For working capital or other reasons, a foreign invested enterprise(“FIE”) may consider loaning money from overseas entity or individual. Under PRC legal scheme, such loan will be deemed to be foreign debt and a FIE need to satisfy the following conditions before a FIE borrows foreign debt:
– the percentage of the contribution by the foreign investor to the registered capital of FIE is more than 25%(please note that if the percentage of the contribution by the foreign investor to the registered capital of FIE is less than 25%, the borrowing of foreign debt will be handled in accordance with laws on borrowing of foreign debt by purely domestic company, which require approval on quota from National Development and Reform Commission) ;
– the amount of loan should be subject to difference between FIE’s registered capital and total investment, and the sum of the aforesaid loan and FIE’s existing foreign debt(long term foreign debt, the remaining amount of short term foreign debt and overseas guarantee) should not exceed the aforesaid difference;
– in the event that the investors of FIE make capital contribution by installment, the first installment have been contributed in full; and
– at the time of FIE’ borrowing money from overseas entity or individual, FIE’s shareholder has made capital contribution to the FIE in line with articles of association of FIE.
Please note that a FIE which was established after June 1, 2007 and engaged in real estate business is not allowed to borrow foreign debt.
The FIE which satisfy the foregoing conditions should prepare the following documents and submit the same to local Administration for Foreign Exchange for foreign debt registration(FIE should do foreign debt registration within 15 working days after execution date of the loan agreement):
– Application Letter for Registration Letter(which should indicate the information regarding borrower and lender, loan amount, loan term, loan purpose and loan repayment schedule and so on);
– Form regarding Information on Foreign Debt by Domestic Institution;
– Business license and foreign investment approval letter of FIE;
– Capital verification report of FIE;
– Loan agreement(FIE should provide Chinese translation if the language of loan agreement is English) ;
– Other documents as required by Administration for Foreign Exchange.
Local Administration for Foreign Exchange will, within 20 working days after receiving the aforesaid documents, make decision whether or not to grant approval. After obtaining approval from local Administration for Foreign Exchange, FIE should go to local bank to open foreign debt account to receive loan, which will take around 5 working days.
By Adam Li