The new transparency register system in China

What types of Chinese Subsidiaries are required to complete the Beneficial Ownership Information filing (the “Filing”)?

We assume that the shareholder of your Chinese Subsidiary is a legal entity. All types of Chinese Subsidiaries (including WFOEs or joint ventures incorporated as limited liability companies, joint stock limited companies or partnerships) are required to file for beneficial ownership information. However, there are a few exceptions (see below). If the Chinese Subsidiary also has a branch office in China, the relevant branch office is not required to make a separate Filing for now, but rather the Chinese Subsidiary shall conduct a comprehensive Filing containing the information of the branch as well.

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The beneficial owners of a branch of a non-PRC foreign company are the beneficial owners of the foreign company as determined by the Chinese criteria, in addition, senior management of the branch of a non-PRC foreign company shall also be registered as beneficial owners. If a German company is not required to file with the Transparenzregister in Germany, this exemption does not apply to its Chinese subsidiary. The Measures and other Chinese laws and regulations shall apply in term of beneficial ownership information Filing.

How to identify the ultimate beneficial owner?

The ultimate beneficial owner shall be one or more natural person(s) who ultimately own or actually control the Chinese Subsidiary, or enjoy its ultimate benefits. Criterion 1 is that the relevant natural person ultimately owns 25% or more of the equity, shares or partnership interest in the Chinese Subsidiary through direct or indirect means. If there is no natural person who ultimately owns 25% or more of the aforementioned interest in accordance with the Criterion 1, i.e. the first criterion is not satisfied, then the existence of a natural person who ultimately enjoys 25% or more of the earning or voting rights of the Chinese Subsidiary (the “Criterion 2”), or who, individually or jointly, exercises actual control over the Chinese Subsidiary (the “Criterion 3”), should be examined. The so-called actual control includes, but is not limited to, exercising control by means of agreements, close relationships, etc., such as deciding on the appointment or removal of legal representatives, directors, supervisors, senior management or managing partners, deciding on the formulation or implementation of major business and management decisions, deciding on financial income and expenditure, and actually disposing of and utilizing important assets or major funds for a long period of time. If there are different natural persons meeting both the Criterion 2 and Criterion 3, they are all required to declare the information. If none of the above circumstances exist, the persons who manage the day-to-day operation of the Chinese Subsidiary are usually deemed as the fictive beneficial owners (the “Criterion 4”). The so-called persons in day-to-day operation and management usually include legal representatives, chairman, (general) managers, directors, and other persons as stipulated in the articles of association of the Chinese Subsidiary.

 
The systematic is as follows (simplified):

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Is it possible that the registered ultimate beneficial owner of the Chinese Subsidiary may be different from the ultimate beneficial owner of its German parent company as registered in the Transparenzregister?

Yes, it is. The criteria for defining the ultimate beneficial owner in China and Germany are generally similar. Both recognize as ultimate beneficial owner a natural person who directly or indirectly holds more than 25% of the equity or voting rights in the relevant company or exercises control over the relevant company, and also provide for a fictive ultimate beneficial owner underpinning situation. However, there are two substantial differences:

Firstly, with regards to intermediary companies. In Germany, if the natural person does not hold a direct shareholding in the company concerned but controls an intermediary company, which holds more than 25% of the share capital or voting rights, the natural person who holds more than 50% of the share capital or voting rights of each intermediary company will be regarded as an ultimate beneficial owner.

The systematic is as follows (simplified):

However, the Chinese regulatory approach does not take into account the shares between intermediary companies, and only examine whether the shares that ultimately fall on the Chinese Subsidiary reach 25%.

Secondly, with regards to the criterion of actual control. In Germany, control shall be deemed to exist in particular (but not limited to) if the natural person can directly or indirectly exercise a dominant influence over the company. According to Sec. 290 Paras. 2 to 4 of the German Commercial Code (Handelsgesetzbuch), a dominant influence may occur when the natural person is entitled to (1) the majority of the shareholder voting rights in the company, (2) the right to appoint or remove the majority of the members of the administrative, managerial or supervisory body determining the financial and operating policies, while concurrently being a shareholder in the company or (3) the right to determine the financial and operating policies pursuant to a control agreement concluded with another company or pursuant to a provision made in the statutes of the other company, or (4) the majority of the risks and rewards, in economic terms, of the company that serves to achieve a narrowly delimited and precisely defined objective pursued by the parent company, rests with the natural person.

The understanding of “control” in China’s regulatory approach includes, but is not limited to, control by means of agreements, close relationships, etc., such as deciding on the appointment or removal of legal representatives, directors, supervisors, senior management or managing partners, deciding on the formulation or implementation of major business and management decisions, deciding on financial income and expenditure, and deciding on the disposal and utilization of important assets or major funds for a long period of time, etc.
It is important to note that the shareholding structures reported in China and Germany should be identical.

When should the Filing be completed?

• For the Chinese Subsidiary that have registered before November 1, 2024, the Filing shall be completed by November 1, 2025.

• For newly established Chinese Subsidiaries after November 1, 2024, the initial Filing shall be completed within 30 days from the date of the first establishment registration.

• The update Filing shall be completed within 30 days from the date of change or update of relevant information or when the Chinese Subsidiary no longer meets the conditions of the exempt with commitment.

In which channel should the Filing be completed?

Unlike Germany, there are no nationwide unified Filing channels in China for the time being. There are different Filing channels for each region or city in China. The following lists the platforms for completing the Filing in Shanghai, Hangzhou, Suzhou, Beijing and Shenzhen.

Websites for Filing

• Shanghai: https://yct.sh.gov.cn/portal_yct/
• Hangzhou: https://gswsdj.zjzwfw.gov.cn/
• Suzhou: https://scjg.jszwfw.gov.cn/allLinks/business/index/home.jsp
• Beijing: https://ect.scjgj.beijing.gov.cn/index
• Shenzhen: https://qykb.gdzwfw.gov.cn/qcdzhdj/

Will the Filing information be made public?

No, it will not become public. The Filing information will be handed over to the People’s Bank of China (comparable with Deutsche Bundesbank) but will not be made public.

What are the legal consequences if the Filing is not completed on time or is inaccurate?

If the People’s Bank of China and its branches find that the beneficial ownership information filed by the Chinese Subsidiary is inaccurate, they shall order the Chinese Subsidiary concerned to make corrections within a certain period of time; if the Chinese Subsidiary concerned refuses to make corrections, it shall be subject to a fine of not more than RMB 50,000 (equivalent to approximately EUR 6,588).

Published: December 2024