The Chinese market provides several investment vehicles available for foreign investors. The legislation in this sense was modified a few years ago, under the regulations of the Securities Investment Fund Law, providing new guidelines for private investment funds established in China. As a general rule, investment vehicles in China are addressed to retail investors and professional investors, and they can be set up as open-ended or closed-ended. Our team of lawyers in China can provide an in-depth presentation on the requirements for the registration of an investment fund.
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Register a Chinese investment fund
Businessmen who want to set up a business in China can register a private investment fund, which is defined by the fact that the financial assets are raised from non-public sources. As a general rule, the private investment funds are not required to receive an approval for their activity, but they should register at the Asset Management Association of China (AMAC). Our team of attorneys in China can provide more details in this sense. The main regulatory body for the investment vehicles available here is the China Securities Regulatory Commission (CSRC). The fund managers should file the following documents during the registration procedure:
- • business license;
- • articles of association/partnership agreement;
- • the list of shareholders;
- • details about the fund’s senior management.
Here is a video about how you can open an investment fund in China, with complete legal support offered by our Chinese lawyers:
Retail funds in China
The main rule of law which regulates the activity and the incorporation of a retail fund in China is the Securities Investment Funds Law, that entered into force in June 2013. The main characteristic of a Chinese retail fund is that it is publicly offered to investors who do not have a high level of knowledge in the investment field. They can also be registered as non-publicly offered funds, if the shareholders (not exceeding 200) are qualified investors, as stipulated in Chapter X of the above-mentioned legislation.
What types of retail funds are available in China?
Retail funds in China can be registered as open-ended funds or closed-ended funds, which can take the form of:
- • equity funds;
- • money market funds;
- • debt funds;
- • hybrid funds;
- • qualified domestic institutional investor funds, which are a special category of funds created by the Chinese authorities, which allow the usage of foreign exchange quotas.
- • exchange-traded funds.
Investors who want to open a business in China set up as an investment fund should know that the most common type of vehicle is the open-ended fund.
Our law firm in China can offer assistance on how to register an open-ended fund here, which provides no restrictions to the investors. This type of vehicle i is also one of the most popular types of funds in China.
Hedge funds in China
Under the New Funds Law, hedge funds can be used to register a private fund, able to invest in public securities. The main regulatory framework available in this case is the Administrative Measures for the Master Trust Schemes of Trusted Companies.
Taxation of qualified investors in China
The term qualified investor, also referred to as accredited investor, is used to designate a businessman with a high level of sophistication and knowledge in the field of financial markets. Recently, the Chinese authorities have enacted new regulations referring to the taxation of qualified investment funds, performed following the rules stipulated under the Cai Shui 2015 No. 125 notice, issued by the Ministry of Finance, the State Administration of Taxation and the China Security Supervision Committee, applicable starting with 18th of December 2015.
The notice, on which our team of lawyers in China can provide legal advice, stipulates that Chinese residents involved in an investment fund are exempted from paying the individual income tax (the regulation is available until 17th of December 2018).
On the other hand, investors receiving income from an investment fund in Hong Kong are taxed at a rate of 20%. Still, such investment funds are exempted from paying the capital gains tax applicable to trading participation.
Taxation of retail investors in China
In China, foreign investors are allowed to directly invest in several retail funds, in the following conditions:
- the foreign investors have received a license from the China Securities Regulatory Commission to act as qualified foreign institutional investors;
- investment funds registered in Hong Kong, which invest on the Chinese market under the qualified foreign institutional investors programme.
New set of laws for investments in China
CSRC (China Securities Regulatory Commission) presented in 2020 the Provisions on Strengthening the Supervision of Private Investment Funds, the first regulatory document that addresses private fund industries and managers. This is also named Announcement 71, aimed for a better control of private investment funds and focused on the protection of legal rights in this field. We present you a few of the provisions comprised by Announcement 71:
- • Preferential tax policies for fund managers are offered in cities like Shenzhen, Beijing, or Shanghai.
- • Private fund managers are obliged to pay attention to the name of the fund manager. Venture investment or private fund management should be part of a private investment fund’s name.
- • Local taxes can be returned, not entirely, and as a financial grant.
- • A Qualified Foreign-Limited Partnership can be used for setting up a private investment fund in China.
- • Renminbi Qualified Foreign Institutional Investor (RQFII) and Qualified Foreign Institutional Investor (QFII)are seen as qualified investors, according to the Announcement 71.
The new set of regulations also mentions VAT exemptions for gains derived by RQFII or QFII, but more details in this direction can be discussed with our Chinese lawyers.
FAQ about investment funds in China
1. Who can set up investment funds in China?
Retail and professional investors can establish private investment funds in China. Support in this direction is offered by a Chinese specialist with experience in this area.
2. What is the institution that registers investment funds in China?
The Asset Management Association of China or AMAC is the institution through which investment funds are registered. Moreover, China Securities Regulatory Commission regulates the investment vehicles in China.
3. What types of documents are needed for the registration of an investment fund in China?
Because such funds can be registered by incorporating a business in China, the Articles of Association, the list of shareholders, the business license, and the partnership agreement are required. One of our attorneys in China can oversee the preparation of the necessary documents of an investment fund in China.
4. How many shareholders can register a retail fund in China?
Several shareholders acting as qualified investors and not exceeding 200 can register non-publicly offered funds. Equity funds, debt funds, exchange-traded funds, and hybrid funds are considered retail funds.
5. How can a Chinese lawyer help me register an investment fund in China?
We have a dedicated team of specialists who can help both local and foreign investors register an investment fund, in compliance with the current laws. More on this topic can be provided by our Chinese lawyers if you get in touch with us.
Making investments in China
China is certainly a top destination for foreign investors and often the right option for establishing current activities or registering new operations. What makes it attractive from the point of view of investments is the possibility to access various capital markets, but also the quite advantageous taxation system.
In addition, it is well known that the workforce in China is highly valued in all areas of interest. In addition, the simplicity with which you can incorporate a business is another important advantage carefully verified by investors before any step. Even the relocation of a foreign company to China is devoid of complexity, offering the opportunity to restart business in a relatively short time. Here are some figures and statistics that highlight China’s economic and business direction:
- More than USD 1,769 billion represented the total FDI stock registered by China in 2019.
- Around USD 62 billion was the total value of the greenfield investments in China in the same year.
- 31st out of 190 economies in the world was the rank of China for the simplified business, as stated by the 2020 Doing Business report.
- A series of tariff cuts were implemented by the Chinese authorities to attract foreign investments even more.
- Regarding the key investors in China, Hong Kong, the Virgin Islands, Singapore, the Cayman Islands, Germany, Japan, South Korea, and US continue to represent important partners to China.
- The mergers and acquisition transactions grew by 84% in 2020 in China, increasing the FDIs by 4%, according to the latest report issued by the Global Investment Trends Monitor.
Such investors are required to pay a withholding income tax applicable at the rate of 10% for their income deriving from an investment vehicle in China.
Businessmen interested in registering an investment fund in China can address to our law firm in China for legal assistance.