Switch of domicile by foreign enterprises (1): methods and options

In the past three years, the number of cases involving the relocation of foreign investment enterprises (FIEs) within China, especially the relocation of domicile across districts and between cities, has increased considerably. China currently does not have any specific laws governing this relatively new area, and both theoretical research and the government’s practical experience in granting such approvals are inadequate. When an FIE changes its domicile within China, a number of legal issues are usually involved, such as approval and registration, liquidation and deregistration, the disposal of immovable property, the transfer of assets and the succession to and transfer of corporate rights and obligations, as well as tax, labour and personnel matters.

Legal framework

Specific laws and regulations are available for reference in the areas of acquisition, merger, demerger, reinvestment, increase and decrease of registered capital and liquidation of FIEs, but laws and regulations governing changes of domicile do not yet exist. Other than the State Administration for Industry and Commerce which has issued, in conjunction with the Ministry of Commerce and other ministries, notices regarding procedural requirements for changes of domicile by FIEs, only a few local governments have published guidance documents or internal notices for the purpose of handling practical situations in their localities, or for other related purposes. An example of this is the Notice on Strengthening the Administration of the Relocation of Domicile of Enterprises Between Districts, issued by the Shanghai finance and taxation department in early 2009.

To change the domicile of an FIE, reference must be made, in principle, to the substantive provisions and procedural requirements for a change in business address of an FIE provided in the PRC Company Law and the three FIE laws (namely the PRC Sino-Foreign Equity Joint Venture Law, the PRC Sino-Foreign Co-operative Joint Venture Law and the PRC Wholly Foreign-Owned Enterprise Law) and their respective implementing regulations. Specific laws and regulations covering the establishment, liquidation, finance, accounting, taxation, business and labour relationships of FIEs may apply, depending on the relocation methods chosen. Finally, FIEs must observe any specific local regulations relating to relocation of the place of origin and the destination.

Martin Hu is a senior partner of Martin Hu & Partners. Kenneth Kong is a senior associate at Martin Hu & Partners.