Macao - a new option for Mainland leasing companies to build an overseas presence

Introduction

Macao Special Administrative Region of China (“Macao”), as one of the four central cities in the development and construction of the Guangdong-Hong Kong-Macao Greater Bay Area, has a unique geographical advantage and plays an important role in the “Belt and Road” construction.

At the end of 2018, the National Development and Reform Commission (the “NDRC”) signed the Arrangements between the National Development and Reform Commission and the Government of Macao Special Administrative Region for Supporting Macao in Fully Participating in and Contributing to the Belt and Road Initiative (the “Arrangements”) with Macao with the approval of the State Council. The Arrangements support Macao in developing financial leasing and other special financial services. On 8 April 2019, Macao issued the Legal Regime for Financial Leasing Companies (the “Regime”) and the Tax Concession Regime for Financial Leasing to promote the development of financial leasing business in Macao and attract financial leasing companies to settle in Macao and carry out business. On 20 December 2019, China Banking and Insurance Regulatory Commission (the “CBIRC”) also promulgated the Policies and Measures to Support Macao’s Economic Development Implemented by the CBIRC, supporting “the establishment of financial leasing subsidiaries in Macao by Mainland financial leasing enterprises to develop Macao’s special finance”.

Based on the promulgation and implementation of the Arrangements, relevant laws and policies, etc., along with the development of international financial leasing business in Macao, Macao will become a new option for Mainland leasing companies to set up overseas leasing platform companies for outbound investment following Ireland, Hong Kong SAR and other locations.

As early as 2017, King & Wood Mallesons (“KWM”) successfully assisted our client in setting up the first financial leasing subsidiary of a Mainland finance leasing company in Macao. As the leading counsel in the project, KWM played an important role in the successful establishment of the client’s Macao subsidiary and accumulated rich practical experience.

As many Mainland leasing companies have recently shown interest in setting up leasing platforms in Macao, we preliminarily introduce the legal issues related to the establishment of financial leasing companies in Macao by Mainland leasing companies in this article.

I.         Introduction to the legal regimes of Macao concerning financial leasing companies

(I)    Applicable core regulations

• On 8 April 2019, Macao introduced the No. 6/2019 Law (i.e. the Regime), which establishes a new legal regime for financial leasing companies in Macao and is also the core legal regulation applicable to the establishment of financial leasing companies in Macao. In addition, Macao also introduced the No. 7/2019 Law (i.e. the Tax Concession Regime for Financial Leasing), which provides the relevant tax concession for financial leasing (including tax concession in respect of stamp duty and income supplemental tax).
• The above two regulations apply to financial leasing companies and subsidiaries for financial leasing projects established in Macao. These two types of entities are “financial institutions” in nature, and are defined as follows:

With regard to the licensing of financial leasing companies, such companies are redefined as financial institutions which are not credit institutions. Thus, the provisions of the No. 32/93/M Macao Decree – the regime on credit institutions do not apply to the financial leasing companies, such as the restrictions on capital adequacy ratio and risk exposure to a single client.

• Two major highlights of the applicable core regulations:

1. Lowering the threshold for setting up financial leasing companies in Macao; and
2. Relaxing the regulatory requirements for financial leasing companies by the Macao Government.

We will further introduce the thresholds for the establishment of financial leasing companies in Macao and the related regulatory requirements in the following paragraphs.

(II)    Requirements for the establishment of financial leasing companies

A financial leasing company shall be established in the form of a limited liability company (LLC) or a joint stock company (JSC), and the requirements for the specific company form, capital and shareholders are as follows:

The introduction of the Regime has lowered the threshold for setting up financial leasing companies in Macao, which is mainly reflected in the following two aspects:

The organizational form of the company is extended from the JSC to JSC or LLC. In accordance with Macao’s local laws, a JSC shall have at least three shareholders, while a LLC shall have at least one shareholder. Such an adjustment leaves more flexibilities for Mainland leasing companies to deal with equity relationship and corporate organizational structure in their subsequent establishment of financial leasing companies in Macao.

(2) The capital requirement for financial leasing companies has been further reduced from MOP 30 million to MOP 10 million.

(III)    Approval and licensing mechanism

The licensing mechanisms applicable to financial leasing companies and subsidiaries for financial leasing projects are different. Please refer to the following table for details:

It should be noted that if the relevant party fails to establish a financial leasing company or commence its business within 18 months of obtaining the above-mentioned license, the license will be revoked unless there is a reasonable ground and a prior application is made to the AMCM for an extension of the licensing period.

(IV)    Business scope of financial leasing companies and subsidiaries for financial leasing project

The local laws of Macao enumerate the permitted business scope of financial leasing companies and subsidiaries for financial leasing project, and further provide that, unless approved by the AMCM, no business other than those listed in the Regime may be conducted. The specific business scope can be found in the table below:

Macao’s local laws further provide that no person or entity shall engage in financial leasing business without the permission of the AMCM, nor shall such person or entity use the words “financial leasing” in the company name or expressly or implicitly state that the business of the company includes financial leasing.

(V)    Registration requirements for financial leasing companies

Financial leasing companies must comply with the following special registration requirements, and may not conduct business without completing the special registration.

For the avoidance of doubt, the above registration is a special registration requirement of the AMCM for financial leasing companies, and such registration does not affect other registrations that financial leasing companies are required to make under the local laws of Macao (for example, company registration in the Macao Commercial and Movable Property Registry (CRCBM)).

II.         Approval and requirements for Mainland leasing companies to set up financial leasing companies in Macao

We briefly introduced Macao’s legal system for the establishment of financial leasing companies in Macao above. We will then analyse and introduce the main requirements for the approval or filing for the establishment of financial leasing companies in Macao by Mainland leasing companies (mainly including finance lease companies and financial leasing companies) from the perspective of “outbound investment”.

(I)      Filing requirements of the NDRC

According to the Measures for the Administration of Overseas Investment of Enterprises (“the Measures”), the Measures shall apply to outbound investments made by domestic enterprises through enterprises in Hong Kong, Macao or Taiwan under their control. According to the Measures, the NDRC currently adopts two mechanisms for outbound investments by domestic enterprises: the approval system for sensitive project and the filing system for non-sensitive project. Meanwhile, under the Measures and the List of Sensitive Sectors for Outbound Investment, financial leasing is not included in such list.

A Mainland leasing company that intends to establish a financial leasing company in Macao is only required to go through the outbound investment reporting formalities through the NDRC’s online system before launching the project. The specific requirements on the reporting subject and the examination and approval authority are as follows:

A Mainland leasing company should, within 20 working days after the completion of the project, submit a report on the completion of the project through the NDRC online system.

(II)      Approval requirements of the CBIRC

Pursuant to the Notice by the General Office of the Ministry of Commerce on Matters Concerning Adjustments to the Duties of Administration of Financial Leasing Companies, Commercial Factoring Companies and Pawn Shops (Shang Ban Liu Tong [2018] No. 165), the Ministry of Commerce has allocated the responsibility for developing the rules for business operation and regulation of financial leasing companies to the CBIRC, and relevant duties shall be performed by the CBIRC since 20 April 2018. However, after such adjustments, the CBIRC has not yet issued a new Interim Measures for the Supervision and Administration of Financial Leasing Companies. If a Mainland financial leasing company intends to set up a financial leasing company in Macao, it is recommended to communicate with the Mainland regulators in advance to confirm whether it is required to obtain the approval of the CBIRC or its branches. It is also advised to communicate with the AMCM in advance to know what materials are needed and the specific requirements for the establishment of a financial leasing company in Macao.

We will only briefly analyse and introduce the approval requirements of the CBIRC for finance lease companies to set up financial leasing companies in Macao.

A Mainland finance lease company may establish a financial leasing company in Macao by way of indirect investment or direct investment, i.e. indirectly establishing a financial leasing company in Macao through its overseas specialised subsidiary (which is a project company of the overseas specialised subsidiary), or directly establishing a specialised subsidiary of the finance lease company in Macao.

1. Establishment of financial leasing specialised subsidiaries in Macao by Mainland finance lease companies (i.e. overseas specialised subsidiaries of finance lease companies)

   Pre-approval

In accordance with the Measures for the Administration of Finance Lease Companies, the Implementation Measures of the China Banking and Insurance Regulatory Commission for the Administrative Licensing Items concerning Non-Banking Financial Institutions and the Interim Provisions on the Administration of the Specialized Subsidiaries of Finance Lease Companies, a finance lease company should, upon obtaining approval by the CBIRC, apply for the establishment of a specialised subsidiary^[1] pursuant to the laws and regulations of the country or region of registration of the proposed subsidiary.

When establishing an overseas specialised subsidiary, the finance lease company should first apply to its provincial branch office of the CBIRC, which will accept the application and conduct a preliminary examination, and the CBIRC will then review its application and make a final decision.

A finance lease company applying for establishment of an overseas specialised subsidiary should satisfy the following criteria:

Post-reporting

The finance lease company shall, upon obtaining the CBIRC’s approval, complete establishment formalities for the overseas subsidiary pursuant to the laws and regulations of the country or region of registration of the proposed subsidiary, and report to the CBIRC and the provincial CBIRC branch at the locality of the finance lease company on name, date of establishment, place of registration, registered capital, capital contribution currency, business scope authorized by the parent company, etc. of the overseas subsidiary within 15 working days from establishment of the overseas subsidiary.

2. A Mainland finance lease company establishes a financial leasing company in Macao through its overseas specialised subsidiary (i.e. a project company of the overseas specialised subsidiary)

   No pre-approval required

In accordance with the Measures for the Administration of Finance Lease Companies, the Implementation Measures of the China Banking and Insurance Regulatory Commission for the Administrative Licensing Items concerning Non-Banking Financial Institutions and the Interim Provisions on the Administration of the Specialized Subsidiaries of Finance Lease Companies, specialised subsidiaries of finance lease companies may establish project companies overseas to engage in financial leasing businesses. The specialised subsidiaries shall comply with the laws and regulations of the place where the project company is located, and the relevant reporting provisions for establishment of a project company in domestic bonded areas by a finance lease company to engage in financial leasing business, including but not limited to the following:

Although such method does not require pre-approval from the CBIRC, as the project company is a special project subsidiary established for conducting the financial leasing business under a specific lease contract, normally, it can only conduct a specific financial leasing business. However, the required license and registration formalities in Macao for the establishment of a financial leasing specialised subsidiary or a project subsidiary for financial leasing are the same. Therefore, when setting up a financial leasing company in Macao, the finance lease company should consider setting up a financial leasing specialised subsidiary (a platform-type company that can carry out financial leasing business in a particular field) or a project subsidiary for financial leasing (a project company conducting a particular financial leasing business) according to its development needs and purposes.

• Post- reporting

In accordance with the Measures for the Administration of Finance Lease Companies, an overseas project company established by a specialised subsidiary shall, after commencing financial leasing business, report to the local CBRC offices, and the local CBRC offices where the finance lease company is located on a quarterly basis.

(III)      Registration requirements of Ministry of Finance (for finance lease companies with State-owned financial capital)

In accordance with the Measures for the Administration of the Registration of Property Rights over State-owned Financial Capital (for Trial Implementation), for overseas subsidiaries established by finance lease companies with state-owned financial capital, the head office of the financial institutions to which such finance lease companies belong must register such subsidiaries with the competent financial authorities.

Conclusion

This article gives preliminary introduction to the establishment of financial leasing companies in Macao by Mainland leasing companies. Due to the differences in the shareholders’ information, the nature of the company, the purpose of outbound investment and the development plan of the Mainland leasing company, the examination requirements of application materials of the AMCM and the approval/filing requirements of the relevant Mainland government departments for Mainland leasing companies seeking to set up financial leasing companies in Macao will also be different.  Mainland leasing companies need to take adequate consideration of its own situation and needs in establishing a financial leasing company in Macao.