Author: Jin Jianzhi, Mankiw Blockchain
A common dilemma faced by Web3 entrepreneurs is that most of the company's operating income is in overseas companies, or the financing received can only be converted into legal currency in a compliant manner overseas. However, the company's main team is in the mainland, and the operating expenses are mainly in the mainland. In this context, how can the legal operating income and financing income of overseas companies be repatriated to the mainland? One way is through foreign direct investment (FDI).
What is FDI?
According to the Foreign Investment Law of the People's Republic of China and other relevant regulations, FDI can be understood as investment activities directly carried out in China by foreign natural persons, enterprises or other organizations (hereinafter referred to as foreign investors) using cash, physical objects, technology, etc. Common FDI situations include:
(1) A foreign investor establishes a foreign-invested enterprise in China alone or jointly with other investors;
(2) A foreign investor acquires shares, equity, property shares or other similar rights and interests in an enterprise within the territory of China.
At present, my country implements the pre-entry national treatment and negative list management system for FDI. In short, except for certain specific areas where the state implements special management measures, foreign investors and domestic investors enjoy the same rights and obligations for other foreign investments.
In the information transmission, software and information technology service industries, only "Telecommunications companies: limited to the telecommunications services that China has committed to opening up upon accession to the WTO, the foreign equity ratio of value-added telecommunications services shall not exceed 50% (excluding e-commerce, domestic multi-party communications, storage and forwarding, and call centers), and basic telecommunications services must be controlled by the Chinese side." and "Investment in Internet news and information services, online publishing services, online audio-visual program services, Internet cultural operations (excluding music), and Internet public information publishing services (the above services, excluding those that have been opened up in China's WTO accession commitments)" are included in the Special Management Measures for Foreign Investment Access (Negative List) (2021 Edition). For other areas, the mainland does not impose restrictions.
In short, common entrepreneurial fields of Web3 entrepreneurs, such as public chain development, cross-chain technology, DAPP, DID or other on-chain infrastructure construction, can safely apply FDI.
How to conduct FDI?
Take the establishment of a foreign-invested enterprise as an example. Based on the policy orientation of expanding opening up, with the implementation of the Foreign Investment Law on January 1, 2020, the original approval and filing management system for the establishment and change of foreign-invested enterprises was cancelled, and foreign-invested enterprises only need to make information reports. The establishment of foreign-invested enterprises has become more convenient.
Similar to the establishment procedure of a mainland company, after submitting the materials required by the market supervision and management department to register a company (it should be noted that since the shareholders are overseas companies, the shareholder qualification certificate or identity certificate submitted should be notarized by the notary office of the country where the shareholder is located and authenticated by the Chinese embassy (consulate) in that country), the establishment registration of a foreign-invested enterprise can be completed. The subsequent process is roughly: FDI foreign exchange registration → opening a capital account → capital remittance → account registration → foreign exchange settlement and use → profit remittance → cancellation of registration. FDI foreign exchange registration and subsequent capital account opening and capital remittance can be completed directly at the bank.
How will the funds be used?
When a company uses capital within its business scope, it can freely choose to settle foreign exchange by payment or by will. Generally, there are two ways to settle foreign exchange:
(1) Payment and foreign exchange settlement method: When an enterprise actually has a need for domestic RMB payment business, it shall settle and pay the foreign exchange. The settlement amount shall not be greater than the payment amount.
(2) Willing foreign exchange settlement method: The capital of an enterprise can be partially or fully settled in foreign exchange first, and the RMB after settlement will be deposited into the corresponding settlement payment account. Subsequently, applications will be submitted one by one according to actual payment needs. Generally, enterprises need to submit authenticity materials to the bank in advance for each payment of capital.
However, if the enterprise meets the conditions for facilitation of foreign exchange income payment under capital projects (excluding non-financial enterprises, real estate enterprises and government financing platforms, and meets the conditions of no foreign exchange administrative penalty record in the past year, and if it is an enterprise on the list of foreign exchange receipts and payments for goods trade, its goods trade classification result should be Class A, etc.), it can also enjoy facilitation services. When handling domestic payments of foreign exchange income under capital projects and RMB funds obtained from foreign exchange settlement, enterprises included in the facilitation scope do not need to provide authenticity certification materials to the bank in advance for each payment, and the enterprises shall keep the relevant materials for 5 years for future reference.
If the foreign-invested enterprise subsequently decides to distribute the retained profits as dividends, it can also be handled directly at the bank. The profits of foreign shareholders can be remitted after paying taxes after the relevant profits are audited by the accounting firm and after the company's internal resolution procedures, if the public accumulation fund is withdrawn and the losses of previous years are made up in accordance with the legal requirements.
Summarize
In summary, Web3 entrepreneurs can legally repatriate overseas funds to foreign-invested companies in the Mainland through FDI to pay for the operating expenses of the Mainland team. If the foreign-invested company subsequently distributes dividends, the funds can also be legally remitted overseas, which is a way to go in and out. Of course, there is more than one way to legally repatriate funds through FDI. You can continue to pay attention to Mankiw's series of articles.