Overseas Direct Investment (ODI) Record
As China's economy continues to develop, mainland residents and businesses have accumulated considerable wealth, much of which is invested in various sectors. However, unregulated capital flows, especially unrestrained outflows of capital abroad, can not only harm the national economy but also deplete the achievements of many years of reform and opening. Therefore, relevant national departments have established strict rules for reviewing capital outflows to limit the movement of capital abroad.
While there are restrictions on the outflow of domestic capital, this does not mean that capital movement is prohibited. If the outflow of capital complies with relevant regulations, the expansion of capital overseas is allowed to achieve greater returns.
Overseas Direct Investment (ODI)
ODI, standing for Overseas Direct Investment, refers to the investment activities wherein domestic enterprises or organizations, after approval from relevant authorities, invest directly overseas through establishing, acquiring, or participating in companies with the core aim of controlling the management rights of foreign enterprises.
Generally, there are two scenarios:
1. Establishing a new company overseas (this involves setting up a new company in Hong Kong or another foreign country), where the mainland company must act as a shareholder, though there is no requirement on the percentage of shares held.
2. Overseas mergers and acquisitions (which involve acquiring controlling stakes in a foreign company), where the acquirer needs to conduct due diligence.
Officially, overseas investment refers to the actions of enterprises legally established within the People's Republic of China, through establishing new entities, mergers, acquisitions, and other means, to own, control, manage, or acquire other rights in non-financial enterprises abroad.
Benefits of Overseas Investment Registration
1. The company can legally complete the transfer of domestic funds overseas or achieve the purpose of obtaining foreign currency abroad without moving domestic funds;
2. It is possible to obtain tax incentives in the foreign locale, rapidly accumulate capital, and enjoy government subsidies for funds returned to the home country for investment at a later stage;
3. It is beneficial for optimizing resource allocation for domestic and foreign enterprises, adding value to domestic enterprises, and enhancing the corporate image;
4. Fully absorb advanced foreign technology and management experience as well as a timely grasp of external information;
5. Effectively utilize dual resources and markets to circumvent foreign trade barriers;
6. Coordinate the development of domestic and foreign enterprises and optimize resource allocation.
Conditions for Applying for Overseas Direct Investment (ODI) Registration
1. The domestic company should have been established for more than one year (enterprises established for less than a year, unable to provide complete audited financial statements, generally cannot pass the approval or registration of the regulatory department);
2. The audit report issued by an independent third-party accounting firm in the last year must not show a loss;
3. Return on net assets (profit) ratio = net profit/owner's equity, ideally higher than 5%, the higher the better;
4.Debt-to-asset ratio = total liabilities / total assets, ideally less than 70%, the lower the better;
5. The industry of the domestic entity should not involve sensitive industries and countries;
6. Shareholder background and source of funds should be genuine and legal.
Overseas Direct Investment (ODI) Registration Process
The ODI registration mainly requires the approval, registration, and record-filing from three regulatory bodies: the National Development and Reform Commission (NDRC) or local NDRC branches for approval or record-filing, the Ministry of Commerce (MOC) or local commercial departments for approval or record-filing, and the foreign exchange registration procedures handled by local branches of the State Administration of Foreign Exchange (SAFE), with the local banks directly handling the operations and local SAFE branches implementing indirect supervision through the banks.
NDRC Project Initiation: Applicants must submit project information to the NDRC departments and commissions, sign all required legal documents, and wait for the NDRC's approval or record-filing to receive the approval documents or record-filing notification.
MOC Approval and Certification: The commercial departments approve or record the investment, issuing the "Certificate of Overseas Investment for Enterprises". Enterprises must commence their overseas investments within two years of receiving the certificate.
SAFE Record-Filing: Banks release foreign exchange under SAFE's supervision. For investments exceeding USD 5 million, reports must be submitted to the SAFE department. After reviewing, SAFE issues the "Foreign Exchange Registration Certificate for Overseas Direct Investment" to domestic enterprises.
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