Op-ed Commentary: Chris Devonshire-Ellis
Jun. 5 – All foreign investors know that setting up in China requires capital. What is less well-known in the case of establishing wholly foreign-owned enterprises (WFOEs) and joint ventures (JVs) is the recognition that not all of the registered capital requirement needs to be in cash. In fact, up to 70 percent of it can be injected in the form of alternative assets such as plant and machinery, intellectual property, and so on.
Accordingly, the question concerning registered capital requirements can essentially be broken down into three portions: cash, equipment, and intellectual property.
Cash
Although certain industries do still mandate specific cash requirements in order to fulfill registered capital obligations, these have been relaxed from several years ago and are now only a large financial obligation for cash-heavy industries such as banking, finance, and certain heavy industry areas. For the majority of foreign investors wishing to manufacture or trade in China, the registered capital amount is no longer so much of a burden and can be viewed as being equivalent to sensible cash flow needs.
This is important, as the registration part of injecting registered capital into a company is both time-consuming and precise. It is not simply a matter of just wiring money to the company bank account, and if this is done, the Chinese tax bureau will regard it as taxable income. Money needs to be wired in from overseas, and registered with the State Administration of Foreign Exchange (SAFE) prior to it being transferred into the capital account. This fully identifies the cash as being “registered” capital and is not taxable. Your advisors will be able to provide assistance with this procedure.
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