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Setting up a Company in the Shanghai FTZRemoval of Pre-Establishment Approvals

Approvals in the FTZ are essentially removed except for projects require by the Chinese

cabinet where approval of the development and reform commission are required. This

includes project approval for foreign investors and approval for the establishment and

change of certain registered information of foreign-invested enterprises such as change

of shareholders, change of registered capital, articles of association, etc.

M & A in the FTZ is still subject to the same rules in terms of security and anti-trust

security.

Pre-approval replaced by reporting requirement

Need to register the investment project with the Shanghai Municipal Government

Investors are also encouraged to establish special purpose vehicles in the FTZ to conduct

outbound equity investment and qualified investors are encouraged to set up outbound

equity investment funds

WFOE

Process: set up, division, merger or other significant reorganization; duration term of

operationEstimated time to set up: 3 months

EJV

Process: set up (including JV agreement/contract and articles of association); extension

of the term of operation; dissolution

CJV

Process: set up (including JV agreement/contract and articles of association); significant

changes in JV agreement/contract and articles of association; assignment of rights andobligations in the JV contract; delegation of management; extension of the term of

operation

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Registered Capital

- Shall be more than RMB 500k (or relevant foreign exchange) and suit the scale orbudget of investment

- 20% of the Registered Capital is to be injected into a new company within 3months since the date of issuance of the business license

- The other 80% registered capital will be injected within 2 yearsTax Rate

- Value added tax: 17%- Enterprise profit tax (income tax): 25%- Income tax rate for FTZ enterprises: 15%

New Tax Polices encourage Investment and Trade

- Companies registered with the free-trade zone or their individual shareholdersare entitled to pay incomes taxes in installments over a five year period for those

amounts equal to their assets increased evaluated value as a result of non-

monetary assets investments or other assets reorganization activities- Financial leasing companies entitled to import VAT benefits

Requirement of the Companys Structure

1. Shareholder of the Company: the investors of the company.

2. Board of Directors or Executive Director of the Company: a Company may set Board of

Directors, or not set Board of Directors and just set 1 executive director, members of the

Board of Directors (3 or more than 3 persons are required) or executive director (1

person) shall be appointed by Investors (Shareholders) of Company.

3. Board of Supervisors or Supervisor of the Company: a Company may set Board ofSupervisors, or not set Board of Supervisors and just set 1 Supervisor; members of the

Board of Supervisors (3 or more than 3 persons is required) or Supervisor (1~2

persons) shall be appointed by Investors (Shareholders) of Company. Members of Board

of Directors, financial personnel and general manager should not act as Supervisor.

4. Legal Representative of Company: Legal Representative of Company shall be acted by

Chairman, Executing Director or General Manager.

5. Accountant of Company: a Company shall employ 1 accountant who has a Chinese

Qualification Certificate of Accountant (or using accounting service from Chinese

accounting service company).

Registering Outbound Investments

- No longer need prior approvals- Only need to register the investment project with the Shanghai Municipal

Government

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Application flow for Manufacturing Enterprises

Source:http://www.by-cpa.com/china/fdi/local/shanghai_zone.html

http://www.by-cpa.com/china/fdi/local/shanghai_zone.htmlhttp://www.by-cpa.com/china/fdi/local/shanghai_zone.htmlhttp://www.by-cpa.com/china/fdi/local/shanghai_zone.htmlhttp://www.by-cpa.com/china/fdi/local/shanghai_zone.html

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Application Flow for Trading Enterprises

Source:http://www.by-cpa.com/china/fdi/local/shanghai_zone.html

http://www.by-cpa.com/china/fdi/local/shanghai_zone.htmlhttp://www.by-cpa.com/china/fdi/local/shanghai_zone.htmlhttp://www.by-cpa.com/china/fdi/local/shanghai_zone.htmlhttp://www.by-cpa.com/china/fdi/local/shanghai_zone.html