New Policy of Registered Capital for Foreign-invested Enterprises
On June 24, 2014, the Notice of the Ministry of Commerce on the Improvement of the Audit and Management of Foreign Investment was published on the official website of the Ministry of Commerce ( hereinafter referred to as the ‘Notice’), under which a major reform is made on the audit issue for the registration of foreign-invested enterprises, including canceling the initial contribution proportion, the proportion of monetary contribution and the time limit of capital contributions of the foreign-invested enterprises; allowing investor to agree on the amount of capital contribution, the way of capital contribution, the time limit for capital contribution by themselves, and canceling the limit of the minimum registered capital of the foreign-invested enterprises in the general industries.
- In 2010, Shanghai began to try to reform the commercial registration system;
- In September 2013, Shanghai Free Trade Area began to implement the registered capital subscription system after listing.
- On February 27, 2014, the State Council issued the ‘Reform Plan of Registered Capital Registration System’, and clarified the direction of reform of the registered capital subscription system in the whole country.
- On March 1, 2014, the new Company Law confirms the registered capital subscription system in legal form, but its scope of application is still limited to domestic funded enterprises. The announcement of the ‘Notice’ extends the scope of registered capital subscription system to foreign invested enterprises which is another measure to further reform the regulatory system of enterprises, to relax the access control of the market subject and to optimize the business environment.
The main contents of the Notice include:
The restrictions or provisions on the proportion of initial capital contribution, the proportion of monetary contribution and the time limit for capital contribution shall be abolished. In accordance with the previous applicable laws and regulations, the initial contribution shall not be less than 15% of the amount of capital contribution of foreign investors and 20% of the registered capital of the Sino-foreign joint venture. The Notice cancels the foregoing provisions and restrictions, which means that investors are not compulsorily required to make payment when setting up foreign-invested enterprises.
Investors are allowed to agree on capital contribution, duration and amount of capital independently. This means that the foreign investors and the joint venture parties can decide their contribution and the progress and amount of the investment in each period. It is beneficial to the investors to make flexible agreement according to the actual progress of the project, thus reducing the overall cost of funds and improving the efficiency of the use of capitals.
According to the previous provisions, the final capital contribution of a wholly foreign-owned enterprise should be paid within three years from the date of the issuance of the business license; the final contribution of the Sino-foreign Joint Venture shall be paid within two years from the date of the establishment of the company, in such way, the capital may be left idle for some projects with a longer period of investment or construction.
The restriction on minimum registered capital in the general industry is canceled. That is to say, in addition to the special requirements on the registered capital of the laws and regulations, the foreign-invested enterprises in the general industry have no minimum requirements for their registered capital, and the investors will decide on their own. However, in the ‘Notice’, it is clearly stipulated that the proportion of the registered capital and total investment of the company still needs to comply with the Provisional Provisions on the Proportion of Registered Capital and the Total Amount of Investment of Sino-foreign Joint Ventures and other effective provisions in force. That is to say, foreign-invested enterprises should still make a comprehensive determination on the amount of registered capital in accordance with the total amount of investment approved by the examination and approval authorities, the amount of foreign debt to be borrowed, the requirements of the financing institutions on the registered capital, etc., so that the enterprises should not blindly pursue the establishment of the enterprise, but ignore the purpose, the function and the financing way of the establishment of the enterprise.
Attached original text of the Notice:
- Notice of Ministry of Commerce on Improving Audit Management on Foreign Capital
- Source: Department of Foreign Investment Management, Ministry of Commerce
- The competent business departments in all provinces, autonomous regions, municipalities directly under the central government, cities under separate planning and Xinjiang Production and Construction Corps.
In order to carry out the Notice of the State Council on the Reform of the Registration System for Registered Capital (GF No. 7, hereinafter referred to as “the Notice”) and the Decision of the State Council on the Abolition and Revision of Some Administrative Regulations (No. 648 Decree of the State Council, hereinafter referred to as “the Decision”), the Ministry of Commerce puts forward improvement measures on parts of the foreign investment management work which are notified as follows:
I. Audit of Foreign Capitals
(1) The restrictions or regulations on the proportion of initial capital contribution, the proportion of money contribution and the time limit for the capital contribution to the foreign-owned (including the investor of Taiwan, Hong Kong and Macao) company (hereinafter referred to as the company) are canceled. The amount of capital contribution, the way of capital contribution and the time limit for capital contribution are decided by the company investors (shareholders or sponsors) themselves, and are set out in the joint venture (cooperation) contract and the articles of association. The competent business departments at all levels shall make clear the above contents in the reply.
(2) In addition to the additional provisions on the minimum registered capital of a specific industry by law, administrative regulations and the decision of the State Council, the limitation of the minimum registered capital of the company is canceled.
(3) The capital contribution of the registered capital listed in the ‘Industries Which Do not Implement Subscribed Registration System of Registered Capital’ under the ‘Notice’ shall temporarily execute the current provisions before the relevant laws, administrative regulations and the decision of the State Council are amended.
Except for those industries which do not implement the registered capital subscribed registration system, the payment of the registered capital of the company will not be audited.
(4) As for the items of foreign investment approved before March 1, 2014, investors shall continue to fulfill their obligations under the provisions of the original contract and the articles of association; if changes are required, the investors may apply to the competent business department, and the competent business authorities at all levels shall review the application in accordance with the relevant requirements of this Notice.
(5) The proportion of registered capital and total investment of the company shall be still in accordance with the Provisional Regulations on the Proportion of Registered Capital and Total Investment of Sino-foreign Joint Ventures and other effective provisions in force. The transaction of Confirmation of Domestic and Foreign Investment Projects Encouraged by the State for Development and the Certification of Equipment, Technology and Accessories for the Import and Renewal of Foreign-invested Enterprises shall be still carried out in accordance with the Notice of the Ministry of Commerce on Issues Related to the Confirmation of Domestic and Foreign Investment Projects Encouraged by the State for Development (SZF  No. 201).
(6) In the Decision, ‘A Number of Provisions on Contributions by the Joint Venture Parties of Sino-foreign Joint Ventures’ and the ‘Supplementary Provisions to Several Rules on Contributions of Joint Venture Parties of Sino-foreign Joint Venture’ are abolished, the contents related to registered capital in ‘Regulations for the Implementation of the Law on Sino-foreign Joint Ventures’ and ‘Details for Implementation of the Law on Sino-foreign Enterprises’ shall be modified, and the competent business departments at all levels shall conscientiously abide by the aforesaid provisions.
II. Statistics of Foreign Capital
(7) In accordance with the Statistical System of Foreign Investment, foreign capital statistics are still carried out on the basis of paid-in capital. The Ministry of Commerce will increase the content of the investment progress and duration of investors in the item of ‘investors and capital contributions” under the ‘Certificate Issuing upon Examination and Approval’ of the full bore foreign capital management information system. The business authorities at all levels should enter relevant contents in the system when issuing the approval certificate as the basis for understanding and mastering the investor’s contribution and collecting the actual foreign capital data.
(8) After the actual capital contribution, the company shall issue a capital contribution certificate to the investors in accordance with the Company Law, the Regulations on the Implementation of Law on Sino-foreign Joint Ventures and the Rules for the Implementation of the Law on the Sino-foreign Cooperative Enterprises. The capital contribution certificate shall be recorded with the name of the company; the date of establishment; the registered capital; the name of the investor (shareholder), the way of capital contribution, the amount of paid capital or the content of the conditions of cooperation; the date of contribution payment, the number of the capital contribution certificate and the date of the issuance of the certificate.
(9) After a company has issued a capital contribution certification to the investors, a copy of the said certificate covered with official seal shall be submitted to the local competent business department within 30 days, and the certifications related to the content of the capital contribution shall be provided.
The capital contribution materials include (but are not limited to) the following forms:
1. If an investor makes capital contribution in cash exchange or cross border RMB, the enterprise shall submit a bank account (or equivalent document) and an approval file;
2. In case of physical contribution, physical transfer and acceptance certificate, price basis and ownership certificate shall be submitted;
3. If intangible assets are contributed, it is necessary to submit the patent certificate, the patent register, the trademark registration certificate, the transfer contract related to the capital contribution of the intangible assets, the evaluation report, the confirmation documents of the investment parties on the value of the assets, etc.
4. If capital is contributed in domestic RMB, it is necessary to submit the approval certificate of the profit source of the enterprise, the annual financial statement with profit, the resolution of board of directors on the profit distribution, or the liquidation report on the source of the liquidation of the income, or the approval certificate of the enterprise related to the equity transfer, and the resolution of the board of directors related to the transfer of the shares.
The competent business authorities at all levels shall carry out the actual capital statistics in accordance with the way of capital contribution, the amount of capital contribution and the currency (or the content of the cooperation conditions) and the time of capital contribution, as stated in the capital contribution certification.
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