Decoding your WFOE: Registered Capital for a WFOE in China
- Mar 27, 2024
- Posted by: sinovestconsulting
- Category: Legal & Regulation
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What is the Registered Capital for a WFOE (Wholly Foreign Owned Enterprise) in China?
Registered capital is the fund all the shareholders contribute or promise to contribute to the company when they apply to the local Administration of Market Regulation (AMR) for incorporation of the company. A commonly applied legal entity form of a WFOE is Limited Liability Company (LLC).
5 Factors to define the amount of registered capital for your WFOE:
- No minimum amount requirement: on the registered capital for corporate establishment except few industries, such as banking, financing, insurance, etc.
- Financial sufficiency before self-sustaining: in practice, the investor needs to ensure that a company’s registered capital is sufficient to support its business operations for at least one year, including its rent, labour costs, and office expenses.
- Size of the company: The registered capital is given special importance because it is a marker of the reliability and financial stability of the company, both for Chinese counterparties and government agencies. Consequently, the registered capital amount can impact the company’s eligibility for various preferential treatments, including tax incentives, funding opportunities, and participation in bidding projects. Information about the company’s registered capital is publicly available in the Chinese companies register.
- Contribution of the capital: The registered capital does not need to be paid completely up front. In the New Company Law which will enter into effect on 1stJuly 2024 , the system of paid-up capital within 5 years from the issuance of the business license is prescribed, under which a schedule of contributions must be declared in the Article of Association and be registered with the local AMR in charge. The government will check whether the investors follow the capital injection plan. Registered capital contributions can be made in cash or in kind.
- Offshore debt: Shareholders have the right to finance the campaign through contributions to the registered capital or through the provision of shareholder loans, subject to appropriate restrictions. As in China there are restrictions on the amount of shareholder loans that a company with foreign participation can attract from its shareholders. In particular, the total amount of a company’s loans cannot exceed the difference between the declared total investment (total investment) and the size of the company’s registered capital. The ratio between the registered capital and the total amount of investment of a WFOE is prescribed by Administration of Market Regulation，shown in the table as below:
