China’s New Beneficiary Owner Information Filing Requirements: What Foreign Investors Need to Know | Morgan Lewis

As of November 1, 2024, China has officially implemented the beneficiary owner information (BOI) filing requirements for all business entities in the country following the effectiveness of the Administrative Measures on Beneficial Owner Information (受益所有人信息管理办法, or the Measures). The Measures were jointly issued by the People’s Bank of China (PBOC) and the State Administration for Market Regulation (SAMR) in April 2024. Entities formed before November 1, 2024 must enter into compliance by November 1, 2025.

This is a big move for the Chinese government with the goal to further optimize business environment, improve ownership transparency, and prevent money laundering and terrorist financing activities following international practice. This is also a step further for the PBOC following its issuance of the Notice on Further Improving the Identification of Beneficial Owners in 2018, which requires institutions performing anti-money laundering responsibilities to identify beneficial owners of their entity clients through proper due diligence.

The BOI filing requirements under the Measures and other regulations have some similarities with the beneficial ownership information reporting rules of other jurisdictions, such as the Corporate Transparency Act of the United States and Economic Crime and Corporate Transparency Act of the United Kingdom, but also have their unique features in multiple aspects.

While the new BOI filing requirements will affect many companies in China, it is particularly important for foreign investors doing business in China to undertake an analysis of the compliance and filing requirements of their Chinese entities under the Measures. We detail below the key requirements of BOI filing and what companies must do to ensure compliance.

WHO MUST FILE THE BOI?

The Measures require certain types of business entities in China to file their BOI, including companies, partnerships, branches of foreign companies, and other entities otherwise provided by the SAMR and PBOC. The foregoing covered entities are collectively referred to as “filing entities” under the Measures.

There is an exemption for small businesses under the Measures. A filing entity is not required to file its BOI if it meets all of the following criteria:

• Its registered capital does not exceed RMB 10 million (or its equivalent in foreign currency);
• All shareholders or partners are natural persons; and
• There is no individual other than the shareholders or partners exercising actual control over the entity or benefiting from it through means other than equity or partnership interests.

However, such exempted entities still need to confirm to the authority of the determination that it is exempt via the relevant system.

HOW DOES A COMPANY IDENTIFY ITS BENEFICIARY OWNER?

According to the Measures, “beneficial owner(s)” of a filing entity refers to any individual who ultimately owns or controls such entity or ultimately benefits from the interests of such entity.

In particular, any individual meeting any prong of the following criteria is considered a “beneficial owner” of the filing entity:

• Ultimately owns, directly or indirectly, 25% or more of the equity, shares, or partnership interests of the filing entity;
• Not meeting the first prong, but ultimately holds 25% or more of the income rights or voting rights of the filing entity; or
• Not meeting the first prong, but individually or jointly exercises actual control over the filing entity.

For the third prong, the “actual control” broadly includes various forms of influence, including control exercised through contract, close relationships, and other mechanisms. For instance, if an individual (1) has the power to determine the dismissal and appointment of the legal representative or a director, supervisor, senior officer, or executive partner of a filing entity, (2) can decide on adoption or implementation of major decisions on business operations or management decisions or financial matters, or (3) has long-term control over significant assets or funds, such person will be deemed as a “beneficiary owner” of the filing entity based on the third prong.

If a filing entity is unable to identify its beneficiary owner based on the foregoing three prongs, the Measures provide a more straightforward exercise as an alternative, that is, the individual(s) in charge of the daily operation and management of the filing entity shall be deemed the beneficial owner for filing purposes.

For a branch office of a foreign company, the Measures provide that its beneficial owner shall be determined by the foreign company according to the above criteria, who should also be a senior officer of the branch. Even if the foreign company is exempt from reporting beneficial ownership in its home country, it will not be eligible for the same exemption in China.

While not expressly indicated in the Measures, the PBOC explained in a press release that where there is more than one individual that meets the criteria above, all such individuals will be deemed the “beneficial owners” of such filing entity.

To help entities with complicated ownership structures conduct accurate and nuanced analyses to identify their beneficial owners, the Anti-Money Laundering Bureau of the PBOC and the Registration Bureau of the SAMR jointly published the Guidance for Filing of Beneficiary Owner Information (1st Edition) in October 2020, which contains detailed guidance on how each prong should be applied to identify the beneficial owners of the filing entities in specific scenarios on a case-by-case basis.

WHEN AND HOW SHOULD COMPANIES FILE THEIR BOI?

Entities formed after November 1, 2024 must file the BOI via the online portal of the SAMR at incorporation registration or, if an online filing is not feasible, depending on local practice they must file their BOI onsite within 30 days of the date of incorporation.

Entities formed before November 1, 2024 must file the BOI before November 1, 2025.

WHAT INFORMATION IS REQUIRED TO BE FILED?

Filing entities are required to file the following information of each of their beneficiary owners:

• Full legal name
• Gender
• Nationality
• Date of birth
• Address of residence or workplace
• Contact details
• Type, unique identifying number, and period of validity of eligible identification document (such as passport)
• Type of the beneficiary ownership, date of formation, and termination (if any)

In addition, filing entities must provide information about the basis for determining the beneficiary owners, including the following (as applicable):

• If the determination is based on the first prong, specify the ratio of equity, shares, or partnership interests held by the beneficiary owners
• If the determination is based on the second prong, specify the ratio of income rights or voting rights held by the beneficiary owners
• If the determination is based on the third prong, specify the method of actual control exerted by the beneficiary owner

For entities that have substantial influence on the market or financial transparency of the country, the PBOC may seek supplementary documents in connection with determining the beneficiary owners of such entities.

WHO HAS ACCESS TO FILED BOI?

Under the Measures, the SAMR is responsible for collecting the BOI of filing entities in the country and delivering such information to the PBOC. The PBOC should establish an information management system to receive, store, and process the filed BOI.

The Measures also state that the PBOC will allow state agencies to access the BOI to the extent necessary to perform their responsibilities. Financial institutions and specific nonfinancial institutions will also have access to BOI to fulfill their anti-money laundering and anti-terrorism financing obligations.

The relevant state agencies, financial institutions, and specific nonfinancial institutions are subject to confidentiality obligations in connection with the BOI to which they are granted access for the authorized purposes. However, the law is silent on whether the PBOC will seek consent of the relevant filing entities before providing a third party with access to the BOI.

WHAT ARE THE CONSEQUENCES OF NONCOMPLIANCE?

According to the Measures, if a filing entity fails to file its BOI in a timely manner, or files incorrect or inaccurate BOI information, the PBOC may order such entity to rectify within a prescribed timeline and, if the entity fails to rectify in a timely manner, may impose a monetary penalty of no more than RMB 50,000 on such entity.

However, it is possible that the noncompliance would cause the filing entity to be subject to practical penalty, such as impeding the company’s annual filing or registration and filings for corporate changes, or a negative impact on a filing entity’s credit in China’s bank system.

RECOMMENDATIONS FOR FOREIGN INVESTORS DOING BUSINESS IN CHINA

Identify and Determine Filing Obligations

Foreign investors should start to identify whether their subsidiaries and branch offices in China are subject to the BOI filing requirements.

Notably, foreign investors may confuse the BOI filing with another similar filing in China, as foreign-invested enterprises in China are required to file information on their “ultimate actual controller” with the Ministry of Commerce and its local counterparts. PBOC recognized the common features of the two filings, but emphasized the difference between a “beneficiary owner” and an “actual controller.”

First, the beneficial owner can be the owner, the controller, or the beneficiary owner of a filing entity, which scope is boarder than that of “actual controller” that focuses on ownership and control only. Second, a beneficiary owner must be an individual, while an actual controller can be either an individual or an entity, e.g., a listed company or an international organization.

Because the existing filing of “ultimate actual controller” and the new BOI filing are regulated by different administrative authorities and subject to different filing requirements (e.g., online portal, filing timeline), it is important for foreign investors to fulfill obligations related to each filing as applicable and ensure compliance with the law.

Ensure the BOI Is Filed on Time

If filing is required, covered entities should collect the required filing information and ensure the BOI filing is conducted on time.

Unlike the filing of ultimate actual controller information, which shall be confirmed or updated on an annual basis as part of annual filing of foreign-invested enterprises, a filing entity is not otherwise required to do so for BOI filing on an annual or other periodic basis as a matter of course.

Ensure That BOI Filings Are Updated or Corrected on Time

Filing entities must ensure that the filed BOI is kept current. If a filing entity becomes aware of an inaccuracy in previously filed information, or if an exempt entity subsequently no longer qualifies for an exemption (e.g., due to an increase of its registered capital), it must update or conduct the filing within 30 days of such change.

Establish Proper Policies and Procedures to Keep Compliance with BOI Requirements

Foreign-invested enterprises should consider establishing necessary policies and procedures to effectively manage compliance with the BOI filing requirements. There should be appropriate documentation in place outlining the rules and practice for determining whether the BOI filing (or for an exempt entity a simple confirmation of its determination) applies to local entities in China, a process for identifying beneficial owners, and allocation of responsibilities to collect required information for BOI filing and complete the filing with Chinese authorities.

Considerations should also include proper processes to maintain accurate and up-to-date BOI filings, including in response to organizational changes such as reorganizations, spinoffs, mergers and acquisitions, or changes of senior officers, among others.

It will also be crucial for foreign-invested enterprises to continue monitoring for updates or additional guidance for BOI filing requirements.

[View source.]