Registered capital and annual inspections no longer required for foreign invested firms

Following the 2014 State Council plan reforming capital registration systems, the Ministry of Commerce (MOFCOM) issued new rules in October 2015. For capital requirements, a “subscribed capital” system will be implemented instead of a “paid in” system. For annual inspections, the procedure will be followed online which abolished the necessity for physical check on an annual basis. Foreign firms and multinationals must therefore assess the key impacts of these new regulations, which will mainly be positive. 

Registered capital:

Minimum initial capital contribution, minimum cash contribution and contribution schedule will be removed according to the new regulation. The shareholders will be responsible for the amount of capital contribution and the schedule for capital injection and reporting them on specific contracts.

The following structures will be impacted:

The following transactions will therefore no longer be impacted by capital requirements:

  • Investment in other Chinese structures from foreign firms
  • Merger or divestiture of a foreign invested firm
  • Opening of new stores by foreign invested firms
  • Equity contribution in another firm’s capital

Annual inspection:

The following transactions are no longer subject to annual inspections:

  • Foreign exchange settlement and sale under capital accounts for real estate foreign invest firms
  • Opening of new stores by foreign invested firms
  • Equity contribution in another firm’s capital

The authorities are clearly willing to modernize their processes in order to comply with international standard and attract foreign firms and investors. However, foreign invested firms must carefully assess that local authorities are generally reluctant to implement concretely regulations not coming from their direct authority. Moreover the authorities have not completely removed the registered capital/total investment: cross-debt financing of foreign invested firm’s activity in the PRC will therefore be restricted.

Beijing - Shanghai - Shenzhen - Hong Kong - Paris

Copyright © 2009-2016 S.J.Grand. All rights reserved.