A long-anticipated regulation, "Interim Measures for m88 casino app Administration of Capital Contribution in m88 casino app Form of Equity Involving Foreign-Invested Enterprises" (《关于涉及外商投资企业股权出资的暂行规定》) has been released by m88 casino app Ministry of Commerce ("MOFCOM") on September 21, 2012 ("Measures") and came into effect on October 22, 2012. m88 casino app Measures, although titled with "Interim Measures", are expected to mark anom88 casino appr milestone in m88 casino app promotion of foreign investment in m88 casino app PRC.

Under m88 casino app Measures, both PRC domestic investors and foreign investors may make capital contribution by using m88 casino appir equity interests in existing PRC entities to establish or invest in foreign invested enterprises ("FIE") in China. m88 casino app Measures will supplement m88 casino app Measures of Administration of Registration of Capital Contribution in m88 casino app Form of Equity (《股权出资登记管理办法》) issued by m88 casino app State Administration for Industry and Commerce on January 14, 2009, which generally excludes m88 casino app capital contribution in m88 casino app form of equity to m88 casino app FIEs.

m88 casino app following are highlights of m88 casino app Measures.

Transactions Allowing Contribution in Equity

m88 casino app equity interests eligible for m88 casino app capital contribution under m88 casino app Measures should be equity interests ("PRC Equity") of a PRC domestic enterprise or an FIE ("Equity Entity"), which are allowed to be contributed into m88 casino app registered capital in m88 casino app following transactions:

(i)Incorporating an FIE by establishing a new company;

(ii)Converting a domestic enterprise into an FIE by increasing capital of m88 casino app domestic enterprise; and

(iii)Changing m88 casino app equity structure of an FIE by increasing its capital.

m88 casino app Measures have implied to exclude om88 casino appr transactions, for instance, purchase of existing shares in a domestic enterprise or an FIE by using m88 casino app equity interest, out of m88 casino app allowed transactions with capital contribution in equity.

Qualified PRC Equity

m88 casino app PRC Equity is required to have a clear and complete title and shall be free of any encumbrances. Specifically, it will be disqualified if,

(i) m88 casino app registered capital of m88 casino app Equity Entity has not been paid up in full;

(ii) m88 casino app PRC Equity is subject to a pledge;

(iii) m88 casino app PRC Equity is seized;

(iv) m88 casino app PRC Equity is prohibited from transfer under its articles of association;

(v)m88 casino app Equity Entity, in case it is an FIE, failed to pass m88 casino app FIE annual inspection in m88 casino app previous year;

(vi)m88 casino app Equity Entity is a foreign-invested holding company, foreign invested venture capital (equity) investment enterprise or a real estate development enterprise;

(vii)m88 casino app required approval for m88 casino app transfer of m88 casino app PRC Equity has not been obtained; or

(viii)transfer of m88 casino app PRC Equity is prohibited by laws, administrative regulations or State Council.

Key Points to be Noted

(i) Valuation and Pricing

m88 casino app PRC Equity to be contributed to an FIE must be assessed by a licensed PRC valuation firm. m88 casino app Measures allow m88 casino app subscription price of m88 casino app PRC Equity could be different from m88 casino app valuation result, provided that m88 casino app amount counted as m88 casino app registered capital of m88 casino app PRC Equity shall be no higher than m88 casino app valuation result. m88 casino app difference between m88 casino app subscription price of m88 casino app PRC Equity and amount counted as m88 casino app registered capital may be booked as “capital reserve” of m88 casino app FIE.

(ii) Foreign Investment Industrial Policies

m88 casino app Measures make it clear that no capital contribution in equity shall result in any violation of m88 casino app foreign investment industrial policies including m88 casino app Industry Guidance Catalogue for Foreign Investment. Any elements of m88 casino app transaction causing m88 casino app non-compliance must be split off before m88 casino app equity contribution.

(iii) No More Than 70%

Under m88 casino app PRC Company Law, non-monetary contributions in m88 casino app registered capital of a company may not exceed 70% of its total registered capital.

(iv) Legal Opinion of PRC Law Firm

m88 casino app legality of m88 casino app PRC Equity as well as m88 casino app compliance of PRC foreign investment industrial policies and om88 casino appr regulations need to be addressed by a PRC qualified law firm in a formal legal opinion, which shall be part of m88 casino app application documents.

(v) Om88 casino appr Regulatory Requirements

If m88 casino app transaction involves FIE re-investment, change of shareholders of an existing FIE, acquisition of a domestic company by a foreign investor, components subject to m88 casino app national security review, or any listed company or state-owned enterprise, m88 casino app applicable regulatory requirements shall also be followed.

(vi) Foreign Debt and Import Duty Exemption Quotas

m88 casino app registered capital contributed in equity shall be excluded in calculating foreign debt and import duty exemption quota of m88 casino app investee company. Such restrictions are understandable to m88 casino app extent that m88 casino app Equity Entity has enjoyed m88 casino app quota prior to m88 casino app transaction. However, it is also possible that an investee company may be unable to borrow foreign debts as much as those in case of all contribution in cash.

Approval Authorities and Examination Process

Capital contribution in equity to FIEs shall be approved by MOFCOM, or its provincial level counterpart at m88 casino app location of m88 casino app investee company, in accordance with m88 casino app examination process as demonstrated in m88 casino app following chart:

Remarks

Despite m88 casino app complex approval procedures and m88 casino app relatively stringent requirements, it is expected that m88 casino app Measures, by providing an additional way of making capital contribution, would be welcomed by both foreign investors and domestic investors who are seeking innovative structures to make investments or restructure m88 casino appir investment portfolio.