Changes

Perhaps the changes to the legal status and meaning of the Investment Certificate are one of the most important changes in the new Investment Law 2014. For decades, the Investment Certificate

• serves as the incorporation document of a foreign-invested enterprise (FIE). Under Investment Law 2005, an FIE will have legal person status when it is granted with an Investment Certificate which concurrently functions as the Business Registration Certificate of the FIE. The Investment Certificate also records and registers key corporate information of the FIE including information on ownership interest of foreign investors and local investors (if any);
• sets out the outer boundaries of an FIE’s operation. An FIE generally must operate within the limits provided in the Investment Certificate; and
• can be issued to many types of investors including (1) foreign investors, local investors (if any) and the FIE owned by foreign and local investors (2) a local investor, and (3) a FIE.

Under Investment Law 2014, the first point is no longer the case, the second point seems to be watered down and the third point has been limited substantially. In particular, 

• An Investment Certificate is simply defined as a record in paper or digital form of the information about the investment project registered by the investor. There is no confirmation that an Investment Certificate of an FIE will also be the Business Registration Certificate of the FIE. In fact, after obtaining an Investment Certificate under Investment Law 2014, a foreign investor will need to go on to apply to set up the FIE under the Enterprise Law 2014;
• There is no express obligation that a FIE must operate in exact accordance with the Investment Certificate under Investment Law 2014. Instead this can only be implied from a less prominent provision in the Investment Law 2014; and
• An Investment Certificate will now only be issued to investment projects of foreign investors or economic organisations which have 51% or more foreign capital. An Investment Certificate will not be issued to a local investor and, probably even, an FIE.

Consequences

The changes to the nature of the Investment Certificate are so radical that it would be difficult to envisage all the consequences. However, one may expect one or more of the following:

• faster amendments regarding changes to the Business Registration Certificate. Generally, changes to the Business Registration Certificate (e.g. change in head-office, change of company name, or change of the legal representative) can be quite straightforward and subject to little discretion by the Business Registration Authority pursuant to the business registration procedures. On the other hand, changes to the Investment Certificate of FIE are usually cumbersome and subject to more discretion by the investment licensing authority. The break-up between the Investment Certificate and Business Registration Certificate is originally intended to reduce the burden for FIEs. That said, if the contents of the Investment Certificate still overlap with the contents of Business Registration Certificate then the break-up may not work as intended in practice;
• unclear status for the Investment Certificates of FIEs issued before Investment Law 2014. Investment Law 2014 does not contain any provision on the validity of the business registration information recorded in Investment Certificates of FIEs issued pursuant to earlier Investment Law. So it is not clear if FIEs incorporated before 1 July 2015 will continue to operate under their old Investment Certificates or will need to apply for a separate Business Registration Certificate. Hopefully, the Government will address this point before Investment Law becomes effective; 

• Fewer Investment Certificates – Investment Law 2014 has substantially reduced the number of cases where an Investment Certificate is required. That said, Investment Law 2014 expands the scope of projects subject to investment in-principle approval and introduces the concept of Acquisition Registration for foreign investors in M&A transactions. Therefore, it is not clear if the volume of paper works will actually be reduced in practice; and
• Inconsistencies in implementing the principle of freedom to do business - The confusing drafting about obligations of an investor to operate in exact accordance with the Investment Certificate indicates that there may be different interpretation of what an investor including an FIE could do and could not do in the absence of a clear indication in the Investment Certificate.