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China

1999 Inspection of Foreign Investment Enterprises

An important point of time for foreign investment enterprises in the People's Republic of China (PRC) is April 30 1999. On this date, the deadline for submitting the application for the so-called joint annual inspection expires. A joint annual inspection of foreign investment enterprises was introduced at the end of 1996. It is carried out by seven PRC authorities including the State Administration for Industry and Commerce, the Ministry of Foreign Trade and Economic Cooperation and the tax, customs and foreign exchange authorities.

The Programme for Implementation of the Joint Annual Inspection of Foreign Investment Enterprises issued on December 10 1998 contains important clarifications concerning the inspection procedures.

The inspection takes place in principle from January 1 to May 31. The mandatory deadline for handing in the application documents is April 30 of each calendar year and contrary to some local practice, the Programme expressly prohibits shortening of this deadline.

The seven concerned authorities have to decide on one authority responsible for the collection of the documents needed for the inspection. The Programme lists the documents to be prepared for each authority.

Upon consent of all seven authorities the Administration for Industry and Commerce will confirm the passing of the inspection through a stamp on the business licence of the enterprise. Only this stamp permits the enterprise to use its business licence as a valid certificate in other proceedings.

If the enterprise does not fulfil the preconditions to pass the inspection, the Administration for Industry and Commerce will inform the enterprise and will set a deadline to remedy the defects. Defects include in particular grave violations of laws and regulations, operation without a legal business address, and non-contribution of registered capital within the stipulated period. If the defects are not remedied before the deadline, penalties may be imposed according to law, including, in the worst case, the revocation of the approval document and of the business licence. Foreign investment enterprises are, therefore, well advised to follow the inspection requirement.

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