The reporting rules apply to Chinese entities who are foreign invested in any capacity — either directly or indirectly.
Some context: The new requirements are designed to support the implementation of the Foreign Investment Law scheduled to take effect at the beginning of 2020.
- Foreign investors must submit information on their operations, shareholders, debts and liabilities, local subsidiaries and affiliates, certifications, and other info as requested by MofCom.
- Failure to report on time can result in fines ranging from RMB 100,000 to RMB 500,000.
- Foreign investors who don’t comply with reporting requirements may also be subject to regulatory penalties by market, foreign exchange, customs, and taxation authorities under the corporate social credit system.
The drafts also call for the creation of a MofCom-controlled “Foreign Investor Integrity Case System”, a platform that will keep track of non-compliant reporting, and will feed violation records into the NCISP, the central social credit database.
To put this in perspective:
- Reporting requirements for foreign companies aren’t new: MofCom has been requiring MNCs to submit annual reports for years.
- It’s not strange that MofCom wants more info on incoming foreign investors, considering the impending opening up of the financial markets.
- It’s also not surprising that they’re building a database of non-compliant foreign investors; many state agencies are creating similar platforms.
So why does this matter?
- The data that must be reported has changed. Companies should ensure they understand the new requirements to avoid fines and penalties.
- This is one of the first (if not the first) social-credit-connected databases dedicated to targeting non-compliance by foreign companies.
The drafts are open for comment until December 2.