The Chinese government now allows Foreign Invested Partner Enterprises, otherwise known as FIPE to remit profits our of China. The news is, these types of remittances do not need the approval of the State Administration of Foreign Exchange (SAFE). Furthermore, the dividends are not allowed to be distributed or repatriated to any overseas country if any previous losses have first not been covered. The dividends that are not distributed during past years shall be distributed together with the dividends of the current year. Repatriating registered capital to home countries is also forbidden under the new law during the term of business operation.
Any partnership company is basically a profit-making entity that is jointly funded, co-financed and shared by several partners. It is considered to be a profit-making organization which has unlimited joint and joint liability for corporate debt. Foreign Invested Partnership Enterprises or FIPE refer to those foreign companies that have been set up by two or more partners. In China, a Foreign Invested Partnership Enterprise can be established in two ways:
- Two or more foreign individuals or enterprises shall establish a partnership in China, with all of them being foreign individuals.
- Foreign individuals or enterprises shall establish partnerships in China with individual persons, legal corporation and other organizations of China.
- Advantages of China Foreign Invested Partnership Enterprise
- Under the new law, all Chinese individuals are now allowed to directly take part as an individual investor, which is considered to be slightly different from a Joint Venture (JV).
- Under the new law, there is no need to apply for further approved for establishing the business.
- Under the new law, there’s no capital injection needed or a stipulated minimum capital.
- The enterprise is allowed tokeep a simple management mechanism structure, higher decision-making capabilities, while keeping management costs low.
- No need to pay a Corporate Income Tax.
- Significantly reduces the operating cost of the business, leading to more profit margin.
Disadvantages of China Foreign Invested Partnership Enterprise
Before starting a business anywhere, it is important to know about both the advantages and disadvantages of venturing out to new markets. The following are some of the disadvantages of a Foreign Invested Partnership Enterprise.
Industrial Boundaries for China Foreign Invested Partnership Enterprise
The prohibited classes marked as "China relative holding", "limited to the joint venture and cooperation", "shall be limited to the joint venture", "limited to cooperation", "China holding company", and projects with foreign investment proportion requirements in the Foreign Investment Industrial Guidance Catalogue shall not set up any foreign-funded partnership enterprises.
General Partner Bears Unlimited Liability, While Limited Partner has Been Granted No Rights for Enterprise Management
A general partner under Foreign Invested Partnership Enterprise assumes unlimited joint liability for the debts the FIPE incurs. This is different in traditional Chinese-foreign joint ventures, or Sino-foreign cooperative enterprises, or WFOE who adopt the limited liability company organization. The company forms shareholders bear limited liability for any debts that are based on the subscribed capital contribution to the enterprise.
While a PRC FIPE Law already stipulates that every FIPE needs to have at least one general partner, while other partners can serve in a limited partner capacity. General partners are to bear unlimited joint and several liabilities for the debts of the partnership, while limited partners, on the other hand, are limited to the subscribed capital contribution to bear the liability for the debts of the partnership. That being said, limited partners shall be prohibited from exercising the partnership management and shall not carry out the partnership affairs, or represent the limited partnership.
The process of creating a Foreign Invested partnership Enterprise can get complicated, which is why you would want to have the best experts for the task by your side. We offer our professional experience and expertise in helping foreign firms create Foreign Invested Partnership Enterprise in China.
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