United States (English and Chinese)

Rocky T. Lee

Cadwalader, Wickersham & Taft LLP

a. What are the key sectors in your jurisdiction that attract, or to which the government is seeking to attract, COI?

The US has a fundamentally open economy with low barriers of entry for non-US investors. As the US is a “developed” nation pursuant to the WTO, it does not restrict investment by sector, and there is no equivalent to China's Foreign Investment Industrial Guidance Catalogue (外商投资产业指导目录), which categorises investment into sectors as either encouraged, permitted, restricted or prohibited to foreign investment. In mid-2012 the US Department of Commerce launched SelectUSA, a federal program designed to attract, retain and expand foreign investment in the US. The program targets 18 key sectors in which the US aims to attract investment: aerospace, education, energy, media and entertainment, pharmaceuticals, travel, tourism and hospitality. The US is very supportive of “Greenfield” investments, where a foreign investor constructs new operational facilities from the ground up, creating new long-term jobs in the US.

b. Is the government generally supportive of COI? Which government, and regional, bodies are responsible for driving COI in your jurisdiction?

The US upholds a longstanding open investment policy, and continues to be the largest recipient of foreign investment in the world. The government system is broken down into federal, state and local county levels, so Chinese investors can expect potential regulatory processes at each level. Currently, the SelectUSA federal program is the largest driving force responsible for Chinese outbound investment into the US. However, many city and state government officials have taken the lead in attracting Chinese investment as well by creating independent state-funded programs.

a. What are the most common legal entities and vehicles used for COI in your jurisdiction? How long do they take to become operational?

How a Chinese investor structures its legal entities and long-term operations in the US effectively defines how it will be taxed, and thus the decision can have a significant impact on profitability. US regulations generally allow businesses to choose a classification as a corporation, partnership or flow-through entities, unincorporated branches, and limited liability companies (LLCs).

Chinese investment into the US is typically structured through the use of a special purpose vehicle (SPV), which is often domiciled offshore in a tax-friendly intermediary jurisdiction. A standard SPV setup may only take two to three weeks; however, before a Chinese company is permitted to conduct outbound investment, it may need to obtain approvals from Chinese government regulatory bodies, such as the State Administration of Foreign Exchange (SAFE) and/or the National Development and Reform Commission (NDRC), as well as at provincial levels, which can take anywhere from two to eight months, depending on the company's industry, size and nature of the outbound investment and other conditions. Not all Chinese companies require approval from these Chinese regulators to conduct outbound investment.

Assuming there are no regulatory hold-ups in the US, the establishment of an LLC, which is typically the entity of choice, can take one to two months, after which a business can become operational with a functional bank account and a federal and state tax identification number.

b. What are the key requirements for establishment and operation of these vehicles which are relevant to COI (e.g. is there a requirement for local directors)?

Investors must complete basic establishment requirements in the selected SPV's jurisdiction and comply with charter documents such as the company's memorandum of association, articles of association, appointment of directors, and capital investment amount. Most importantly and often times difficult, however, is the opening of a bank account for the SPV. Requirements such as Anti-Money Laundering (AML) compliance and Know Your Customer (KYC) analysis to ensure anti-bribery compliance can slow a company down from opening a bank account, and thus establishing an SPV. Global banking is highly regulated, especially for Chinese-sourced money.

Investors may also be impacted by China's proposed draft PRC Foreign Investment Law, released by the Ministry of Commerce (MOFCOM) on January 19 2015. In particular, if a Chinese investor utilises an SPV and subsequently reinvests funds into China, the investor may be subject to a review by MOFCOM and may need to demonstrate Chinese citizenship or that the SPV is Chinese-controlled. If unable to present such proof, the reinvestment into China may face similar industry and foreign exchange restrictions as those faced by foreign corporations. Investors should take this into account while planning their long-term strategy, if the law goes into effect.