Welcome clarity on online sales in China for foreign investors from an unexpected source but uncertainty remains for the VIE structure
With a netizenship of over 500 million users and potential for further increases considering its population and demographics, China’s online sales market has become too big for international businesses to ignore. Foreign investors have traditionally struggled with investments in China’s online industries due to China’s de facto policy restrictions (which are, in reality, more akin to prohibitions) on foreign investment in the telecoms industry.
In terms of online activities, internet information services (which include internet content providers (ICPs)) are classified as value-added telecoms services (VATS). In order to engage in VATS in China, foreign investors must set up a foreign-invested telecoms enterprise (a FITE) which must be in the form of a Sino-foreign equity joint venture, where the aggregate foreign investment does not exceed fifty percent (50%); and obtain a licence from the Ministry of Industry and Information Technology (MIIT) in the form of a VATS operating permit (a VATS Permit)…
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