China’s Ministry of Commerce (“MOFCOM”) released a Decision to Amend Some Rules and Normative Documents (“Decision”) on October 28, 2015 after consultation with various other governmental departments. The changes took effect on the same day. The background is the recent legislative development to simplify the registered capital registration system for companies in China. The comprehensively drafted Decision is primarily based on the PRCCompany Law and a State Council plan. It affects 29 departmental rules and normative documents previously issued by MOFCOM (partly in cooperation with other departments). The Decision constitutes noteworthy substantial and procedural changes to the foreign investment regime as we know it over the last 30 years.
What you need to know
- Minimum registered capital requirements on foreign investment in certain industries and for companies limited by shares have been abolished.
- Certain rules governing foreign invested holding companies have been changed.
- Capital verification reports issued by Chinese certified public accountants will generally no longer be required e.g. after new establishments, domestic reinvestments, mergers and divisions.
- In some cases, a mere filing certificate replaces the traditional Foreign Investment Approval Certificate. This applies to foreign invested enterprises within the 4 Free Trade Pilot Zones (in Shanghai, Guangdong, Tianjin and Fujian respectively) not subject to the Negative List administration.
- The “foreign-invested enterprise joint annual inspection” is confirmed as abolished; such inspection had already been replaced by a joint annual reporting system as of 2014.
In more detail:
Registered capital / Relaxations in various industries
- It is no longer required that prior to a company merger the merging entities have fully made their capital contributions in accordance with their articles of association.
- The respective minimum capitalization requirements have all been abolished for
- foreign invested venture capital firms,
- foreign invested commercial enterprises (FICE) which are operating retail shops,
- foreign invested financial leasing companies,
- foreign invested freight forwarding agency enterprises (including minimum operation term requirements for branch openings), and
- foreign invested logistics enterprises.
Foreign invested China holding companies
- Foreign invested China holding company may now be established as a company limited by shares (股份有限公司)or as a limited liability company (有限责任公司).
- The minimum registered capital requirement of USD 30 million has been abolished. But, the requirements on the total assets of the direct foreign investor and on its existing investment scale in China, as well as its actual capital contribution in its existing foreign invested enterprises in China so far remain unchanged. Also, the respective minimum registered capital requirements for being recognized as national regional headquarter, e.g. being no less than USD 100 million, remain so far unchanged.
- The time limit for full capital contribution has been abolished.
- A capital verification report is no longer required as one of the documents to be provided when applying for establishing a foreign invested holding company. However, for an application for national regional headquarters status such report is still required.
- In combination with the below revised rules on domestic reinvestments by foreign invested enterprises, it will become easier also for medium sized company groups to establish holding structures in China.
Domestic reinvestments by foreign invested enterprises
- Foreign invested enterprises can carry out domestic reinvestment irrespective of their capital contribution status.
Foreign invested companies limited by shares
- The minimum registered capital requirement of RMB 30 million and the minimum ratio of 25% foreign shareholding in foreign invested companies limited by shares has been abolished.
- The requirement that promoters need to pay in a lump sum the total value of subscription of the shares within 90 days after issuance of the foreign investment approval has also been abolished.
Establishment through contribution of equity
- The requirement of a full capital contribution has been abolished for the enterprises the equity in which is intended to be used as contribution by their investors to establish new foreign invested enterprises or acquire (by way of capital increase) existing domestic or foreign invested enterprises (“Invested Enterprises”).
- The maximum 70% ratio of the sum of the total equity contribution amount and in-kind contribution amount in the registered capital of the Invested Enterprises has also been abolished.