What Is Foreign Invested Enterprise (FIE)?

A foreign-invested enterprise (FIE) is any one of several legal structures under which a company can participate in a foreign economy. FIEs tend to have tight government regulation at several important junctures, which can limit how much a company can profit from foreign ventures, as well as the amount of control that a foreign parent has over the FIE.

Understanding Foreign Invested Enterprise (FIE)

Setting up an FIE is a common method of creating an operation in Asian countries, especially in China. In China, any one of a number of legal entities can be considered FIEs, including equity joint ventures (EJV), cooperative joint ventures (CJV), wholly-owned foreign enterprises (WFOE) and foreign-invested companies limited by shares (FCLS).

An equity joint venture is a legal person with limited liability. In China, it is established between Chinese and foreign parties following the Ministry of Commerce (“MOFCOM”)’s approval. The Law of the People’s Republic of China on Chinese-Foreign Equity Joint Ventures and the Implementing Regulations for the Joint Venture Law primarily govern these structures.

Cooperative joint ventures come in two forms: a pure version, in which parties do not establish a separate legal entity and thus bear the risk of profit and loss directly; and a hybrid version, in which the parties do set up a separate business entity that generally limits their liabilities to their capital contributions.

A wholly foreign-owned enterprise (WFOE) is a limited liability company (LLC) that foreign investors control. China originally conceived WFOEs to encourage manufacturing activities that were export-orientated and/or incorporated advanced technology.

An FCLS is similar to a joint-stock company that foreign investors can set up. It is the only form of an FIE whose shares can be listed on one of China’s stock exchanges (Shanghai Stock Exchange or the Shenzhen Stock Exchange).

FIE and Recent Changes in China’s Economy

China recent embarked on a new plan, as of January 2017, to open up its economic system and more closely conform to international standards.

Qualified domestic institutional investor or QDII programs are also part of this initiative. A QDII is an institutional investor that has met certain qualifications to invest in securities outside of its home country. China’s Securities Regulatory Commission grants a limited avenue for QDIIs such as banks, funds, and investment companies to invest in foreign-based securities. QDIIs are also similar to QDLPs or China’s Qualified Domestic Limited Partnership program.