On March 15th, 2019, China's legislature approved the Foreign Investment Law (FIL). From January 1st, 2020, it replaced the former Three Laws on Foreign Investment.

The current framework uses pre-establishment national treatment, the negative list and foreign investment information reporting.

This article examines the historical 2019/2020 transition. The organizational framework for foreign-invested enterprises depends on the Company Law or the Partnership Enterprise Law, as applicable; EJV and CJV are not current statutory organization categories for newly established foreign-invested enterprises.

1. Company management system

As mentioned above, the Foreign Investment Law (FIL) replaced the original Three Laws on Foreign Investment from January 1st, 2020. 

The organizational form, corporate structure and operating rules of foreign-invested enterprises follow the Company Law or the Partnership Enterprise Law, as applicable.

The former foreign-invested enterprises described in this article had a five-year period to adjust their governance structures. That transition period ended on 1 January 2025.

Current organizational structures must be assessed under the Company Law or the Partnership Enterprise Law, as applicable, rather than the former EJV or CJV laws.

The applicable organizational law depends on the enterprise's legal form; foreign investment alone does not determine which organizational framework applies.

The Foreign Investment Law replaced the former separate foreign-enterprise legal regime. The organizational framework for a wholly foreign-owned enterprise depends on the Company Law or the Partnership Enterprise Law, as applicable.

The 2020 transition was particularly relevant to the governance structures of enterprises established under the former EJV and CJV laws. Those labels describe the former regime, not current statutory categories for newly established enterprises.

The main reason is that there is a fundamental difference between the company's organizational form and corporate structure stipulated in the two joint venture laws and the Company Law.

Current governance should be assessed under the applicable Company Law or Partnership Enterprise Law. The former joint venture laws should not be used as default rules for current governance arrangements.

The five-year governance transition has ended. A joint venture's current structure must be assessed under the Company Law or the Partnership Enterprise Law, as applicable.

It is also important to note that under the principle of equal treatment of foreign and domestic enterprises, foreign-funded enterprises can participate in government procurement bids and allow the establishment of chambers of commerce and associations. This was previously not allowed and restricted, which is a great improvement.

2. Dividend mechanism

For a company-form foreign-invested enterprise, profit distribution follows the current Company Law rather than the former joint venture laws. Distributable profits are the after-tax profits remaining after losses have been covered and the required reserves have been provided.

A limited liability company normally distributes those profits in proportion to shareholders' paid-in contributions, unless all shareholders agree on a different allocation.

A company limited by shares normally distributes profits in proportion to the shares held, unless its articles of association provide otherwise.

For enterprises established under the former foreign-investment laws, Article 46 of the FIL Implementation Regulations allows certain original contractual arrangements, including income distribution, to continue after the organizational adjustment. Those legacy arrangements must be assessed separately; they are not default rules for a newly established enterprise.

3. Relaxation of foreign exchange freedom

The Foreign Investment Law is already in force. Article 21 protects the lawful inward and outward transfer, in RMB or foreign exchange, of foreign investors' contributions, profits, capital gains, asset-disposal proceeds, intellectual-property royalties, compensation and liquidation proceeds.

This legal protection does not remove the applicable tax, profit-distribution and foreign-exchange compliance requirements.

For direct-investment profit remittances covered by the current SAFE guidance, the bank reviews the relevant distribution resolution, audited financial statements and applicable tax documentation, with statutory exceptions to documentation requirements.

Profits must be lawfully distributable, and prior losses must be addressed under the applicable rules before remittance.

Article 22 of the FIL Implementation Regulations separately addresses the lawful remittance of salary and other lawful income of foreign and Hong Kong, Macao and Taiwan employees. It should not be confused with the investor-income list in Article 21, or read as a guarantee of unrestricted or immediate transfers.

4. Minimum shareholding ratio

The 25% foreign-investor threshold discussed under the former joint venture laws should not be read as a blanket current ownership requirement.

Since 2008, foreign-invested enterprises should bear the same corporate income tax as domestic-funded companies, the preferential tax treatment for foreign-funded enterprises has been significantly reduced.

There is no blanket 25–70% JV ownership rule. The proposed ownership structure must be checked against the applicable negative list and sector requirements.

Article 17 of the Foreign Investment Law allows foreign-invested enterprises to raise finance through public share issues, corporate bonds and other lawful means. This is not an automatic listing approval or a blanket permission to open accounts and invest in securities.
5.Intellectual property protection

The Foreign Investment Law protects the intellectual property and lawful commercial secrets of foreign investors and foreign-invested enterprises. Technology cooperation should be voluntary, with its terms negotiated fairly by the parties.


Article 24 of the Implementation Regulations prohibits administrative agencies and their staff from forcing or indirectly forcing technology transfer through licensing, inspections, penalties, administrative coercion or other administrative measures.

These protections do not remove the need to check the applicable intellectual-property, contract and technology import or export rules.
They are legal protections, not a guarantee that every transaction is unrestricted or that infringement cannot occur.

Conclusion: 

The Foreign Investment Law replaced the former three foreign-invested enterprise laws from 2020. The current framework combines pre-establishment national treatment, the negative list and information reporting; sector requirements must still be checked.

This article describes the historical transition to the Foreign Investment Law. The former EJV and CJV categories and the five-year governance transition should not be read as current options for establishing a new enterprise.

Current governance and ownership arrangements must be assessed under the applicable organizational law, negative list and sector requirements.