Since the Ministry of Commerce issued the draft Foreign Investment Law for comments earlier this year, discussions have reignited over the validity of the variable interest entity (VIE) model, in which foreign investors control domestic enterprises by contractual arrangements. The draft law has provided that the law will apply to the control of domestic enterprises by foreign investors under the VIE model, which will present both opportunities and challenges to companies adopting that model.
One of the opportunities is that the draft law provides an institutional path for addressing the long-debated compliance issue of the VIE model – i.e. the argument that VIEs are used to circumvent foreign investment restrictions. This is manifested primarily in the aspects discussed below.
Actual controllers
The draft law has introduced the groundbreaking criteria of “actual controllers” for determining whether investors are domestic or foreign. In other words, an investment made in mainland China by foreign enterprises controlled by Chinese investors may be recognized as investment by Chinese investors. This means that the so-called “false foreign investment” will be formally recognized as the domestic investment it is, and may no longer be subject to regulations on foreign investment.
You must be a
subscribersubscribersubscribersubscriber
to read this content, please
subscribesubscribesubscribesubscribe
today.
For group subscribers, please click here to access.
Interested in group subscription? Please contact us.
你需要登录去解锁本文内容。欢迎注册账号。如果想阅读月刊所有文章，欢迎成为我们的订阅会员成为我们的订阅会员。
William Huang Yongqing is a partner in the Beijing office of Jingtian & Gongcheng. He can be contacted on +86 10 5809 1077 or by e-mail at huang.yongqing@jingtian.com
