A Chinese foreign-invested fund management company (“FIE FMC”) is a fund management company formed in China with at least one non-Chinese owner. FIE FMCs are generally formed to manage foreign-invested PE/VC funds located in China (“Foreign-Invested RMB Fund”), such as Foreign-Invested Venture Capital Enterprises (“FIVCEs”) and Foreign-Invested Equity Investment Enterprises (“FIEIEs”). A FIE FMC is subject to national regulations promulgated by China’s Ministry of Finance (“MOFCOM”), as well as applicable local regulations based on where the FIE FMC is registered. The following highlights some of the key requirements and considerations for FIE FMCs.
- Under the national regulations, in order to qualify as a FIE FMC, an entity must have at least three fund management professionals, each of which must have at least three years of venture capital or private equity fund management experience. The applicable local regulations may have different, more rigorous standards.
- Under the national regulations, a FIE FMC must have at least US$150,000 of net capital, also referred to as “registered capital,” which must be wired to the account of the FIE FMC generally within one to three years of registering as a FIE FMC with the appropriate regulatory authority. The net capital requirements under the local regulations vary greatly from city to city and can be as high as US$2,000,000.
- Retaining a FIE FMC may help a Foreign-Invested RMB Fund reduce its tax exposure in China. For example, if a Foreign-Invested RMB Fund retains a FIE FMC to serve as its management company, the Foreign-Invested RMB Fund may be able to reduce the tax exposure that arises from being deemed a “permanent establishment” of its offshore investors.
- Currently, there is no practical way for a FIE FMC to convert foreign currency into RMB to invest into a Foreign-Invested RMB Fund. Although some local authorities are attempting to address this issue, for the time being, a FIE FMC may only invest its foreign currency into a Foreign-Invested RMB Fund indirectly through an offshore affiliate.
Individuals who are thinking about forming a FIE FMC should contact us to determine what the local regulations are for FIE FMCs in the various jurisdictions and/or for any other advice regarding FIE FMCs or Foreign-Invested RMB Funds.