Capital Injection Requirements in China
By Salina Leong
The process of registering a business in China is considered complete only after capital injection and verification. Below are the two options of capital injection that companies can choose from:
1. Full injection within six months from the issuance of the business license.
2. Or 15% to 20% injection within 3 months from receiving the business license, and the remaining over 2 years.
Several types of assets are acceptable as part of the capital injection, including a minimum cash value equivalent to 30% of the registered capital, fixed assets, intellectual property such as copyrights, land-use rights and shares in another company or objects with monetary value.
In the case where the company fails to inject their registered capital within the time period stated in their chosen injection option, it would be considered a felony by law and the company’s business license may be terminated. It is also important for companies to update the relevant bureaus and their business license after each injection. Before a company completes full capital injection, it will not be allowed to change its office location, setup branch offices or increase their registered capital. It is thus crucial for foreign companies to understand the capital injection requirements in order to protect their businesses as well as to comply with China’s regulations.
Salina Leong, The JLJ Group
August 15th, 2008 at 12:12 pm
Salina,
Can you shed some light on what it means for companies if the need to re-capitalize,in other words bring in capital above their original “registered capital” level? Can you comment on this both from the business license and SAFE perspectives?
August 15th, 2008 at 5:13 pm
Alteration of Registration Capital (Add Capital)
1.Procedure
1)go to the ministry of economic relation & trade to alter certificate of approval,15 working days;
2)alter business license to administration of industry & commerce,5 working days;
3)alter organization code certificate to code center,5 wording days;
4)alter taxation registration,10 working days.
2.Needful materials
The essential documents which should be provided by Custom:
1)Business license original, duplicate, and IC card;
2)Tax Registration original and duplicate;
3)The organization code certificate original, duplicate, and IC card;
4)The newest certificate of approval;
5)The enterprise cachet , the legal representative’s seal;
6)Adjusted proportion of stock capital;
7)The original contract , Articles of association;
8)Enregister certificate of new investors’(copy), Credibility letter, Principal investor notarization/attestation;
9)The newest Articles of association/stockholder or name list of directorate members;
10)Finance Audit Report;
11)The report of validating capital after all registration capital have be validated.
The documents to be propared by agent:
1)Alteration of enregister requisition;
2)Application form of Registration capital;
3)Alteration application form of the ministry of economic relation & trade
(feasibility report);
4)Articles of association’s modificatory file;
5)Resolution of directorate’s conference;
3. Fees
Government fees: within RMB 500
Agent fee: around RMB 5000
August 21st, 2008 at 4:34 am
Salina,
Could you confirm that the possibility to pay part of a capital injection in shares also applies to a Chinese Holding company. We are in the process of transferring some subsidiaries directly held by our parent company to our Chinese holding and would like to avoid passing cash for these transactions; so the idea would be that the balance of the share capital of the Chinese Holding be paid by a contribution in kind of shares of subs directly held by the parent.
Regards
Alain
August 28th, 2008 at 7:19 am
It is also worth noting that foreign companies wishing to employ foreign nationals on Z visas should also pay particular attention to their capital amount. Previously WFOEs were not limited on the number of Z visas they could issue. Now, since the tightening of visa regulations, Z visas are issued at a rate of approximately one visa for every US$10,000 of invested capital.
Hence, if your company plans on employing ten foreign nationals you will need to invest at least US$100,000 of capital. Something to think about to avoid having to change your investment capital amounts on your business license later.
September 3rd, 2008 at 7:05 am
James, I was wondering if you could elaborate a bit on where you got this information about the amount of registered capital directly relating to a companies ability to hire foreign employees and receive Z visas for those employees? Here in Guangzhou I have been in touch with the Immigration Authority, PSB, and AIC and none of them have received word of any such requirement.
As I have many clients whom this may affect would appreciate any info you could provide.
September 3rd, 2008 at 9:05 am
Zach, I am not sure what the situation is in Guangzhou but for the past year obtaining work (Z) visas in Beijing has certainly become more difficult for WFOEs.
A friend of mine recently had to increase his investment capital by US$90,000 simply in order to legally employ additional foreigners.
I have also had confirmation from our accountants, Lehman Brown, that this is the case as we began looking into increasing the number of foreigners we employ.
It may be worth contacting Lehman Brown (http://www.lehmanbrown.com/) but as I said, the situation in Guangzhou may be different to here in Beijing. Good luck and please let me know if you hear any additional information.
September 8th, 2008 at 4:43 pm
Joe,
You have raised good questions.
We call it “capital increase” in China. The process involving this centers on the approval with Ministry of Commerce (“MOC’)or its local subsidiaries, depending on what industry you are in and what is the total investment, etc. There are some specific requirements on the ratio between the “registered capital” and “total investment”.
Once you get above approval, you will need to consult with SAFE, or its local subsidiaries on forex matters. Internally when MOC is doing above mentioned approval, they will check with SAFE. Or, if I advise you, I would suggest to consult with SAFE for their comments on the planned capital increase even before the first step. Consultation with SAFE will ensure you will be able to emit profits out of China in the future.
SAFE will check if above said ration is met, and some other requirements they may have.
The business license formality with the Administration for Industry and Commerce (“AIE”) is pretty easy. Just to file required papers and approvals you got, then you will collect the new business license with the registered capital altered in a few weeks, or even one week if you are lucky.
Hope above is helpful. I do not often visit this Blog but if you have further questions just send to my private email box.
Jon Zhang
September 8th, 2008 at 4:47 pm
I am reachable at: jonzhangchn@yahoo.com.cn