On 13 March 2015, the PRC Ministry of Commerce ("MOFCOM") and National Development and Reform Committee ("NDRC") released the 6th revision of the Foreign Direct Investment Industries Guidance Catalogue ("2015 Catalogue") 1. It is welcomed by most of the foreign investors as the 2015 Catalogue echoes the market expectations for greater openness and liberalization through lifting many restrictions on foreign investment in various industry sectors.
In this tax flash, we highlight some of the notable changes in the 2015 Catalogue as well as the development of a new Foreign Investment Law.
OVERVIEW OF THE 2015 CATALOGUE
Foreign Direct Investment Industries Guidance Catalogue ("Investment Catalogue") was first published in 1995. It divides foreign investment into four categories: "Encouraged"2; "Restricted"3 and "Prohibited"4 (industry sectors not listed in the Investment Catalogue are deemed to be "Permitted"). It also stipulates the rules on foreign ownership restrictions and the allowable corporate forms that foreign investment can be invested. During the past 20 years, several revisions have been made to reflect the change of the Central government's economic and industry development policies.
Compared to the 5th revision, the number of "Encouraged" sectors in the 2015 Catalogue has been slightly increased to 349, whilst the "Restricted" sectors sharply reduced from 79 to 38 and the "Prohibited" sectors slightly reduced from 38 to 36.
Below are some of the major changes in each categories:
The requirement of PRC majority shareholding on "Production and R&D of Automobile's Embedded Electronic Integrated System" has been lifted. Foreign investors are now permitted to establish wholly foreign owned enterprises to produce and research on the related products. Production and Supply of Power, Gas and Water
"Construction and Operation of Power Grids" has been moved from the "Restricted" category to the "Encouraged" category. However, such projects still require majority ownership by Chinese partners. Scientific Research, Technical Services and Geological Prospecting
Development and application of "Internet Technologies" is added to the "Encouraged" category. This is in line with the supportive State policy in the new and high technology field. Communication and Transportation, Storage, Post and Telecommunication Services
The requirement of PRC majority shareholding on "Construction and Operation of Urban Subway, Light Railway and other Track Transport" has been lifted. Foreign investors can set up wholly foreign owned enterprises to construct and operate the aforesaid projects. Leasing and Commercial Service Industry
The restriction of joint venture or partnership on "Accounting and Auditing" has been lifted. Foreign investors can set up wholly-owned accounting firms in the PRC5 to provide accounting and auditing related services. Education
"Occupational Training" is added into the "Encouraged" category, reflecting the supportive State policy in this field. Public Health,...