Analysis of foreign investment in value-added telecommunications business-How to apply for a VATS license?

Usually, the application procedures for a value-added telecommunications services (hereinafter referred to as VATS) license for a foreign company or foreign-invested company are complicated and it is usually difficult to get the license. However, in practice, foreign enterprises that meet certain conditions may choose to apply for a VATS license through the procedure for domestic companies.

When verifying whether a company is invested by a foreign entity, the Communications Administration will review the shareholding structure of the company through a penetration mode. According to MIIT's "Guidelines for the Application of Telecom Business License", if the applicant can prove that none of its shareholders is a foreign entity, the applicant shall be subject to the application procedures for domestic companies. However, if the applicant has foreign shareholders but falls under one of the following circumstances, it will be subject to the same application procedures for domestic companies.

1. The foreign shareholder of the enterprise holds less than 1% of the share capital.

2. The only foreign shareholder of the enterprise is Hong Kong Securities Clearing Company Limited and its shareholding is less than 10%.

3. A-shares listed/National Equities Exchange and Quotations-listed companies with no foreign shareholders among the top ten shareholders, or with foreign shareholding of less than 10%.

4. H-shares and B-shares listed companies and their subsidiaries with foreign shareholding of less than 10% and the single largest shareholder is a Chinese investor.

How to calculate the proportion of foreign shareholding?

1. The shareholders of the applicant should be traced back through a penetration review, until none of the shareholders’ layer have a foreign equity.

2. If a foreign investor is an indirect shareholder of the applicant, the proportion of the foreign investor’s investment in the applicant shall be calculated by multiplying the shareholding ratio of each layer of foreign shareholders.

3. The total shareholding ratio of foreign investors must be in line with the opening-up ratio of VATS in accordance with laws and regulations.

What are the documents required to apply for a VATS license?
1. Business development and implementation plan and technical proposal.
2. Application form for VATS license.
3. Company and personnel information.
4. Network and information security safeguard measures.
5. Shareholder tracing information and supporting materials.
6. Information of Chinese and foreign investors.
7. Description of the foreign investor’s control over the applicant.
8. Commitment to operate telecommunications business in accordance with the law.
9. The "Commitment on Certification Matters" under special circumstances.

The latest version of the "Guidelines for the Application of Telecom Business License" reduces some of the application requirements, but adds two particular details: 1) The mode of the investment of major foreign investors, 2) Description of the foreign investor’s control over the applicant.

The telecommunications authority shall examine the application within 60 days from the date of receipt and decide whether to approve the application. If the application is approved, the applicant shall receive a VATS license.

The "Guidelines for the Application of Telecom Business License" has been updated in June 15, 2022. Sinobravo will provide practical solutions to our clients during our VATS license application practice, taking into account the latest compliance requirements.