With the rapid acceleration of the globalized economy, "going out" has become a new way out for many e-commerce industry players, but in the mainland, capital investment abroad is strictly regulated, so if enterprises want to carry out foreign investment to obtain profits, they must go through the relevant procedures in accordance with the law under the guidance of policies to ensure that funds flow out legally and compliantly. Among them, the Overseas Investment Filing (ODI) is a key compliance step that cannot be ignored.
Overseas Direct Investment (ODI), i.e., overseas direct investment, refers to the investment behavior of domestic enterprises and organizations that invest abroad directly through establishment, mergers and acquisitions, equity participation, etc., with the core purpose of controlling the operation and management rights of overseas enterprises after the approval of relevant departments.
NO.1. Several situations that need to be filed for ODI
If a company wants to legally invest overseas, it must go through a rigorous ODI filing process. This step is crucial to a company's "going out" strategy, not only to ensure compliance with the outbound capital, but also to allow overseas profits to be legally repatriated to the country. Let's take a look at a few common situations where an outbound investment (ODI) filing is required:
1. The company has overseas listing needs
For enterprises that plan to list overseas, such as using red-chip structures, VIE structures, etc., overseas investment filing (ODI) is an indispensable step. This not only facilitates the convenience of overseas financing and capital operation, but also facilitates future investment exits, and is also based on tax considerations to ensure corporate tax compliance.
2. Overseas direct investment, mergers and acquisitions and expansion needs
When an enterprise plans to make direct investment, mergers and acquisitions overseas, or expand with its existing business, the bank will require the enterprise to provide ODI filing documents when processing the relevant remittance business, which is an important step to ensure that the funds are exported in compliance with the regulations.
3. Return investment by overseas subsidiaries
If a subsidiary set up overseas by a domestic company plans to return to China to set up a foreign-funded company, when the foreign-funded company opens a foreign exchange bank account, the bank will require the ODI filing documents that the domestic company applied for to invest in the overseas subsidiary. This is an important measure to ensure the legitimacy of the source of funds of foreign companies.
4. Open a bank account with a foreign subsidiary
When an overseas subsidiary needs to open a local bank account, the bank may require the mainland parent company to remit a sum of money to the account as the activation fund, in which case the bank will require the mainland parent company to provide an ODI filing certificate to ensure the compliance of the funds.
5. Cross-border e-commerce business
For cross-border e-commerce companies with large capital entry and exit needs, ODI filing is an inevitable choice to achieve compliance transformation. Through ODI filing, enterprises can ensure the compliance of cross-border capital flows and reduce the risks caused by illegal operations.
NO.2. Conditions to be met for overseas investment filing (ODI).
Based on our practical experience in handling overseas investment (ODI) filings, most enterprises can basically successfully apply for overseas investment filings as long as they meet the following application conditions:
- Meets the definition of "overseas investment": the act of a domestic enterprise owning or acquiring the ownership, control, operation and management rights and other rights and interests of a non-financial enterprise overseas through new establishment, mergers and acquisitions or other means.
- The entity and establishment time meet the requirements: the entity needs to be an enterprise established in accordance with the law in the mainland. However, if an enterprise that has been established for less than one year and is unable to provide complete audited financial statements, it will generally not be able to pass the approval or filing of the examination and approval department.
- Authenticity requirements for shareholder background, source of funds, and investment requirements: It is difficult to pass the review if it is not possible to specify the background of domestic shareholders or partners, the source of funds (e.g., self-owned funds, bank loans, funds obtained through compliance methods such as raised funds), and the authenticity of overseas investment projects.
- Financial requirements: The audit report issued by an independent third-party accounting firm in the most recent year must not show losses; It is desirable that the return on equity should be higher than 5% and the debt-to-asset ratio should be less than 70%.
NO.3. What are the benefits of Overseas Investment Filing (ODI)?
- By virtue of its compliant operation, the company can not only achieve the legal exit of domestic funds, but also achieve the goal of obtaining foreign currency abroad without cross-border domestic funds, thereby broadening the company's capital operation channels.
- Through the clever layout, we can enjoy the preferential tax policies of overseas local governments and quickly accumulate capital. In the future, when foreign funds flow back to China for investment, they will also receive generous financial subsidies from the government.
- This cross-border layout strategy not only optimizes the resource allocation of domestic and foreign enterprises, adds new added value to domestic enterprises, but also enhances the overall image of enterprises and makes us more competitive in the international market.
- We actively absorb foreign advanced technology and management experience to ensure that the company always stands at the forefront of the industry. At the same time, pay close attention to external information, grasp market dynamics, and provide strong support for the company's strategic decision-making.
- By making full use of two resources and two markets at home and abroad, it effectively avoids the restrictions of foreign trade barriers and opens up a broader space for the development of the company.
- It is more conducive to us to coordinate the development strategy of domestic and foreign enterprises, further optimize the allocation of resources, and achieve the long-term stable development of the company.
NO.4. Do I need to apply for ODI filing for reinvestment in overseas companies?
If an enterprise's overseas investment involves sensitive countries/regions or sensitive industries, it also needs to be subject to approval management. It is worth noting that ODI is only for overseas enterprises that have been established, that is, shell companies set up by domestic enterprises on the path of overseas investment are not within the scope of review by the regulatory authorities.
At the same time, the secondary investment activities carried out by overseas enterprises are not within the scope of outbound investment management and do not need to be reviewed by the relevant authorities.
The filing of reinvestment of overseas companies mainly depends on whether it is reinvested in the name of a domestic company or in the name of an overseas company:
1. If a domestic investor reinvests to establish or control a new overseas company overseas, it needs to apply for a new ODI filing.
2. If the reinvestment is carried out in the name of a company established in China, there is no need to re-apply for ODI filing, because the overseas company is already a foreign-funded company, and the foreign-funded company is an independent economic entity that operates independently, accounts independently, and bears legal responsibilities independently.
In terms of organizational form, a foreign-funded company can be a legal person or an unincorporated entity, and a foreign-funded company with the conditions of a legal person shall obtain the status of a legal person in accordance with the law, and according to the provisions of the Law on Foreign-funded Companies, the establishment of a foreign-funded company must be conducive to the development of the mainland's national economy, and the state encourages foreign-funded companies that export all/most of their products using international advanced technology and equipment.
Overseas reinvestment refers to the reinvestment of the ultimate destination company using its overseas profits or overseas self-raised funds, and the reinvestment is reported after the fact and does not need to go through filing procedures. According to the regulations, after completing the overseas legal formalities, it is necessary to report to the competent department of commerce.
NO.5. Can I register an overseas company first and then apply for ODI filing?
The relevant competent authorities have clearly required that the registration time of the overseas subsidiary shall not be earlier than the date of issuance of the ODI notice, but due to the unfamiliarity of the enterprise itself with the overseas investment matters, can the enterprise that has registered the overseas company in advance apply for ODI registration?
According to the regulations of the relevant competent authorities, generally speaking, it is not possible to apply for ODI supplementary registration after registering an overseas company first, but it also depends on the specific city in which the company is in China, the length of time the overseas company has been established, the flow of the overseas company, etc., and the specific supplementary solution can only be confirmed after a detailed understanding of the specific situation at home and abroad.
NO.6. The consequences of not doing ODI filing
1. The investor may be suspended or stopped from carrying out overseas investment and given a warning. If a warning is given to the investment entity and the relevant responsible person, and if a crime is constituted, criminal responsibility shall be investigated in accordance with law;
2. If there is financing or guarantee, it will be punished in accordance with laws and regulations. If a financial enterprise provides financing or guarantee for a project that falls within the scope of approval and filing management, but has not obtained the approval documents or filing notice, the National Development and Reform Commission shall notify the violation and request the relevant financial regulatory authorities to punish the financial enterprise and the relevant responsible persons in accordance with laws and regulations;
3. At present, in actual operation, the big impact is the restriction of foreign exchange in and out. If it is necessary to make an outbound investment but fails to file or approve it as required, the investment funds will not be able to be remitted smoothly through the bank and the investment work will not be completed. In addition, if the profits and dividends of the overseas company cannot be remitted through banking channels;
4. If the overseas subsidiary wants to return to the mainland for investment, it will not be able to complete the return investment if it does not go through the filing procedures for overseas investment, and enterprises and individuals listed overseas or have structural design needs should pay special attention;
Completing the ODI filing and obtaining the corresponding certificate is not the ultimate goal, but only a pass for domestic enterprises to "go global", and the ultimate goal is to successfully complete overseas investment and even achieve overseas listing. Therefore, before filing for the record, enterprises should consider the situation of outbound investment as a whole, determine the amount and proportion of outbound investment in advance, and design the structure of the investment path, investment exit arrangement, risk management and control, etc.