According to data released by the Ministry of Commerce, from January to July 2023, the mainland's foreign non-financial direct investment was 500.94 billion yuan, a year-on-year increase of 18.1%. The data shows that the demand for overseas investment by Chinese enterprises is increasingly strong, and driven by the "Belt and Road", more and more Chinese enterprises choose to seek development opportunities abroad. In the context of globalization, ODI filing has become the first step for many Chinese mainland enterprises to start their internationalization strategy.
Regardless of whether it is an overseas listing or overseas investment and financing, if a domestic enterprise wants to carry out overseas investment activities, it must go through the overseas investment approval/filing (referred to as "ODI filing" in practice) and obtain the corresponding certificate. Today, we combine the review points in the filing to provide reference for enterprises with relevant needs.
NO.1、ODI备案办理的必要性
ODI, or Overseas Direct Investment, refers to the act of an enterprise established in accordance with the law in the territory of the People's Republic of China (hereinafter referred to as an enterprise) that owns a non-financial enterprise abroad or obtains the ownership, control, operation and management rights and other rights and interests of an existing non-financial enterprise through new establishment, mergers and acquisitions and other means. (Source: Article 2 of the Measures for the Administration of Overseas Investment)
As one of the compliance channels for enterprises to legally carry out overseas investment or overseas listing, ODI filing plays a pivotal role for Chinese enterprises to expand the international market, optimize resource allocation, and enhance their comprehensive competitiveness.
NO.2. Which enterprises need to apply for ODI filing?
1. Enterprises that carry out cross-border e-commerce business
For the entry and exit of large amounts of funds, an ODI filing certificate is required.
2. ODI filing certificate is required for the entry and exit of large amounts of funds
When an enterprise needs to remit money to an overseas investment project or repatriate profits to China, it needs to provide a certificate of compliant foreign investment to the bank before the bank can carry out the corresponding remittance operation.
3. Companies that have established subsidiaries overseas
When a domestic company sets up an overseas subsidiary, it needs to provide an ODI filing certificate from the domestic parent company to open a local bank account or remit money from the mainland to overseas before the bank agrees to the payment operation.
4. Overseas listing (red-chip/VIE structure building)
There are compliance requirements for the listing of overseas enterprises and the establishment of overseas equity incentive platforms, etc., which need to be filed for overseas investment.
5. Establishment of Foreign-Invested Enterprise (WFOE)
When an enterprise establishes a foreign-invested enterprise (WFOE) to open a capital account, the bank requires the equity to penetrate to the natural person, and if a mainland enterprise is involved, the mainland enterprise needs to apply for an ODI certificate.
6. Hong Kong company to open a domestic NRA account
When a Hong Kong company opens a domestic NRA account, the bank requires the equity to penetrate to a natural person, involving a mainland enterprise, and the mainland enterprise needs to apply for the relevant ODI certificate.
NO.3. ODI filing process
Generally, the ODI filing application process is mainly divided into three parts: approval and filing by the Department of Commerce, approval and filing by the National Development and Reform Commission, and foreign exchange review by the banking department.
1. The National Development and Reform Commission approved the project
Apply for the project to the NDRC and the committee department, submit the project information, and the domestic investor signs the required legal documents, and issues the approval documents or filing notice for approval or filing by the NDRC.
2. The Ministry of Commerce approves and issues certificates
The Ministry of Commerce shall approve or file and issue the Certificate of Overseas Investment of Enterprises, and the enterprises shall carry out overseas investment within 2 years of receiving the certificate.
3. Filing with the State Administration of Foreign Exchange
Banks release foreign exchange, and the State Administration of Foreign Exchange supervises. If the investment amount is more than 5 million US dollars, it is necessary to report to the foreign exchange department. After examination and approval, the foreign exchange department will issue the Foreign Exchange Registration Certificate for Overseas Direct Investment to the domestic enterprise.
Processing time: The complete processing period of ODI overseas investment filing usually takes two to three months, and the procedure is more complicated, depending on the speed of review by the commercial department and the completeness of the materials. There is a well-known domestic automobile enterprise customer who entrusted Jingbang International to handle the ODI filing, which was completed in 3 days, refreshing the efficient processing cycle.
NO.4. The focus of ODI filing review
ODI filing is an important institutional arrangement, which aims to regulate overseas investment behavior, protect the rights and interests of investors, and safeguard national economic security. In practice, the regulatory authorities mainly focus on the operation of the domestic entity, the source of investment funds, and the overseas investment project.
(1) Review of the operation of domestic enterprises
Domestic funds will be remitted through the domestic company, so the first thing to check is the operation of the domestic company applying for overseas investment.
Generally, regulators will consider domestic enterprises from multiple dimensions such as the time of establishment (which must be established for more than one year), the scope of business (whether it matches or is relevant to the overseas project to be invested), the operating status (whether it has sustainable profitability), the situation of domestic shareholders/partners (each shareholder/partner must have good creditworth), and the investment field.
(2) Review of the source of investment funds
In terms of the source of investment funds, the regulatory authorities are mainly concerned about whether they are true and compliant. At present, the main sources of funding for foreign direct investment include:
(1) The enterprise's own funds, such as production and operation income, paid-in registered capital, etc.;
(2) Corporate loans, such as bank loans, etc.;
(3) Raised funds, such as private and public funds;
(4) Equity asset contribution, such as funds obtained from the sale of real estate and other assets of the company.
Regulators have different focus on verification methods and concerns for different sources of funding:
(1) For the enterprise's own funds, it mainly pays attention to the audited financial statements and bank account flows, especially the main business income, accounts receivable and other accounts; At the same time, pay attention to whether the entry of large amounts of funds is indeed derived from their own daily operations, and cross-check through account postscripts, original contracts, invoices and other materials;
(2) For bank loans, the main concern is whether there are relevant binding clauses on the use of funds in the loan contract of the financial institution;
(3) For equity contributions, focus on the original vouchers of asset transactions, such as stock trading certificates issued by securities companies and securities account transaction records;
(4) For the raised funds, we will pay attention to the legal compliance of the fund manager and the product itself, including whether it has obtained the relevant registration certificate issued by the Asset Management Association of China, etc., and review the articles of association/partnership agreement.
(3) Review of overseas investment projects
The regulatory authorities will further pay attention to the authenticity of the overseas investment projects and the whereabouts of the funds after leaving the country, and require domestic enterprises to provide specific plans for the use of funds to ensure that the flow of funds is in line with the national policy guidance of overseas investment activities, and there is no evasion of funds, suspected of money laundering, damage to national economic security, etc.:
1. For newly established entities investing abroad, since the overseas subsidiaries have not yet been registered or have been registered but have not yet started operation at the time of filing the ODI filing, the regulatory authorities usually require the domestic entity to provide a detailed and credible feasibility study report to explain the actual operational needs.
2. For the existing overseas entity in the M&A or capital increase, the regulatory authorities mainly pay attention to the due diligence report of the existing overseas enterprise, and verify whether the business relationship between the domestic entity and the overseas enterprise is reasonable and in line with basic business logic.
3. Regardless of whether it is a new entity or an existing entity, the final foothold of the regulatory authorities' review of overseas investment projects is still whether the project itself conforms to the overall economic security interests of the country and the orientation of industrial policies.
Regulators are cautious about sensitive industries and sectors, such as real estate and hotels, entertainment, sports clubs, etc., which are difficult to assess the value of their targets or have greater arbitrage risks. For outbound investment projects in non-sensitive industries, the regulatory authorities will pay attention to the significance of the investment projects to the sustainable development of the national economy and the optimization of the industrial structure, such as whether they can promote exports, obtain technologies with comparative advantages, drive advantageous production capacity, and create jobs.
Completing the ODI filing and obtaining the corresponding certificate is not the ultimate goal, but only a pass for domestic enterprises to "go global", and the ultimate goal is to successfully complete overseas investment and even achieve overseas listing. Therefore, before filing for the record, enterprises should consider the situation of outbound investment as a whole, determine the amount and proportion of outbound investment in advance, and design the structure of the investment path, investment exit arrangement, risk management and control, etc.
In order to promote outbound investment more smoothly, it is recommended to entrust a professional institution to assist in handling the relevant filing procedures in a timely manner. Welcome to consult the specific matters of ODI approval for overseas investment filing.