Chinese market provides several investment vehicles available for foreign investors. The legislation in this sense was modified in 2014, under the regulations of the Securities Investment Fund Law, providing new guidelines for private investment funds established in China. As a general rule, investment vehicles in China are addressed to retail investors and professional investors, and they can be set up as open-ended or closed-ended. Our team of lawyers in China can provide an in-depth presentation on the requirements for the registration of an investment fund.
Register a Chinese investment fund
Businessmen who want to set up a business in Chinacan register a private investment fund, which is defined by the fact that the financial assets are raised from non-public sources. As a general rule, the private investment funds are not required to receive an approval for their activity, but they should register at the Asset Management Association of China (AMAC); our team of attorneys in Chinacan provide more details in this sense. The main regulatory body for the investment vehicles available here is the China Securities Regulatory Commission (CSRC). The fund managers should file the following documents during the registration procedure:
•articles of association/partnership agreement;
•the list of shareholders;
•details about the fund’s senior management.
Here is a video about how you can open an investment fund in China, with complete legal support offered by our Chinese lawyers:
The main characteristic of a Chinese retail fund is that they are publicly offered to investors who do not have a high level of knowledge in the investment field. They can also be registered as non-publicly offered funds, if the shareholders (not exceeding 200) are qualified investors, as stipulated in Chapter X of the above-mentioned legislation.
What types of retail funds are available in China?
Retail funds in China can be registered as open-ended funds or closed-ended funds, which can take the form of:
•qualified domestic institutional investor funds, which are a special category of funds created by the Chinese authorities, which allow the usage of foreign exchange quotas.
Investors who want toopen a business in China set up as an investment fund should know that the most common type of vehicle is the open-ended fund.
Our law firm in China can offer assistance on how to register an open-ended fund here, which provides no restrictions to the investors. This type of vehicle i is also one of the most popular types of fund in China.
Hedge funds in China
Under the New Funds Law, hedge funds can be used to register a private fund, able to invest in public securities. The main regulatory framework available in this case is the Administrative Measures for the Master Trust Schemes of Trusted Companies.
Taxation of qualified investors in China
The term qualified investor, also referred to as accredited investor, is used to designate a businessman with a high level of sophistication and knowledge in the field of financial markets. Recently, the Chinese authorities have enacted new regulations referring to the taxation of qualified investment funds, performed following the rules stipulated under the Cai Shui 2015 No. 125 notice, issued by the Ministry of Finance, the State Administration of Taxation and the China Security Supervision Committee, applicable starting with 18th of December 2015.
The notice, on which our team of lawyers in China can provide legal advice, stipulates that Chinese residents involved in an investment fund are exempted from paying the individual income tax (the regulation is available until 17th of December 2018).
On the other hand, investors receiving income from an investment fund in Hong Kong are taxed at a rate of 20%. Still, suchinvestment funds are exempted from paying the capital gains tax applicable to trading participation.
Taxation of retail investors in China
In China, foreign investors are allowed to directly invest in several retail funds, in the following conditions:
•the foreign investors have received a license from the China Securities Regulatory Commission to act as qualified foreign institutional investors;
•investment funds registered in Hong Kong, which invest on the Chinese market under the qualified foreign institutional investors programme.
Such investors are required to pay a withholding income tax applicable at the rate of 10% for their income deriving from an investment vehicle in China.