The Ministry of Commerce, Ministry of Finance, General Taxation Administration Bureau, State Administration for Industry and Commerce, National Bureau of Statistics and State Administration of Foreign Exchange (“SAFE”) have recently released the “Notice on Implementing the Joint Annual Inspection of Foreign-Invested Enterprises in 2012” (“Notice”). Pursuant to the Notice, the time period for the joint annual inspection of foreign-invested enterprises (“FIEs”) for 2011 is from March 1 to June 30 2012, and all FIEs established and registered in China on and before December 31, 2011 shall be subject to the annual inspection within the specified time.

The annual inspection is designed to ensure that FIEs conduct business in compliance with China’s legal requirements. The annual inspection will be jointly conducted by the following government agencies:

• Ministry of Commerce (local office)
• Finance Bureau
• Administration of Industry and Commerce (“AIC”)
• Tax Bureau
• Customs
• SAFE
• Statistics Bureau

The procedures for FIEs to complete the annual inspection includes two steps. First, the completion of the preliminary inspection by logging onto the online annual inspection system at www.lhnj.gov.cn and filling out all the required information. Second, the submission of the required documents after passing the preliminary inspection. As was the case last year, FIEs shall provide annual inspection reports (to be accessed and printed from the online system, executed by the legal representative and sealed with the FIE’s chop), auditor’s reports (or capital verification reports for FIEs established in the second half of Year 2011), audited foreign currency reports, all original company certificates (including business license, tax registration certificate, certificate of approval, customs registration certificate, financial registration certificate, statistical registration certificate, SAFE registration card), etc.

The above inspection procedures and requirements slightly differ from city to city. As such, it is important that FIEs contact their local authorities to confirm detailed procedures.

The branch offices of FIEs established in China are also required to complete the annual inspection, however such branch offices cannot proceed with such annual inspections until their head company completes their annual inspection. Typically, a copy of the verified business license of a head company passing its annual inspection is required for the branch office for its annual inspection. As such, it is important that branch offices ensure that the annual inspection of their head company is completed as early as possible such that the branch can meet the annual inspection deadline.

The representative offices of foreign enterprises (“ROs”) are also required to complete the annual inspection. The procedures for the annual inspection of ROs are simplified as compared with the procedures and documents required for FIEs, as they only involve AIC and tax inspections. The required documents for a RO’s annual inspection are more complicated, however, requiring a certificate of good standing and bank reference letter for its head company, with both documents requiring notarization and legalization.

Any questions regarding this blog can be directed to Xinlan Liu at xliu@sheppardmullin.com in Beijing.