On 24 June 2014, China's Ministry of Commerce
("MOFCOM") published an internal notice
("Notice") that significantly simplifies
the capital registration system for foreign-invested enterprises in
China ("FIEs"). An amendment to
China's Company Law which came into effect on 1 March 2014
relaxed the capital contribution and verification requirements for
companies establishing in China. However, as FIEs are also
regulated under special laws and regulations in addition to the
Company Law, it remained uncertain, prior to the publication of the
Notice, to what extent the new registered capital regime under the
Company Law would be applicable to FIEs. In practice, local MOFCOM
offices continued to apply the previous rules to FIEs.
As expected, the Notice removes the uncertainty and provides that
FIEs shall also come within the relaxed capital contribution and
verification requirements of the amended Company Law. The main
changes announced in the Notice are as follows:
Subscribed capital to replace mandatory capital
contribution. A subscribed capital system is
adopted. Any restrictions or requirements on the percentage of
initial capital contribution, the percentage of cash versus in-kind
capital, and the timing and amounts of contributions are all
removed. Instead, these specifics are to be agreed upon by
investors and shareholders at their sole discretion and must be
stipulated in the joint venture contracts and articles of
association of a FIE.
No minimum registered capital, subject to certain
exceptions. Minimum registered capital
requirements are removed, except that companies operating
businesses in certain sectors will continue to be subject to
minimum capital thresholds imposed by industry-specific laws and
regulations. In addition, the Notice points out that the fixed
ratios between total investment and registered capital will
continue to apply, which means MOFCOM is likely to continue
requiring a FIE to maintain certain minimum registered capital
commensurate with its total investment.
Contribution verification requirements
eliminated. According to the Notice, except for
FIEs in certain limited industries (mostly in financial sectors),
to which the new subscribed capital system does not apply, any
actual contribution of subscribed capital by investors no longer
needs to be reviewed and verified by government authorities. FIEs
are now only required to submit certain documents evidencing the
actual capital contributions to local MOFCOM offices for filing and
data collection purposes after the contribution.
The new rules under the Notice will benefit FIEs that are being
established or are recently established. Companies established more
than two years ago presumably have already fully contributed their
registered capital. The Notice clarifies that investors of FIEs
that were approved prior to 1 March 2014 must continue to perform
their capital contribution obligations under their original joint
venture contracts and articles of associations. Recently
established FIEs, however, may consider applying for amendments to
their joint venture contracts and articles of association so as to
take full advantage of the flexibility under the new rules.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Anyone with standard form contracts who deals with small business must review the contracts for potential unfair terms.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).