Detailed Rules for the
Implementation
of the Law of the People's Republic
of China
on Sino-Foreign Contractual Joint
Ventures
(Approved by the State Council of the People's
Republic of China on August 7, 1995 and Promulgated by
the Ministry of Foreign Trade and Economic Cooperation
on September 4, 1995)
(Continuation from the First Part )of the Translation)
Chapter VI
Material Purchase & Product Sales
Article 36
A contractual JV makes the production and operation plans by
itself according to the approved business scope and operation
scale. The government authorities shall not force a venture to carry
out any production and operation plan worked out by any
governmental authority.
Article 37
A contractual JV may decide by itself, from in or outside the
Chinese territory, the purchase of machinery, equipment, raw
materials, fuel, parts, accessories, components, means of
transportation and office facilities, etc. (hereinafter referred to as
materials) for its own use.
Article 38
The State encourages a contractual JV to sell its products on the
world market. A JV may either sell the products on the world
market by itself or entrust foreign sales agencies or foreign trade
companies in China to sell on commission.
The product prices of a contractual JV are subject to the venture's own decision according to law.
Article 39
Customs duty and import intermediary tax shall be exempted on
the import of machinery, equipment, parts and other materials
serving as the contribution of the foreign party, and machinery,
equipment, parts and other materials for production and operation
requirements with fund allocated from the total amount of
investment of the venture. In case the aforesaid duty -free materials
are approved to be resold within China or put on sale on the
domestic market, relevant taxes shall be levied or made up
according to law.
Article 40
A contractual JV shall not export products at prices notably lower
than the reasonable prices of similar products on the world market,
nor import at prices notably higher than that of similar products on
the world market.
Article 41
Product sales of a contractual JV shall abide by the stipulations of
the approved contractual JV contract.
Article 42
To import or export products that are subject to license and quota
control, a contractual JV shall go through the application
formalities for license and quota in accordance with relevant State
regulations.
Chapter VII Income Distribution and Investment Recovery
Article 43
The foreign and Chinese parties may distribute their income by
distributing the profits, products or by other methods agreed upon
by all parties.
In case of income distribution by distributing the products or by other methods, the amount of taxes due shall be calculated according to relevant tax laws.
Article 44
If the ownership of all fixed assets of a contractual JV is to be
given to the Chinese party upon expiration of the term of
cooperation as agreed upon by the Chinese and foreign parties in
the contract, the foreign party may recover its investment during
the term of cooperation in the following ways:
(1) Based on the distributing according to investment or cooperation input, the contractual JV contract may regulate an enlarged ratio of income distribution in favor of the foreign party;
(2) Upon examination and approval of the finance and tax authorities according to State taxation regulations, the foreign party may recover its investment before the venture has paid its income tax:
(3) Other investment recovery methods approved by the finance and tax authorities, and examination and approval authorities.
In case the foreign party recovers its investment within the term of cooperation according to the above paragraphs, the foreign and Chinese parties shall be liable to the debts of the venture in accordance with laws and the contractual JV contract.
Article 45
The application that is put forward by the foreign party that
chooses to first recover the investment according to (2), (3) of
Article 44 shall state in details the total amount of investment to be
recovered, recovery period and method, which shall be reported
to the examination and approval authorities for approval after
being approved by the finance and tax authorities. The foreign
party shall not first recover its investment before the venture has
covered all of its losses.
Article 46
A contractual JV shall appoint an accountant registered in China to
check and examine the accounts and certificates according to
relevant State regulations. The parties may jointly or individually
appoint such an accountant, with the expense borne by the
appointing party or parties.
Chapter VIII Term and Dissolution Article 47
The term of cooperation of a contractual JV shall be decided upon
through consultation of the foreign and Chinese parties and
regulated in the JV contract.
If all parties agree to extend the term upon its expiration, an application for extension shall be filed with the examination and approval authorities 180 days prior to the expiration date, stating how the current contractual JV contract is carried out and reasons for extending the term, together with an agreement by all parties on issues such as rights and obligations of each party during the extension period. The examination and approval authorities shall decide whether to approve the extension or not within 30 days from receiving the application.
Upon approval to extend the cooperation term, the JV shall go through registration formalities for the alteration with the approval documents. The extension term starts from the first day after the expiration date.
If the contractual JV has stipulated that the foreign party first recovers its investment, and the investment recovery has been completed, the term of the venture shall not be extended upon expiration. But in case the foreign party has increased its investment, application for extending the cooperation term may be filed with the examination and approval authorities according to the second paragraph of this article after consultation between the parties.
Article 48
A contractual JV shall dissolve under one of the following
situations:
(1) Expiration of the cooperation term;
(2) Inability to continue operation due to heavy losses, or heavy losses caused by irresistible force;
(3) Inability to continue operation due to the failure of one or more than one of the foreign and Chinese parties to fulfill the obligations put down in the JV contract and articles of association;
(4) Occurrence of other reasons for dissolution described in the JV contract and articles of association;
(5) The JV is ordered to close by law for having violated laws and decrees.
In cases described in (2) and (4), the board of directors or joint management committee of the JV shall make an dissolution application to the examination and approval authorities. In cases described in (3), one or more than one of the foreign and Chinese parties that fails to fulfill the obligations described by the agreement, contract and articles of association shall be liable to the losses suffered by the other party or parties that has or have fulfilled the obligations. The latter has the rights to apply for dissolution of the venture to the examination and approval authorities.
Article 49
The liquidation of a contractual JV shall be carried out in
accordance with laws, decrees and stipulations of the contractual
JV agreement, contract and articles of association.
Chapter IX Special Regulations on
a Contractual JV Without the Legal Person Status
Article 50
A contractual JV without the legal person status together with all of
its parties shall bear civil liabilities according to regulations of the
civil laws of China.
Article 51
A contractual JV without the legal person status shall be register
with the administrative authorities for industry and commerce the
investment or cooperation input contributed by each of its party.
Article 52
The investment or cooperation input contributed by each party of
a JV without the legal person status shall be separately owned by
each party. Upon agreement by all parties, the investment or
coopperation input may be jointly possessed by all the parties or
part of which jointly possessed, part separately. Properties
accumulated by the venture in its operation process shall be jointly
owned by all the parties.
The investment or cooperation input contributed by each party of a JV without the legal person status shall be jointly managed and put to use, no party shall dispose it on its own without the consent of the other party.
Article 53
A contractual JV without the legal person status shall set up a joint
management body, which shall consist of delegates appointed by
each party to collectively manage the venture on behalf of itself.
All major issues pertaining to the venture shall be decided by the joint management body.
Article 54
A contractual JV without the legal person status shall set up unified
account books at its location; each party shall set up separately its
own account books.
Chapter X Supplement Article 55
Laws of the PRC shall be applied to contractual JV contract on its
draft, powers, explanation, implementation and settlement of
disputes.
Article 56
Relevant regulations of the laws, decrees shall be applied to the
matters of a venture that are not stipulated in this detailed rules
such as finance, accounting, auditing, foreign exchange, taxation,
labor management, trade union, etc.
Article 57
Establishment of a contractual JV by companies, enterprises and
other economic organizations or individuals from Hong Kong,
Macao and Taiwan, and by Chinese citizens living abroad shall be
handled with reference to this detailed rules.
Article 58
The detailed rules shall come into effect from the data of
promulgation.
(English Translations are for Reference Only)
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