What is a Sino-foreign equity joint venture?

Sino-foreign equity joint venture (SJV) is a limited liability company which has the status of a Chinese legal person.

It is one of the most common types of foreign investments in China (along with Wholly-Foreign Owned Enterprises), and should not be confused with a Sino-foreign cooperative joint venture.

The joint venture is made between a Chinese and foreign company (in Chinese territory). Foreign companies typically put up at least a quarter of the total investment, while there is no minimum investment requirement for Chinese companies.

Investment contributions made by the companies can include cash, capital goods, industrial property rights, etc.

Considering that a Sino-foreign equity joint venture is a limited liability company, the investors are not liable for the company debt.

A Sino-foreign equity joint venture is able to buy land, construct buildings, and independently hire Chinese employees. It is managed by a board of directors – with each party appointing the chairman or vice-chairman.

According to the “Law of People’s Republic of China on Sino-Foreign Equity Joint Ventures, the board of directors manage “enterprise development plans production and operational projects, its income and expenditure budget, profit distribution, labor and wage plans suspension of operations; as well as the appointment or hiring of general manager, deputy general manager, chief engineer, chief accountant and auditor, and determining their functions and powers, remuneration, etc.”

What is needed to create a Sino-foreign equity joint venture?

In order to establish a Sino-foreign equity joint venture the following should be acquired:

  • Work and residential permits for legal representatives.
  • Approval from authorities including the Public Security Department, the Foreign Economic and Trade Bureau, and the Planning Bureau.
  • Approval of a company name by the Industrial and Commercial Registration Office.
  • A corporate capital verification provided by a Chinese public accountant.

How is a Sino-foreign equity joint venture taxed?

In terms of how the joint venture is taxed, Chinese law says:

“After payment of equity joint venture income tax on an enterprise’s gross profit, pursuant to the tax laws of the People’s Republic of China, and after deductions there from as stipulated in its articles of association regarding reserve funds, employee bonus and welfare funds and enterprise development funds, the net profit of an equity joint venture shall be distributed between the equity joint venture partners in proportion to their investment contribution to the enterprise’s registered capital.

An equity joint venture may enjoy preferential treatment in the form of tax reductions or exemptions in accordance with the provisions of the relevant state tax laws and administrative regulations.”