China (Shanghai) Pilot Free Trade Zone: Wholly foreign-owned ecommerce companies allowed
Business Regulation and Tax Newsflash
Issue 17 - 3 February 2015
On 13 January 2015, China's Ministry of Industry and Information Technology (MIIT) announced that, effective immediately, it was lifting the foreign participation restriction in ecommerce companies in the China (Shanghai) Pilot Free Trade Zone (FTZ). As a result, foreign investors now are permitted to hold 100% ownership in FTZ ecommerce companies, a significant relaxation of the previous 55% maximum participation (increased from 50% to 55% when the zone launched in 2013; notably, the 50% restriction continues to apply to foreign investment in ecommerce companies outside the zone).
The lifting of the foreign participation restriction is further evidence of the Chinese government’s aim to open the service sectors to foreign investors and create an investor-friendly environment.
The "negative list" (that includes sectors where foreign investment is prohibited or restricted) applicable to the Shanghai FTZ lists e-commerce business as a sub-category of "Online Data Processing and Transaction Processing Business" under the “Catalogue of Telecommunication Services (2003)" and the MIIT announcement follows the same classification. For practical purposes, ecommerce business often has been considered to fall under the "Information Service Business" category for which an Internet Content Provider (ICP) license is required. The new announcement seems to imply that an ICP license will not be required for ecommerce players in the future; instead, they will need to apply for a permit for "Online Data Processing and Transaction Processing Business".