing the local investment environment; providing consulting services on investment laws, regulations and rules; advising on the evaluation of the potential projects.
◆ Acting as the legal agent to go through all the procedures for establishing foreign invested
enterprises, including preparing and submitting Project Proposal, Feasibility Study Report, Cooperation Contract, Articles of Associaton and other necessary legal documents.
◆Conducting preliminary market research for overseas enterprises prior to investment in Shanghai.
◆Planning and handling mergers & acquisition of enterprises for foreign investors.
◆Helping both Chinese and foreign investors to find suitable cooperation partnership.
◆Acting as the legal agent for foreign companies to set up resident representative offices in Shanghai.
◆Acting as the legal agent for overseas Chinese scholars to establish enterprises.
◆Organizing business investigation delegation abroad.

17. What do "one station management" and "a coordinated service" signify?
"One station management" means that, according to different investment & different registered addresses of each project, foreign businessmen who came to invest can just turn to SFIC, Pudong New Area Foreign Economic & Trade Commission, and Foreign businessmen who came
to invest can just turn to SFIC, Pudong New Area Foreign Economic & Trade Commission, and Foreign Economic and Trade Commissions in Districts or Countries. for approval of their applications. All the relevant government departments and offices responsible for examination and approval of investment projects are put together to facilitate the formalities for overseas investors.
" A coordinated service" intends to offer overseas businessmen a whole process of services, such as recommending proper partner, assisting in locating a site for a factory, preparing and submitting project proposal, handling the registration of the enterprise's name, drafting a
feasibility study report and contract, and assisting in the application for business license at the setting up period; assisting in designing & planning, in engineering construction and in handling related construction procedures like land planning, environmental protection, fire protection and public utilities etc. At the second stage; assisting in employing staff, providing relevant information, etc. At the last stage. Shanghai Foreign Investment Service Center can provide "coordinated service".
18. How were the laws on foreign invested enterprises modified?
This time modification mainly involves followings:
1. Deleted some contents of the problem in foreign exchange balance that should be solved by foreign invested enterprises themselves. Foreign exchange that foreign enterprises need to buy raw materials and spare parts, to pay wage, interests on capital and dividend on shares may be disbursed by means of buying foreign exchange through bank or be disbursed through foreign exchange account.
2. Deleted the regulations that foreign invested enterprises should buy raw materials and fuel in China first; as same as other domestic enterprises foreign invested enterprises can enjoy enlarged power of purchase.
3. As for exporting duty, the regulations encou4aging export replace that concerned of export duty. After deleting the regulations that foreign invested enterprises must export duty. After deleting the regulations that foreign invested enterprises must export all of or the great part of its products, foreign invested enterprises can enjoy own power of sales as same as other domestic enterprises.
4. Deleted the regulations that foreign invested enterprises should report their manufacturing and managing plans to the administration in charge in order to record these plans.
Modifications mentioned above were made owing to the requirements that foreign invested enterprises can enjoy autonomous rights under the condition of Socialist market Economy.

22. What shall be included in the project proposal of a Sino-foreign joint venture?
(1) The Chinese partner: it shall include the name of the Chinese partner, a briefing about its production and business, the legal address, the name and title of the legal person as well as the name of the authoritative bureau (department).
(2) The purpose of cooperation: The emphasis shall be laid on the necessity and the probability of exporting to make profit & introducing technologies.
(3) The foreign partner: it shall include the name of the foreign company, the registered country, the legal address and legal person together with his name, title and nationality.
(4) The business scope and scale: The necessity of the project construction, the demand of the product both at home and abroad, the production as well as sales areas or regions of the product shall be emphasized.
(5) Investment estimation: it refers to the total amount of fixed assets and circulation fund required.
(6) The prospect of investment & the source of capital: it shall include both the ration of investment and ratio of capital formed by both parties.
(7) Production techniques & main equipment: emphasis is laid on the superiority, suitability and reliability of the technology and equipment as well as important technological and economic indexes.
(8) The quantity and source of major raw materials, water, electric power, gas and transport shall be included.
(9) The number, formation and source of labor shall be included.
(10) Economic analysis with emphasis on arrangement of foreign exchange balance shall be included.
(11) Main documents:
a. The agreement contract of cooperation signed by both parties;
b. the credibility investigation of the foreign investors.

23. What shall be included in the feasibility study report of a Sino-foreign joint venture?
(1) A brief introduction
a. The name of the joint venture, its legal address, purpose, business scope and scale;
b. The names of each party, their registered countries, their legal addresses, their legal-persons' names, titles and nationalities (the Chinese party shall make known its competent department or bureau);
c. The total investment of the joint venture, its registered capital, and the number & amount of shares (investment of each party, investment proportion of each party, the means of investment and the deadline for the payment of capital);
d. The term for cooperation, the profit allocation and the ratio of sharing loss and damage;
e. The approval certificate of the project proposal;
(2) Arrangement of production and its basis; The demand of the product both at home and abroad, methods of market survey, the capacity of the production equipment used or being used at home and abroad shall be explicitly stated.
(3) Arrangement of the supply of materials and fuel (including energy and transportation) and its basis.
(4) Selection of the project site and its basis.
(5) Selection of technological equipment and technique process and their bases.
(6) Arrangement of organizing production and its basins (including the total number, formation and source of employees, as well as management).
(7) Treatment of environmental pollution, production safety and hygienic measures and their bases.
(8) Construction methods, progress of the construction & The grounds for doing so.
(9) Sources of fund and its basins (including the shares converted from the original factory buildings and equipment).
(10) Arrangement of foreign exchange receipts and payments and its basins.
(11) Comprehensive analysis (including the analyses of economic results, technology, finance and law); Profits of the project and a risky prospect (Or in a sensitive analytic method).
(12) Main documents:
a. A copy (duplicate) of the business license of each party issued by the competent department of its country or regions;
b. Proof of the legal-person of each party;
c. A balance sheet and a loss-and-profit sheet of each party;
d. The survey of both domestic and international markets, the prediction report and the export ratio of product;
e. Comments of the competent department on the site of the project;
f. Comments of the competent department on environmental protection, fire protection, production safety and hygienic measures;
g. Comments of the competent department on the arrangement of foreign exchange;
h. Pre-examination and estimation report of the competent department about the project.

24. What shall be included in the contract of a Sino-foreign joint venture?
(1) The general;
(2) Each party of the joint venture;
(3) The establishment of the corporation;
(4) The purpose, scope and scale of production and management;
(5) Total investment and registered capital;
(6) The responsibility of each party;
(7) Technological transfer;
(8) Sales of product;
(9) Board of directors;
(10) Management organization;
(11) Purchase of equipment;
(12) Preparation and construction;
(13) Management of production;
(14) Taxation, finance and audit;
(15) Term for joint venture;
(16) Handling of property after the term of joint-venture expires;
(17) Insurance;
(18) Modification, alteration and termination of the contract;
(19) Responsibility for breaking the contract;
(20) Force majeure;
(21) Suitability for law;
(22) Settlement of disputes;
(23) Wording;
(24) Effect of the contract and others.

25. What are the requirements for setting up an investment company?
The applicant in applying for setting up an investment company should conform to the following requirements:
(1) a. The foreign investor should have good credit status and solid financial background for an investment company, with no less than USD400 million of total assets in the previous year. Also, the investor should already have set up foreign invested enterprises within China whose registered capital should exceed USD 10 million, and have three projects whose proposals have already been approved.
Or: b. The foreign investor should have good credit status and solid financial background for an investment company. The investor has already set up over 10 foreign invested enterprises engaged in manufacturing or construction of infrastructural utilities, with its actual paid-in registered capital exceeding USD 30 million;
(2) If the investment company is a joint venture, the Chinese investor should have a good credit status, with solid financial; background and no less than RMB 100 million of total assets;
(3) The registered capital of an investment company should be no less than USD 30 million.

26. What qualifications shall a foreign-funded bank have to apply for establishment?
(1) The investor shall be a financial institution;
(2) It shall have a representative office of more than three years' standing in china;
(3) It shall have total assets of over USD 10 billion at the end of the year prior to the application for such establishment.

27. What qualifications shall a foreign bank have to apply for the establishment of its branch?
(1) It shall have a representative office of over three years' standing inside China.
(2) It shall have total asset of USD 20 billion or more at the end of the year prior to the application for such establishment;
(3) Its home country or region shall have a sound financial supervising system.

28. What organization is responsible for the examination and approval of Sino-foreign funded financial institutions?
The application will be submitted to the General Office of the People's Bank of China for approval after its first examination by the Shanghai Branch of the People's Bank of China.

29. Are there any differences between cooperative enterprises and joint ventures?
The main difference between cooperative enterprises and joint ventures lies in the fact that shares are not calculated merely by capital and that profit is divided not according to the proportion of shares but according to the investment-distribution ratio based on the content.

30. How does a Sino-foreign joint venture divide its profit?
The profit is divided according to the proportion of each party's investment to the total capital.

31. How does a Sino-foreign cooperative enterprise divide its profit?
The profit or product is divided, and risk and loss are shared according to the agreement in the contract.

32. What if the contract of a Sino-foreign joint venture which has already been signed
conflicts with the newly promulgated law?
The contracts carried out inside the border of China, such as that of Sino-foreign joint ventures, of Sion-foreign cooperative enterprises and of Sino-foreign collectively exploring and developing natural resources, can still be carried out according to the contract even if there is a new law.

33. What are the regulations on foreign investor's proportion in a jointly invested or solely foreign-funded enterprise?
A foreign investor's investment can not be less than 25% of the registered capital in a Sino-foreign joint venture.

34. What is the lowest investment quota of overseas businessmen in a jointly invested or solely foreign-funded enterprise?
The lowest investment of an overseas businessman in a Sino-foreign joint venture or a wholly foreign-invested enterprise shall be no less than USD 200,000 and that in a foreign funded enterprise shall be no less than USD 200,000.

35. By what means of forms can a Sino-foreign joint venture pay the investment?
Each party of the joint venture can invest by means of either money or other things that can be evaluated in terms of money like buildings, machinery, materials, industrial property right, know-how and land-using right. Each party cannot draw back its capital within the term of joint venture.

36. Are there any regulations stipulating the time limit of investment?
Sino-foreign joint ventures: each party of the joint venture shall include in the contract the timing of investment and shall pay its capital before the deadline drawn up in the contract. The enterprise shall, according to the related provisions, issue a certificate of receiving the amount of investment, which shall be handed over to both the original authoritative office and ICAB.
If the investment capital is required to be paid off at one time, each party of the joint venture shall pay it off within six months after the issue of the business license. If the investment capital is paid up by installment, each party of the joint venture shall pay no less than 15% of the total investment within three months after the issue of the business license.
The failure of either party of the joint venture to pay off the investment capital before the deadline means self-dismissal of the joint venture and invalidity of the enterprise's approval certificate. The joint venture shall have it written off at ICAB and hand in the business license for cancellation. If not, the ICAB shall withdraw the enterprise's business license and make it known to the public.
Sino-foreign cooperative enterprises: Chinese and foreign partners shall carry out their duties of paying off all the investment capital and offering cooperation in accordance with laws, regulations and contract. If any party cannot fulfil its duty beyond the time limit, the ICAB has the right to set a deadline; if it still hasn't fulfilled its duty when the deadline is due, the authoritative office for approval and ICAB shall handle it according to the relevant regulations.

37. What shall be done if the foreign party wants to withdraw its shares?
(1) The board of directors shall decide to terminate the joint venture ahead of schedule;
(2) The joint venture shall work out its liquidation account according to the regulations;
(3) The property after liquidation shall be allocated to each party according to the proportion of their investments.

38. What if a wholly foreign-owned enterprise's fiscal year is different from the calendar year?
If a wholly foreign-owned enterprise has some difficulty in paying taxes according to the tax year stipulated in the Tax Law, it can apply to the local tax authorities. After approval, it can pay taxes according to the enterprise's own fiscal year which includes twelve months.

39. Can a foreign invested enterprise which has already been registered reduce or increase its
registered capital?
A foreign-invested enterprise can increase its registered capital during its operation period, but the increase must be unanimously approved and decided by board meeting and then it must be submitted to the original approval authority for examination and approval.
If the increased amount exceeds the authority of the original examination and approval authority, the application should be submitted to a higher authority by the original examination and approval authority
A foreign-invested enterprise usually is not allowed to reduce its registered capital during its operation period. If there are justified reasons, the application should be submitted to the original examination and approval authority according to relevant laws and regulations of the State.

40. Can a registered foreign invested enterprise enlarge its business scope?
A foreign-invested enterprise can enlarge its business scope during its operation period, provided that the investors' capital contribution has been paid up. The application shall be submitted to the original examination and approval authority.

48. What are the regulations about the merger and split-up of foreign invested enterprises?
In accordance with industrial policies of the State, foreign-invested capital that are prohibited to establish wholly foreign-owned enterprises and to be in the holding or leading position should not establish wholly foreign-owned enterprises and be in the holding or leading position after the merge or split-up. A company which is newly set up or is divided from the former one can continue to enjoy the preferential policies according to the regulations of the approval and examination authorities, the Customs and taxation authorities. Before the company pays off all the registered capital, provides cooperative conditions and actually starts production and operation in light of its contract and articles of association, the company is kept from merger or split-up.

49. Can foreign invested enterprises become shareholders by means of technology?
Foreign invested enterprises in Shanghai can become shareholders by means of investing their industrial property right, proprietary technology or advanced hi-tech achievement as an invisible capital in the enterprise. The amount of money evaluating invisible capital cannot exceed 20% of its registered capital; advanced hi-tech achievement as an invisible capital can reach 35% of registered capital. Investment value of invisible capital can be assessed by qualified institutions; also it can be consulted to admit and be agreed to bear relevant implicative liability by written agreement by all the investors.

50. What preferential policies can a foreign invested research & development center enjoy?
Foreign invested R&D center can be exempted from customs duty and value added taxes on import in importing equipment for self use, technology form a complete set accessories and spare parts, which cannot be manufactured or whose quality cannot be guaranteed at home. Foreign invested R&D center can be exempted from business tax as same as state science & Research organizations.

51. What sort of preferential policies can foreign investors in software and integrated circuit industry enjoy?
Developing and manufacturing software products in China is encouraged by the State. If, before the year 2010, normal Value Added Tax (VAT) taxpayers who sell self-developed and self-produced software goods pay BAT on the basis of legal tax rate of 17%, then the part of tax paid by over 3% rate may be refunded for R&D and reproduction on an extended scale of software enterprises. The newly set up software enterprises which are verified by the relevant competent department shall, form the year beginning to make profit, be exempt form income tax in the first and second years and allowed from a fifty percent reduction of income tax from the third to fifth years. Except goods listed in Catalogue For Equipment Imported By Foreign Invested Enterprises Not Enjoying Tax Exemption, the Customs Duties and VAT on importing equipment may be exempt if the equipment, technology (including software), accessories and parts imported together with the equipment of software enterprises are imported for self-use.
Setting up integrated circuit manufacturing enterprises in the form of Sino-foreign joint ventures or wholly foreign owned enterprises in China is encouraged by the State. As for normal VAT taxpayers who sell self-produced integrated circuit products (including mono-crystal line silicon), if, before the year 2010, VAT is paid on the basis of legal tax rate of 17%,then the real part of tax paid by over 6% may be refunded for R&D and reproduction on an extended scale. Integrated circuit manufacturing enterprises, with a total investment of over 8 billion RMB yuan or producing integrated circuit whose line width is less than 0.25 micron may enjoy the same preferential policies as that of energy and transportation projects and may also be exempt form the Customs Duties and VAT on imported technology, equipment, raw materials and consumables.

52.How can a joint venture prolong its term after it expires?
If all the parties of the joint venture are willing to prolong the term when it expires, the joint venture shall submit its application for the extension of the term to the original office for approval six months prior to the termination of the contract. Once approved, the joint venture can have its term prolonged and be registered at the ICAB.

53.What is an export-oriented enterprise?
A manufacturing enterprise whose export volume(including export on its own or via an agent) accounts for over 50% of its annual sales, and who has a surplus of foreign exchange and has made a profit during the year, is deemed as an export-oriented enterprise.

54.What is an advanced hi-tech enterprise?
A manufacturing enterprise which is in conformity with the State's Industrial Guidance and which adopts internationally advanced and applicable process for manufacturing, technology, and equipment, whose products's quality and technology take the lenad in the domestic marker, can be acknowledged as an advanced hi-tech enterprise. In getting that name, a foreign invested company should first apply to Shanghai Foreign Investment Commission and get verified after examination. Examinations will be carried out every year.

55.What preferential policies can an export-oriented enterprise and an advanced hi-tech enterprise enjoy?
a. Apart form the state provisions that they pay for or extract for insurance, welfare and accommodation allowance for the Chinese staff, export-oriented enterprises and advanced hi-tech enterprises are exempt for other subsidies the state give to employees.
b. Export-oriented enterprises and advanced hi-tech enterprises are given priority in the supply of water, electric power, transportation and telecommunication required in business and charged at the same prices as with State enterprises.
c. Export-oriented enterprises and advanced hi-tech enterprises which need in production and circulation short-term funds of other necessary loans shall be given priority once examined by the Bank of China.
d. The exported-oriented enterprises can still be exempt form local income tax after the period of local income tax exemption expires when the value of exports exceeds 70% of the year's production value.
e. Advanced hi-tech enterprises can still paytheir enterprise income tax at a reduced rate of 50% for another 3 years after the period of enterprise income tax exemption and reduction expire.
f. Those export-oriented enterprises & advanced hi-tech enterprises in special economic zones and in economic development zones and those already have been paying their enterprise income tax at a reduced rate of 15% can have a 10% reduction if they fit in with the situation mentioned previously.
g. "Two Types of Enterprises" which obtain the land-using right by means of requisition of allocation, can enjoy the preferential policies of land use fee exemption or reduction according to the land grade.
It should be explained that the two types of enterprises mentioned above is not perpetual. According to MOFTEC, an acknowledged export-oriented enterprise will be examined by government authorities every year. If it is disqualified, its preferential for several times, its verification certificate will be revoked.

56. Where to apply for the status of an export-oriented enterprise of an advanced hi-tech enterprise?
Based on the principle of joining the administration and examination & approval together and of localizing the administration of wholly foreign- owned enterprises, districts(including Pudong New Area), counties, some commissions, offices, bureaus are entrusted to examine and verify the export-oriented enterprise. When applying for advanced hi-tech enterprise status, a Foreign-Invested Enterprise should first apply to the authority (equal to the level of district, county or bureau) directly in charge of the enterprise for examination, after that, the application will be submitted to Shanghai Foreign. Investment Commission Coordination Division for Verification.

C. Real Estate Issues Regarding Foreign Investment

57. What kind of land must be obtained through the granting of landusing right?
The land must be obtained by means of granting of land use right if any of the following situations occurs:
1. Land for projects of commerce, tourism, entertainment, finance, service, commercial buildings, etc.
2. The land user is overseas natural person, legal person or other organizations, except for those otherwise stipulated in the law.
3. Other circumstances stipulated by laws, regulated by laws, regulations and rules of municipal government.
4. When the land obtained by means of allocation is to be transferred, if any of the above mentioned situations occurs, the transferee should sign a Transfer Contract with the transferor, and pay the land-using right transfer
fee.(hereinafter referred to as "granting fee") according to relevant regulations before obtaining the land use right.
5. The collective-owned land must be converted to State-owned land before its land-using right can be transferred.

58. How are the time limits and means for the granting of land-use right regulated?
(1) The maximum time limits for granting of land-using right is determined according to its purpose as shown below:
a. Land for residence purpose:70 years;
b. Land for industrial purpose:50 yeas;
c. Land for the purposes of education, scientific research, culture, public health and sports:50 years;
d. Land for commercial, tourist and recreational purposes:40 years;
e. Land for comprehensive or other purposes:50 years;
(2) The following methods can be adopted for the granting of land-using right:
a. by agreement;
b. by tender;
c. by auction;
d. other means approved by the Municipal Government.
The granting of land-using right for commercial, tourist, recreational and luxury residence purposes should be done by tender or auction. Details are stipulated by the Municipal Government separately.

59. What are the main contents of the granting contract of land-using right?
(1) The foreign investor shall sign the contract concerning the granting of using right of state-owned land directly with Shanghai Real Estate Administration Bureau, otherwise the contract will be invalid.
The contract of the wholly foreign owned projects should be signed between foreign investors and Shanghai Real Estate Administration Bureau, while for the joint-venture and cooperative enterprise, it should be signed among foreign investor, Chinese partners and Shanghai Real Estate Administration Bureau.
(2) The following items should be included in the contract:
a) Both parties of Grantor and Grantee;
b) The location of the land, its surroundings and area;
c) The planned use of the land and technical parameter for the planning;
d) The tem of the granting of the land;
e) The amount, payment and term of land granting fee;
f) The responsibility, expense undertaking and completion deadline for the demolition of original buildings, other constructions and accessories on the land;
g) The responsibility for the requirement and expenses undertaking of the public utilities related to the land;
h) Delivery time of the land granted;
i) Start and completion date of the construction of the project;
j) Both parties'rights and liabilities after termination of the granting of land-using right;
k) Responsibility concerning violating of the contract;
l) Settlement of disputes;
m) Other items reached by two parties.
The planned requirements and figures of the land provided by the City's Planning and Administration Bureau according to the approved detailed plan should e attached to the contract. The contract should refer to the standard form which is regulated by Shanghai Municipal Real Estate & Land Administration Bureau.

60.What are the basic requirements for development, utilization and management of the land?
The grantee shall develop, utilize and manage the land according to the planned use and planning requirements, duration and conditions of the development stipulated in the contract. If the grantee develops real estate on the land, it shall follow the relevant applying and examining procedures respectively according to the regulations by Departments of Planning and Administration, Construction, Real Estate Administration. Transportation, Hygiene, Environment Protection, Environmental Sanitation. Fire Prevention and other administrations.

61.What if the violation of the land administration regulations occurs?
The land administration departments can penalize the grantee who violates the terms stipulated in the contract such as the developing period or conditions according to the relevant laws and regulations and can even withdraw the land-using right freely following relevant legal procedures under a worse situation.

62.Can the land-using right be re-transferred?
1) The grantee can re-transfer, collateralize and lease the land-using right or engage in other economic activities legally permitted within the granting period according to the contract and relevant laws and regulations. The new grantee shall continue to follow the contract, fulfill the liabilities and enjoy the rights after the re-transfer.
2) The on-land buildings, constructions and accessories should be transferred together with the land-using right.
66.What does it mean to carry out the National Treatment Status step by step to foreign invested enterprises?
With the entering of WTO in the near future, China will surely practice National Treatment Status to Foreign Invested Enterprises progressively. The practice of National Treatment Status doesn't mean either the total cancellation of Chinese domestic market.

67.What other formalities should be done after a foreign invested enterprise gets its business license?
1) to apply for the official seals at Shanghai Public Security Bureau;
2) to apply6 for the foreign exchange registration certificate at the Shanghai Foreign Exchange Administration Bureau;
3) to open the RMB and foreign currency account;
4) to go through the tax registration at the Tax Bureau;
5) to apply for Corporation Code Certificate at the Shanghai Technology Supervising Bureau;
6) to go through the Customs registration;
7) to go through the Commodity Inspection registration at the Commodity Inspection Bureau;
8) to go through the registration at the Shanghai Statistic Bureau;
9) to go through the employee recruitment procedure at the Labour Bureau and overseas person's working procedure at the Foreigner Working Administration Office or Taiwanese, Hongkongese and Macaunese Working Administration Office in the Labour Bureau.

68.Dose the Customs have any regulations about foreign invested enterprises and their imports and exports?
In accordance with Customs Law of the P.R.C. and relevant regulations, the Customs has formulated the following major regulations to administrate foreign invested enterprises imports and exports:
(1) Once approved for establishment, a foreign-invested enterprise shall register to the Customs.
The enterprise shall fill out the application for declaration for declaration registration and prepare the following papers:
A. A duplicate or photo copy of approved business opening certificate;
B. A duplicate or photo copy of the business license issued by ICAB;
C. The financial guarantee issued by the bank (Hand in when the Customs considers it necessary);
D. Relevant papers to show the business operations of the enterprise.
Once examined and approved by the Customs, the foreign-invested enterprise will be given the Certificate of Declaration Registration and pay service charge for it.

Given the Certificate of Declaration Registration, the foreign-invested enterprise shall choose a full-timer in charge of or a person with special responsibility for declaration at the Customs. They will receive special training from the Customs. If they are qualified through tests, they'll be given a Certificate of Declarer. With this, they can handle declaration.
(2) Raw materials, fuel, components, parts accessories and packing materials imported by a foreign-invested enterprise to fulfilt export contract of goods for export are exempt from import duty. The Customs shall supervise in accordance with relevant provisions and issue "A Registration Booklet of the Customs of the P.R.C. About Imported Materials and Parts to Be for the goods mentioned above. And the Customs examines and releases the goods according to its enterprise contract or its import and export contract.
(1) While following the procedure of declaration on imported or exported goods, the foreign-invested enterprise shall fill out the Customs Declaration Form on Imports (Experts), and declare to the Customs with the receipt of the list of goods transported. If the goods imported or exported need licensing, the Customs will check the license as well.
(2) In accordance with the regulation, the receiver of the imported goods shall declare to the Customs within 14 days after the means of transport declares its arrival, and the sender of exported goods shall declare to the Customs 24 hours prior to the loading except those with special permission of the Customs.
(3) Imported and exported goods shall be subject to the Customs' examination.
(4) Materials and parts imported through a Free Duty Zone and used to manufacture products for domestic marker shall be subject to normal import formalities. The foreign-invested enterprise shall have its import license examined by the Customs for its licensed commodities and shall pay import duties and VAT for the materials and parts

69.Is it necessary to get the assessment from the relevant govemment authority when the foreign invested enterprises use equipment as their capital contribution?
It is necessary for foreign investors to get approval from the government authority in case that they sue equipment as capital contribution. The Commodity Inspection Bureau is responsible for assessing the value of the equipment and the Custom Office will impose import duty on the equipment on basis of the assessed value.

70.What procedures shall the foreign invested enterprises follow to exchange the foreign currencies at the bank?
The Foreign Invested Enterprises should apply to their account-opening bank for handing the foreign exchange and then provide the necessary documents such as Application For for exchanging foreign currency, payment voucher of foreign currency or cheque according to the bank's requirements.

71. How shall a foreign invested enterprise organize its production and export if some of the products are under the administration of state export license?
A foreign-invested enterprise shall be ratified by the responsible department of the State before establishment if it is going to manufacture products that need license for export. Having begun its production, the enterprise shall declare its annual plan within the scale ratified by the State. The responsible department of the State will issue an annual export license the enterprise.

72. How can a foreign invested enterprise obtain an import license?
A foreign-invested enterprise shall submit its application to the responsible government authority if it is going to import products which are licensed for import by the state. Under the prerequisite of reasonable use, the government will arrange for the enterprise an import license within the allocation by the State.

73. What should foreign invested enterprises do to establish branches?
The Foreign Invested Enterprises should apply to original Registration Administration Bureau for Industry and Commerce for the establishment of branches in China according to the relevant regulations. The Foreign-Invested Enterprise shall have paid its registered capital periodically according to regulation and have started production if it wants to establish branches in China, and it should have paid all its registered capital if it wants to establish any operative branches.

74.Can foreign invested enterprises establish branches out of China?
The Foreign Invested Enterprises shall fully contribute their registered capital which is verified by the CPA according to the Articles of Association and have started production (or open business) for at least one year and manufacturing enterprises shall have certain volume of export before they apply to establish overseas branches including sub-company and representative office. The Foreign Economic and Cooperation Department of State Council is responsible for the examination and approval of the application to establish overseas sub-company, while the Foreign Economic and Trade Commission of Provincial level is responsible for the representative office. The Foreign Economic and Cooperation Department of State Council is also responsible for the application submitted by the enterprise whose Certificate of Approval is issued by the same department.

75.Can a foreign invested enterprise set up manufacturing place besides its registered address?
Foreign invested manufacturing enterprises can decide to put manufacturing place to be consistent with registered address or not. According to the concerned regulations of branch's establishment, foreign invested manufacturing enterprises can apply to set up manufacturing place besides its registered address on the basis of requirement of production and management.

76. Can foreign invested enterprises enjoy the tax-refund policy6 for their exported goods?
Foreign invested enterprises, manufacturing and exporting goods within the company's business scope in accordance with Regulations on VAT Refund (Exemption) for Exported Goods and Notification on Taxation Issues of Foreign Invested Enterprises, can apply to competent tax authority monthly for VAT exemption for their exported products with necessary documents The input tax is used to credit the VAT payable on domestically sold products. The balance of the creditable input tax in excess of VAT payable shall be refunded.

77. What's the difference between VAT and Consolidated Industrial and Commercial Tax?
Consolidated Industrial and Commercial Tax is an old tax system with too narrow tax items and duplicate taxation. It is disadvantageous to fair competition between domestic enterp5rises and Foreign Invested Enterprises with two different tax systems. The VAT now practiced imposes tax on basis of added value, which overcomes the shortcoming of Consolidated Industrial and Commercial Tax, standardizes the tax system and equalizes the tax burden.

78. How can a trade mark be registered in China?
Applying for a trade mark registration should be classified according to Commodity Classification Table and the application shall be handed to a trademark business office.

79. What's the provision about the legal person of a foreign invested enterprise?
Chairman of the Board is the legal representative of the enterprise.

80. Can a foreign investor remit abroad is share of profit from the foreign invested enterprise?
Yes, he can.

81. Shall a foreign investor be levied on his share of profit form the foreign invested enterprise?
He's exempt form the income tax because his share of profit from the foreign invested enterpusie belongs to the profit after taxation.

82. How does a foreign management staff in a foreign invested enterprise pay personal income tax?
The income of foreigners now working in China should be taxed. The taxable income is monthly income with 4,000RMB reduction.

83. What preferential policy can foreign investors enjoy if they reinvest the after-tax profit got form the foreign invested enterprise?
Foreign investors can get refund of company income tax imposed on the amount of reinvestment through application to and approval by the tax bureau if they reinvest the after-tax profit in the high-tech or export-oriented enterprises in China with at least five-year operation period. For an ordinary manufacturing project, the refund percentage is 40%.

84. Can a foreign invested enterprise a loan from a bank in China and what's the interest rate upon loans?
According to the needs of business, a foreign-invested enterprise can apply for a loan of either foreign exchange or RMB form bank inside China. The interest rate is promulgated by the People's Bank of China.

85. How do the Chinese and the foreign party share the loss in the joint venture?
The Sino-foreign joint inside China ratified by the Chinese government is responsible corporation limited with the position of a legal- person. The in vestment proportion shall be discussed and agreed upon by both Chinese and foreign parties, who together share investment, operation of the business, risks, profits and losses.

86. How is a dispute solved between the two parties of either a Sino-foreign joint venture or a Sino-foreign cooperative enterprise?
Any dispute that occurs in the explanation or implementation of the joint ventures agreement, contract and Articles of Association had better be solved through negotiation or conciliation. If negotiation or conciliation fails, it can be brought to the court of arbitration or administration of justice.
According to the written-agreement on arbitration, each party of the association can have their dispute solved by the court of arbitration.
Arbitration can be handled in accordance with the arbitration procedures of the China's Arbitration Committee of Internatioanl Trade and Commerce.
With the consent of each party concerned, the dispute can also be handled by an arbitrary organization in the country prosecuted or in a third country, following its arbitration procedures.
If there is no written agreement on arbitration between the parties of the negotiation, either party can bring the dispute to the People's Court of Justice according to law.

87. Can foreign businessmen working for foreign invested enterprises apply for a mulit-time exit and re-entry visa?

Yes. After getting the working permition from the Labour Bureau, foreign businessman can apply to the Exit and Entry Department of Shanghai Municipal Bureau of Public Security.

88. Can foreign employees of a foreign invested enterprise remit their pay abroad?
Yes. The foreign employess of a foreign-invested enterprise can remit abroad their salaries and other proper incomes after fully pa6ing the income tax.

89. Can a foreign invested enterprise open a bank account at a foreign bank in China?
With the business license issued by the State ICAB, any foreign-invested enterprise can open bank accounts of both foreign exchange and RMB at any bank or at any other financial institution which is permitted to handle foreign exchange business by the State Foreign Exchange Administration Department.

100. What shall be done if there are disputes about production between a foreign invested enterprise and its employees?
If labor disputes occur between the employer and employees, they shall first of all be solved through negotiation between the enterprise and its trade union. If they cannot be solved, either party of the disputes or both parties can seek arbitration from Shanghai Labor Dispute Arbitrary Committee. Either party who is still unconvinced can bring it to the Shanghai People's Court of Justice for legal prosecution.

101. Is it necessary to form a trade union in a foreign invested enterprise?
In accordance with the Law of Trade Union of the P.R.C., any physical laborer or mental
laborer of a manufacturing enterprise or of an institution or of a government office who lives mainly on his salary has the right to join or organize a trade union regardless of his nationality, race, sex, occupation, religion and education.
The trade union of the enterprise shall help and guide the employees in signing labor contracts with the administration of the enterprise or of the institution. It can also represent all the employees to sign a collective contract with the administration of the enterprise. The collective contract shall be handed to the Congress of Staff Representatives or all the employees for discussion. The trade union shall coordinate with the administration of the enterprise to deal with the employee's welfare, pay, labor protection and labor insurance. The trade union shall help the administration to arrange for the employees cultural and technical studies at their spare time as well as training, to improve their cultural standard and professional work and to organize sports and recreational activities for them. A Sino-foreign joint venture or a Sino-foreign cooperative enterprise shall ask its trade union for its opinions before it makes decisions on employees' pay, welfare, production safety, labor protection and labor insurance.
The trade union of a foreign-invested enterprise can put forward suggestions about employees' pay, welfare, production safety, labor protection and labor' insurance and negotiate with the administrators of the enterprise.

102. What's the regulation about the trade union's funds of a foreign invested enterprise?
A foreign-invested enterprise shall extract 2% of the total income of the enterprise's staff per month as the trade union's fund: The funds can be used in accordance with the regulation on the trade union's funds promulgated by China's Federation of Trade Unions.

E. Issues Regarding Foreign Investors' Setting Up Representative Offices

103. How do foreign or Taiwan, Hongkong and Macau enterprises apply for the establishment of representative office in Shanghai?
If a foreign, Hongkong, Taiwan or enterprise (referred to trading company, manufacturer, forwarding agent, contractor, consulting company, advertising company, holding company, and leasing company) intends to establish a representative office (a non-direct-operational institution representing its enterprise to engage in such activities as liaison services, marketing survey, product Introduction and technical exchange), it shall entrust Shanghai Foreign Investment Service Center (SFISC) or other sponsors authorized by the government authority according to the nature of its business to apply to the Shanghai Municipal Commission of Foreign Economic Relations and Trade. Once approved, the foreign enterprise shall register to ICAB of Shanghai with the Certificate of Approval within thirty days.

104. What sort of documents and materials shall be presented when an application is made?
When applying for the establishment of a representative office, a foreign or Hongkong, Taiwan and Macau enterprise shall submit the following papers and materials:
(1)The application with the signature of either the Chairman of the Board or the General Manager of the enterprise including brief introduction of the enterprise, purpose to set up a representative office, the name of its representative office, names of the chief representative and representatives (if any) and business scope, its duration and its address, etc;
(2) A legal business-opening certificate issued by the competent authorities of the country or region where the applicant is located (copy);
(3) A letter issued by a financial institution which has business relations with the applicant testifying its financial and credit standing (original);
(4) A letter of attorney issued by the Chairman of the Board or the General Manager for the chief representative and representative (if any) of its office and their curriculum vitae and identity cards (copy). If the Chairman of the Board happens to be the chief representative or representative, the letter should be co-signed by at least another two directors. For those enterprises which have no Board of Directors, the letter should be signed by the executive director.
(5) Two application forms for establishment and personnel arrangement.
(6) Other documents the government considers necessary.
A foreign financial institution or a foreign insurance company or a foreign stock exchange shall submit, in addition to the documents and materials mentioned above, the organization charter of its general company, the name list of the directors and its latest annual report about its capital, debt, profit and loss.

105. Is there any regulation about the location of a resident representative office?
A representative office can either entrust Shanghai Foreign Investment Service Centre (SFISC) to find a place as its office or choose by itself from among the hotels and office buildings designated by the SMERT and rent it.
106. What other formalities must be followed apart from registering with the ICAB (Industrial and Commercial Administration Bureau)?
(1) Apart from registering to the ICAB, the representative office shall gothrough such procedures as preparing official seals, applying for institution code certificate, opening foreign exchange expenditure account and register to the tax bureau step by step;
(2) The foreign representatives shall apply for health certificate, working permission certificate, working visa and long term residence permits;
(3) Register and declare at the Customs Office if there are self-use cars, office appliances and home appliances imported.

107. Which company can be entrusted to engage Chinese employees for a representative office?
A representative office can entrust the Shanghai Foreign Service Company, International Technology & Intelligence Cooperation Company of China or China's Sida Cooperation Company of International Economy and Technology to handle it if it needs to take on Chinese employees. Both the employer and the employee shall sign the employment contract. A representative office is not allowed to take on employees by itself.

108. What's the maximum time limit of a representative office for one approval? How long does the business registration certificate remain in force?
The maximum time limit for a Representative Office approved for one time is three years and if it's necessary, the foreign enterprises shall apply to the Shanghai Municipal Foreign Economic Relations and Trade Commission for extension through original sponsor at least sixty days before termination. The valid term of business registration certificate for a Representative Office is one year. The Representative Office shall apply for extension to the Administration Bureau of Industry and Commerce 30 days before termination and at the same time present a business summary of one year.

109. What shall be done if a representative office wants to change the contents of registration?
If it wants to change the name, its chief representative or representatives, its business scope, it duration or its address, a representative office shall entrust the original sponsor to apply to SMERT (Shanghai Municipal Foreign Economic Relations and Trade Commission). Once approved, it can handle its amendment at the ICAB with the certificate of approval.

110. How are the cancellation procedures followed when the representative office expires or winds up operation before expiration?
When it is time for termination or winding up operation before termination, the Representative Office shall report to the original examination, the Representative Office shall report to the original examination and approval department for reference through original sponsor at least 30 days before termination with the Cancellation Application Letter signed by the Chairman of the Board or General Manager of the enterprise and afterwards go through the
cancellation procedures at Administration Bureau of Industry and Commerce, Public Security Bureau and Custom Office after clearing its liabilities, tax and other relevant matters.

111. As a representative office is only permitted to engage in business liaisons according to relevant regulations, why should it pay taxes?
Usually speaking, a representative office is only permitted to engage in business liaisons. But such activities are a kind of indirectly managed activities, yet are still of business characteristics.
China's relevant tax policies have drawn a clear boundary between imposition and exemption. As stipulated, a representative office, which conducts market surveys and provides business information, liaisons and other preparatory and supportive activities only for the sake of its head office's product manufactured and sold, can apply to be exempt from taxes. But taxes should be levied on the income of a representative office earned through transactions similar or relevant to intermediary and agency services.

112. How should representative offices of foreign enterprises including taiwan, Hongkong and Macau enterprises pay taxes?
Representative offices of foreign enterprises including Tanwan, Hong Kong and Macau enterprises should, within one month after receiving the Certificate of Industrial & Commercial Registration, go to the local competent taxation office to handle the tax registration. The six main taxes levied on representative offices are as follows: Business Tax (tax rate: 50%), Foreign Enterprise Income Tax (tax rate: 33%), Individual Income Tax (progressive tax rate: 50%-45%), Vehicle and Vessel Usage License Plate Tax, Urban Real Estate Tax and Stamp Tax. In practice, business tax, foreign enterprise income tax and individual income tax is the commonest.
As for representative offices that should pay business tax and foreign enterprise income tax, taxes that can be levied on real income or contract amount and commission rate known by tax authorities may be levied on the amount declared or assessed. As for representative offices that cannot provide eligible documents or be distinguished between trading in self-produced goods or trading as merchandise agents, after the examination and approval of tax authorities, taxes can be
assessed and paid on the income converted according to the outgo expenses in order to simplify tax collection procedures.

Brief Introduction of Shanghai Foreign Investment Service Center
Shanghai Foreign Investment Service Center (SFISC), a specialized and comprehensive service institution for overseas investors, is established by Shanghai Municipal Government to improve investment environment and to promote the opening up of Shanghai and the development of Pudong New Area. SFISC was founded in Oct, 1991. It directly reports to Shanghai Foreign Investment Commission. It aims to provide whole-course, multi-level and efficient services for overseas investors, help them solve problems and difficulties which they may encounter in their investment in Shanghai, and make for the smooth development of foreign invested enterprises.
Since its establishment SFISC has already provided various kinds of free services for over 20,000 investors or their representatives, received more than 300 formal investment delegations; acted as the agent for some key municipal infrastructural projects such as Yan-An Dong Road Parallel Tunnel, Nan Pu Bridge-Yang Pu Bridge-Da Pu Road Tunnel, Hu-Ning Express, Yan-An Road Highway, Inner Road Ring, North & South Highway, etc; been entrusted by some well-renowned multinational companies, including GE, intel, 3M, GM, Eaton, Gillette, BOC, Novartis, BHP, Pacific Dunlop, Mitsubishi, Itochu, Hitachi, Pioneer, Hutchison, S.H.K., Henderson, Aurora, President, etc. And helped them set up their companies in Shanghai. So far, the total amount of the pledged foreign investment through SFISC has exceeded US$ 3 billion. SFISC has been continuously conferred the title of "Shanghai Prestigious Consulting Enterprise" for three times by Shanghai Science & Technology commission. Nine professionals have obtained Shanghai Registered Consulting Expert Certificate approved by Shanghai Science & Technology Commission and issued by Shanghai Consulting Association.
SFISC comprises office, consulting & agent division, comprehensive division, promotion division, development division and etc. It provides the following services:
● Introducing the local investment environment; providing consulting services on investment laws, regulations and rules; advising on the evaluation of the potential projects.
● Acting as the legal agent to go through all the procedures for establishing foreign invested enterprises, including preparing and submitting Project Proposal, Feasibility Study Report, Cooperation Contract, Articles of Association and other necessary legal documents.
● Conducting preliminary market research for overseas enterprises prior to investment in Shanghai.
● Assisting in the new company's name and business registration.
● Assisting in the application procedures concerning land-use, construction planning, environmental protection, fire prevention, epidemic prevention, telecommunication services, power water and gas supply and other public utilities.
● Planning and handling mergers & acquisition for foreign invested enterprises.
● Acting as the legal agent for foreign companies to set up resident representative offices in Shanghai.
● Acting as the legal agent for returned students to establish enterprises.
● Acting as the agent for hunting or recommending managers for foreign invested companies.
● Organizing business investigation delegations abroad.
● Offering other investment related services.

Address: 16/F, New Town Mansion, 55 Lou Shan Guan Toad, 200336
Tel: 021-62752200, 62755191, 62756390, 62753910, 62755387
Fax: 021-62758166
Website: http://www.sfisc.com
Email: shinvest@sfisc.com
General Manager (Legal Person): Mr. Fang Yaoguang