Registered Capital of your new WFOE in China
Planing to register a company in China? Registered Capital is one of the most asked questions when registering a company in China. So let’s start the at the beginning. By definition, registered capital is the total amount of equity contributed by the shareholders to establish a new company. In China, foreign-invested enterprises are also know as WFOE (Wholly Foreign Owned Enterprise).
Previous Chinese regulations stated that the capital injection had to be completed within two years from registration date. Either partially over time or at once. One of the most significant changes done recently by the Industry and Commerce Bureau of China to facilitate foreign investments is the extension of this period from 2 to 30 years! Investors have now a much longer period to inject the registered capital money into their businesses accounts in China.
Nevertheless, its important to remember that just like any other location, China regulatory entities will review your company registration application based on several factors. Including the register capital figure you are planing to bring into their economy. Therefore, its strongly recommended to define a reasonable and appropriate registered capital amount. As the registered capital amount could affect the result of your China company registration application, the target number should be a figure that make sense to your company cashflow and operations during the initial setup period. Which is usually considered to be the 1st year of activities.
To make subsequent alterations to the registered capital amount usually consume quite some time and would cost additional fees to be done. So its really important to this right at the beginning.
Cash or Asset Contribution?
The registered capital is typically tax-free and could be in the form of cash or assets. However, cash contributions tend to be the majority of cases in comparison to asset contribution. This is because if the contributions are made by assets the transaction might suffer an extra level of complexity. Either with potential taxes added or proper asset valuation issues. On the other hand, cash deposits are simple and easy.
As an example, two partners of a established wine business in China are planning to bring another investor on board, who owns a wine production firm in Australia. Instead of injecting cash into this newly established WFOE, the new shareholder would like to contribute with wine inventory estimated at RMB500,000. From this situation, the following points may arise:
- The first difficulty could be to determine the actual market value of the wine, which need to be performed by a third-party entity. There is a considerable chance the final evaluation will deviate from what the partners agreed on – RMB 500,000.
- Secondly, as contributed equity of the company, the revenue generated from the wine will be pure profit as there would be no cost of goods sold (COGS). And also no VAT fapiao from the vendor. Hence, the taxable amount would end up being much higher than the other products sold that were previously at the company inventory.
- Additionally, there might be some tax liability arising from importing the wines into China.
Therefore, contributing capital in the form of cash would be considerably easier and faster.
Profit Repatriation of your new WFOE in China
Your register capital is fully injected and the company is now generating profits?Awesome! In China, full registered capital injection is a pre-requisite before repatriating dividends.
Talk to us to know more about how to calculate the ideal Registered Capital WFOE in China. Our accountants assist small, medium and large corporations with their China market entry/entrepreneurship projects.