China Lowering the Thresholds for Foreign Venture Capital Investment

The Chinese authorities including the Ministry of Foreign Trade and Economic Cooperation, the State Administration for Foreign Exchange and the State Administration for Industry and Commerce are currently formulating new rules, known as the Administration Regulations on Establishment of Foreign-invested Venture Investment Enterprises ("Regulations") to replace the Tentative Provisions concerning the Establishment of Foreign-funded Venture Investment Enterprises ("Tentative Provisions") promulgated in August last year. Whilst the Regulations have not yet been promulgated, it was reported that they would further facilitate foreign venture capitalists to enter China's venture capital sector.

The thresholds for foreign venture capital investment in China are expected to be lower than that prescribed by the now applicable Tentative Provisions. Under the Tentative Provisions, one of the criteria required of foreign venture capitalists wishing to enter China's venture capital industry is that they must have invested no less than US$50 million (on a global basis) in the prior three years. Under the to-be-released Regulations, the amount will be reduced substantially to US$10 million. Changes to other laws governing the tax and foreign exchange of venture capital investment will also ensue.

If you would like to know more about how the onshore venture capital vehicle will now improve your investment model for China, we would be happy to provide you with an analysis of the pros and cons of establishing an onshore vehicle and investing via it including onshore and offshore listing, tax treatment on gains, and formalities for onshore investments.

For more information on this, please contact Luke Filei on +86 21 628 96363 or [email protected].