Beijing Relaxes Foreign Invested Company Incorporation Rules
BEIJING – Starting March 1, 2014, Beijing adopts new incorporation requirements for all companies, including for foreign invested enterprises, consistent with national reforms enacted in the legislation “Reform of Registered Capital Rules.” Beijing’s announcement follows similar pronouncements in February of other major Chinese municipalities such as Tianjin and Guangzhou and also in Zhejiang.
According to inquiries with Beijing authorities, foreign invested enterprises may now complete incorporation in Beijing and obtain a business license without needing to inject “registered capital” or complete capital verification. Old rules required that one installment be made within six months of obtaining a company’s preliminary business license or several installments within a two-year period and that such injection be formally verified. Also, the minimum invested capital requirement has been formally eliminated (except for enterprises operating in restricted or special industries).
The old system is now replaced with one in which investors commit to inject capital according to a schedule set out in the Articles of Association (a.k.a., “subscribed capital” system). Formal capital verification and updating of the business license with “paid-in capital” information is no longer required.
The new incorporation process may allow for the more rapid establishment of foreign invested enterprises in Beijing. The incorporation process had previously required four to six months to complete and had involved two stages in which a preliminary business license was first obtained, then a permanent one only after injection of the registered capital and verification. Now incorporation may be completed in one stage and the company’s capital injected according to the Articles of Association.
While the elimination of the requirement of a verified minimum capital investment is welcome news, it remains to be seen in practice what informal requirements may arise during the incorporation process. For example, while the minimum registered capital requirement under the old system was only RMB 100,000 for single-shareholder foreign invested enterprises and RMB 30,000 for multi-shareholder enterprises, in practice the Beijing Ministry of Commerce rarely approved the establishment of a foreign invested enterprise with a registered capital of less than RMB 200,000 to RMB 300,000.
Other reforms announced include the abandonment of the annual inspection requirement in favor of annual reporting and the adoption of a new form of business license. A Chinese business license is essentially a combination of the Articles of Incorporation together with an identification of certain key enterprise information such as the registered capital and shareholder identify. The new form of license will no longer specify the enterprise’s “paid-in” registered capital and will no longer identify the shareholder or incorporator. In a nod to the ubiquity of the Internet, it will also contain a QR Code for easy referencing of online incorporation information filed with the Administration of Industry and Commerce.
Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam in addition to alliances in Indonesia, Malaysia, Philippines and Thailand as well as liaison offices in Italy and the United States.
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