Foreign businesses in China get fast-track registrations

China’s state Ministry of Commerce has said it will substantially relax incorporation requirements for foreign investment in the country, so Foreign-invested Enterprises can be set up more quickly and cost-effectively.

HONG KONG - 22. Juli 2014.

The Chinese MoC made the announcement in a recent note entitled the "Circular on Improving the Examination and Management of Foreign-invested Enterprise (FIE) Approval" in which it pledged to abolish requirements on the ratio of initial capital contributions for foreign firms.

Eligible Foreign-invested Enterprises will consequently be able to file registration requests without having to inject any initial capital on incorporation, when setting up in China.

Additionally, stakeholders in these new enterprises will be able to decide on the amount, method and deadline for capital subscriptions themselves.

This further boost to foreign enterprise in China comes on the back of last month's cancellation of a minimum registration capital amount of RMB30,000 for limited liability companies, a RMB100,000 minimum for single shareholder companies and a RMB5 million minimum for joint stock companies.

Foreign-invested Enterprises in China must still maintain the scalable ratio between registered capital and total investment, as required by China's State Administration for Industry and Commerce.

The Administration also recently implemented the “Enterprise Credit System” for foreign businesses, under the country's new Company Law, which requires foreign businesses to divulge the amount and deadline of their capital subscriptions.

As such, those records will become publicly accessible, allowing increased transparency and improved methods of due diligence or background checking at the deal-drafting, acquisition or company credit-checking stages.

Records that will become readily available in China under the new rules include all relevant financial details pertaining to foreign enterprises; where assessors could identify an overly low subscribed capital figure as affecting their perception of that company’s abilities, which they could then decide could hamper that businesses' growth.

The responsibility for the authenticity and legality of the capital contributions within a FIE will lay with that company's shareholders. Further, a lack of payment to cover the subscribed capital within a given deadline could mean that company is deemed 'abnormal' or added to a national, publicly-accessible blacklist.

While restrictions on first-time capital contributions have been cancelled, Chinese government watchdogs will be tasked with ensuring a firm's registered capital is sufficient to support its business operations for at least a year from the date of incorporation, including all rent, labour costs and office expenditure.


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