China has been opening its economy to foreign investors in recent years. One way this has been achieved is through the implementation of the Qualified Foreign Limited Partnership (QFLP) program. This program allows foreign investors to invest in an RMB fund in China’s private equity market, previously restricted to domestic investors only.

The QFLP program was first launched in Shanghai in 2010 and has since expanded to many other cities, including Beijing, Tianjin, and Chongqing. Under the program, foreign investors can set up a limited partnership with a Chinese partner and invest in private equity funds registered with the Asset Management Association of China. The program provides foreign investors greater access to China’s private equity market and allows them to participate in economic growth.

Here, we explain how the China QFLP program works and when it might be a good option for your business.

Legal Framework for Foreign Partnerships in China

As with these business structures in other countries, foreign limited partnerships must have at least one general partner and one limited partner. The general partner manages the partnership and is liable for its debts and obligations. The limited partner is not involved in partnership management and is only liable for the partnership’s debts and obligations to the extent of their capital contribution.

Foreign limited partnerships in China are also subject to the Foreign Investment Law enacted in 2019. The law provides for the equal treatment of foreign and domestic investors in China. It establishes a negative list system that outlines sectors and industries where foreign investment is restricted or prohibited. This framework is set out in China’s Foreign Investment Law.

Foreign limited partnerships must comply with all relevant laws and regulations in China, including those related to taxation, labor, and environmental protection. They must also register with the appropriate authorities and obtain the necessary licenses and permits to operate in China.

Establishing a Qualified Foreign Limited Partnership

Foreign investors seeking to establish a limited partnership in China can do so through a Qualified Foreign Limited Partnership (QFLP). The QFLP program was introduced in 2010 to attract foreign investment into China’s private equity and venture capital industries.

As a pilot program, QFLPs are not available throughout the country but are instead available in Beijing, Shanghai, Tianjin, Qingdao, Shenzhen, Guizhou Province, Fujian Province, Zhuhai, Guangzhou, Suzhou, and Shenyang.

To establish a QFLP, foreign investors must meet certain requirements set by the local government. The first step is to establish (a) a management entity (a QFLP fund manager) and (b) an investment vehicle (the QFLP fund).

For the management entity, registered capital is required, usually set at least $2 million, though this requirement has been waived in Hainan and Guangzhou. For the investment vehicle, there is also a minimum capital requirement, ranging from $6 million to $500 million (again, Hainan and Guangzhou provide exemptions from this requirement).

There are also restrictions on the type of investment that is permitted. This is determined by the negative list prescribed by the Foreign Investment Law. For example, Shenzhen and Zhuhai only allow investment in non-public companies.

In addition to capital and investment requirements, investors must also meet qualification requirements. For example, they may be required to obtain a financial business license from their country or region.

The management entity will also usually need to have personnel with a certain level of experience and qualifications in the sector.

Once these requirements are met, foreign investors can apply for QFLP status with the local government, where the partnership will be established. The application process typically takes around three months and involves submitting various documents, such as a business plan and proof of registered capital.

The QFLP can begin investing in China’s private equity and venture capital markets upon approval. However, it is subject to certain restrictions, such as a limit on the amount of funds that can be raised and invested, and must comply with Chinese laws and regulations.

Establishing a QFLP can be a viable option for foreign investors entering China’s private equity and venture capital markets. The program provides a streamlined process for foreign investment and can help facilitate partnerships with Chinese companies.

Key Requirements for Establishing a QFLP in China

Requirement Category	Description	Typical Requirements (City Examples)	Notes / Variations
Management Entity (Fund Manager)	Entity responsible for managing the QFLP fund	Registered capital usually ≥ USD 2 million	Hainan and Guangzhou allow capital-free establishment
Investment Vehicle (QFLP Fund)	The LP fund used to invest in RMB private equity	Minimum capital typically USD 6M–500M depending on city	Hainan and Guangzhou exempt or significantly reduce requirements
Permitted Investment Scope	Types of assets allowed for QFLP	Often restricted to non-public companies (e.g., Shenzhen, Zhuhai)	Must comply with the Foreign Investment Negative List
Qualification Requirements	Requirements for foreign investors	Financial license from home jurisdiction; proven investment track record	Some cities require senior staff with PE/VC experience
Approval Timeline	Time needed to complete QFLP application	Usually ~3 months	Requires business plan, capital documentation, and compliance materials
Post-Approval Obligations	Compliance obligations after QFLP approval	Register with AMAC and follow reporting rules	Subject to FIL, tax rules, foreign exchange regulations

Tax Considerations for QFLPs

1. Tax Obligations

As a ‘Look-through’ entity, QFLPs do not directly pay corporate income tax in China. Instead, the partners pay income tax on their portion of the profits (individual or corporate income tax, depending on the partner’s status).

The QFLP may be determined to be a permanent establishment of foreign companies that are partners.

2. Tax Incentives

QFLPs may be eligible for certain tax incentives in China. For example, QFLPs that invest in certain industries or regions may be eligible for preferential tax treatment, such as a reduced corporate income tax rate or tax holidays.

3. Double Taxation Agreements

China has signed double taxation agreements (DTAs) with many countries to avoid double-income taxation. QFLPs should review the DTA between China and their home country to determine the applicable tax treatment of their income. These treaties are designed to avoid double taxation and provide treaty benefits where conditions are met. Under the DTA, QFLPs may claim a tax credit or exemption for taxes paid in China.

QFLPs should consider their tax obligations and potential tax incentives when investing in China. It is recommended that QFLPs seek professional tax advice to ensure compliance with Chinese tax laws and regulations.

4. Fundraising Mechanisms

QFLPs can raise funds from domestic and foreign investors. The fundraising mechanisms available to QFLPs include the following:

Private Placement: QFLPs can privately place their fund interests to qualified investors in China. Qualified investors include institutional investors, high-net-worth individuals, and others, as defined by the China Securities Regulatory Commission (CSRC).
Public Offering: QFLPs can also publicly offer their fund interests to qualified investors in China. However, this option is subject to approval by the CSRC.
Overseas Offering: QFLPs can also raise funds from overseas investors through a private placement or public offering. However, the QFLP must comply with the relevant laws and regulations in China and overseas jurisdictions.

QFLPs may be able to leverage their capital by borrowing funds from banks or other financial institutions.

Management and Operation of QFLPs

QFLPs in China are subject to strict regulations and must comply with various laws and regulations. They must also be registered with the Asset Management Association of China (AMAC) and the local Administration for Industry and Commerce (AIC).

The QFLP must also comply with the foreign Investment Law, which regulates foreign investment in China, and other laws and regulations related to foreign exchange, taxation, and securities.

To ensure compliance, the QFLP must establish a compliance system and appoint a compliance officer responsible for monitoring and reporting on the QFLP’s compliance with regulations. The QFLP must also undergo regular audits and inspections by regulatory authorities.

Exit Strategies for QFLPs

1. Liquidation Procedures

As with corporate entities, liquidation is one option for exiting a Qualified Foreign Limited Partnership (QFLP) in China. The liquidation procedures for QFLPs are regulated by the Partnership Enterprise Law of China and the relevant provisions of the QFLP regulations.

The liquidation process involves selling all assets, paying all debts and liabilities, and distributing the remaining assets to the partners. The QFLP must appoint a liquidation team and notify the relevant authorities of the liquidation process. The liquidation team must prepare and submit a report to the appropriate authorities for approval.

2. Transfer of Partnership Interest

Another exit strategy for QFLPs is transferring partnership interests. The transfer of partnership interest is subject to the provisions of the QFLP regulations and the Partnership Enterprise Law of China.

The QFLP and the relevant authorities must approve the transfer of partnership interest. The QFLP must notify the appropriate authorities of the transfer and update the QFLP registry accordingly. The transferee assumes all the rights and obligations of the transferor as a partner in the QFLP.

It is important to note that the transfer of partnership interest is subject to restrictions, including pre-emption rights of existing partners and limitations on the transfer of shares to non-qualified investors.

Recent Developments and Future Trends

In recent years, China has made several regulatory changes to make it easier for foreign investors to participate in QFLPs.

One of the most significant developments has been expanding the QFLP program to cover a wider range of asset classes. In the past, QFLPs were limited in scope, but now they can also invest in real estate, infrastructure, and other alternatives. This change has made QFLPs a more attractive option for foreign investors looking to diversify their portfolios.

Another important development has been the relaxation of restrictions on repatriation of profits. In the past, QFLPs had to wait a certain period before repatriating profits to their home countries. However, recent changes have made it easier for QFLPs to repatriate profits regularly, making it more appealing to foreign investors.

Foreign limited partnerships allow non-resident partners to invest in Chinese ventures while limiting personal liability and deferring taxation at the partnership level—a structure used by PE funds and international investment consortia. Formation requires careful partner agreement drafting and registration with the administrative bureau. MSA Asia structures and manages FLP compliance for cross-border investment vehicles. Contact our team for China corporate services.