Page 16 - Doing Business in China

BUSINESS ENTITIES

CAPITAL CONTRIBUTION
China currently implements a “no-minimum registered capital rule”, whereby the authority does not require proof
of a company’s capital injection at the time of registration� This enables companies to complete their business
registration without the immediate need for capital injection� However, in practice, we recommend ensuring that
the Registered Capital is adequate to cover initial running costs� The method, amount, and schedule of capital
injection must still be specified in the company’s Articles of Association� The capital contribution regime serves to
uphold foreign investment objectives and regulate investment behaviour� The capital contribution regime serves to
ensure proper foreign investment objectives and regulate investment behaviour� The registered capital of a foreign
invested company refers to the capital registered with the SAMR for the establishment of the foreign-invested
company to meet the initial operating needs of the foreign invested company� The foreign investor may contribute
capital according to the capital contribution scheme, increase its registered capital or subject to the authority’s
approval, and also reduce its registered capital during the operating period under existing regulations�

Registered capital (RC) is the total capital that should be contributed by the shareholders� However, another related
concept, “total investment” (TI), should also be considered before incorporation� Both RC and TI of a foreign invested
company need to be stated in its Articles of Association� The ceiling for loan financing (by a bank/shareholder) is
limited to the difference between the TI and RC, while also being subjected to the following guidelines on the ratio�

TI Minimum RC Requirement according to the TI
TI ≤ US$3 million 70% of TI
US$3 million < TI ≤ US$10 million 50% of TI and not less than US$2�1 million
US$10 million < TI ≤ US$30 million 40% of TI and not less than US$5 million

TI > US$30 million 1/3 of TI and not less than US$12 million

AUDIT REQUIREMENTS
All foreign invested companies must appoint a China-registered Certified Public Accountant (CPA) firm to audit
their financial statements at the end of the accounting year and issue an auditor’s report� Audits are required
under the company laws, accounting regulations and income tax laws in China� Audited financial statements are
also used for tax reporting purposes�

The independent Chinese auditor appointed by a foreign invested company should be qualified and registered with
the Chinese Institute of Certified Public Accountants to practise in China�

ANNUAL REPORT

Foreign invested companies and representative
offices are required to prepare and submit
an annual report by 30 June each year� If the
annual report is not submitted on time, the
entity will be categorised as an “abnormal
operation status” by the local authority and
even fined� This will have a negative impact on
the normal operation of the company�

Doing Business in China 2023 | 15