Global Tax Alert | 20 March 2014

China relaxes company registration formalities

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China has amended the Company Law (New Company Law), effective 1 March 2014 in an effort to streamline the registration formalities and relax the minimum registered capital requirements when setting up a company in China. In conjunction with the New Company Law, certain related laws and regulations have been amended accordingly; however, foreign invested limited companies and joint stock limited companies (FIEs) must also comply with the special regulations provided by FIE related law and regulations.

Minimum registered capital

The New Company Law removed the minimum registered capital requirement. However, FIEs are still required to satisfy a specific registered capital amount in proportion the total investment amount1 in accordance with the special FIE regulation. Accordingly, FIEs need to evaluate their operational needs to determine the amount of investment they require. The minimum registered capital would be computed as a specific percentage of the total investment amount.

Capital infusion time frame

The New Company Law repeals the specified timeframe in which full capital payments were required. Shareholders only need to state the committed capital amount in the articles of incorporation. In addition, FIEs should comply with the FIE regulations by stating the committed capital amount in the application letter for setting up a company.

Non-monetary capital contribution

While the New Company Law revoked the minimum cash contribution requirement,2 FIEs are still subject to the FIE rules that require industry property and know-how as capital contribution to be no more than 20% of the registered capital.

The amendments provide certain improvement and flexibility for foreign investors in setting up a company in China. However, it is recommended that taxpayers seek professional advice when setting up a new Chinese company and funding a Chinese subsidiary due to complexities and various registration requirements.

Endnotes

1. The total investment amount refers to the amount of capital required for FIE’s projected operations, including working capital needs, and acquisition of fixed and other assets. It can be funded in the form of capital and debt.

2. The cash contribution was required to be no less than 30% of the registered capital.

For additional information with respect to this Alert, please contact the following:

Ernst & Young Tax Services Limited, Hong Kong
  • Jane Hui
    +852 2629 3836
    jane.hui@hk.ey.com
  • Becky Lai
    +852 2629 3188
    becky.lai@hk.ey.com
  • Clement Yuen
    +852 2629 3355
    clement.yuen@hk.ey.com
Ernst & Young Tax Services Limited, China
  • Walter Tong
    +86 21 2228 6888
    walter.tong@cn.ey.com
  • Henry Chan
    +86 10 5815 3397
    henry.chan@cn.ey.com
  • Andrew Choy
    +86 10 5815 3230
    andrew.choy@cn.ey.com
  • Vickie Tan
    +86 21 2228 2648
    vickie.tan@cn.ey.com
Ernst & Young LLP, China Desk, New York
  • Min Fei
    +1 212 773 5622
    min.fei@ey.com
  • Susan Qiu
    +1 212 773 9382
    susan.qiu@ey.com
  • Vickie Lin
    +1 212 773 6001
    vickie.lin@ey.com
  • Jessia Sun
    +1 212 773 5955
    jessia.sun@ey.com
Ernst & Young LLP, China Desk, San Jose
  • Diana Wu
    +1 408 947 6873
    diana.wu@ey.com
Ernst & Young LLP, Asia Pacific Business Group, New York
  • Chris Finnerty
    +1 212 773 7479
    chris.finnerty@ey.com
  • Kaz Parsch
    +1 212 773 7201
    kazuyo.parsch@ey.com
  • Bee-Khun Yap
    +1 212 773 1816
    bee-khun.yap@ey.com

EYG no. CM4281