Ministry of Commerce Issued the Notice of Archiving Documents on Foreign Investment in the Real Estate Industry

The Ministry of Commerce issued the Notice of Archiving Documents on Foreign Investment in the Real Estate Industry (“Notice No. 23”) on June 18, 2008.

The Notice No. 23 (hereinafter referred to as the “Notice”) sets out that the Ministry of Commerce shall authorize competent provincial departments of commerce to examine the archival materials on foreign investment in the real estate industry and the Ministry of Commerce shall carry out selective examination on certain number of foreign invested real estate enterprises (“FIREE”) each quarter. In case a FIREE fails to conform to current provisions, its foreign exchange registration shall be cancelled.

Consistent with former Opinions, the Notice restates project company principle. Foreign investment (including capital increase) is only limited to an approved single real estate project, which means, one FIREE is limited to operate one project and vice versa, one project can only be operated by establishing one FIREE.

Additionally, the Notice lists types of materials that the competent provincial departments of commerce shall examine in accordance with Document No. 171 and Document No. 50. It is our experience that in practice, the Ministry of Commerce usually conducts selective examination on these issues: (1) whether the establishment of the FIREE (including capital increase) has been in compliance with project company principle and whether the FIREE is only limited to an approved real estate project; (2) whether the shareholders of the FIREE are not companies formed offshore by a domestic company/natural person, and whether all shareholders of the FIREE are not affiliated to each other, or are not subject to a same actual controller; (3) whether the balance of registered capital and total investments complies with relevant regulations.

The Notice, together with other formerly promulgated rules and regulations, have formed a series of principles governing foreign real estate investments, i.e. business existence principle, project company principle, limitation on offshore finance principle, limitation on return investment of domestic residents and project archiving requirements etc.

(Written by Helen Yan on behalf of a Beijing firm for publishing on ALB. This article is prepared for reference only and shall not be construed as legal advise.)

Helen Yan - Attorney at Law, Member of PRC Bar Association
Tel: 0756-3229508 Mobile: 13928008926
Email: yanhailing@yahoo.com