On October 26, Hainan issued interim measures on launching domestic equity investment for qualified foreign limited partners (QFLP).

The interim measures clarified the establishment procedures and business scope of foreign-invested equity investment enterprises. Specific measures detailing supporting policies and risk prevention & control are proposed in the measures as well, supporting the opening of foreign-invested equity investment enterprises in Hainan.

What does QFLP mean?  

QFLP (Qualified Foreign Limited Partner) refers to foreign institutional investors who convert foreign capital into RMB funds and invest in the domestic private equity investment market after obtaining qualification approval and completing the regulatory procedures for foreign exchange funds.

Highlights of the interim measures  

1. Registration procedures are simple and efficient. Without the requirement of a joint review mechanism, the application process for enterprises is shorter, and fewer materials are required.

QFLP enterprises can be set up after:

a. A Chinese provincial government bureau, a municipal or county-level government, or a key industrial park issues a recommendation letter to the Hainan Market Supervision Administration.

b. The applicants copy the recommendation letter to the Hainan Local Financial Supervision Administration and complete the registration process.

c. The applicants file with the Asset Management Association of China.

d. There are less restrictions. There is no capital threshold for QFLP enterprise registration. There is no restriction on the proportion of initial capital contribution, the proportion of monetary  capital contribution, or the period of capital contribution. Only two senior executives having the experience that meets the conditions specified are required in the interim measures.

2. The scope is larger. Those who meet the regulatory requirements can invest in secondary market stocks and corporate bonds.

3. Requirements for domestic and foreign enterprises are equal. The interim measures have the same requirements for domestic and foreign QFLP management enterprises. Both the "foreign for domestic" and the "domestic for foreign" management modes are allowed.

4. There are more preferential policies. The interim measures clarify the preferential policies in terms of personal income tax, preferential measures, and industrial park incentives.

At the same time, the Hainan Local Financial Supervision Administration will promote the inclusion of QFLP businesses in the catalog of encouraged industries and the catalog of encouraged foreign-invested industries of the Hainan Free Trade Port. QFLP enterprises will enjoy more tax incentives compared to non-QFLP enterprises.