Calculators for Registered Capital and Total Investment in China
For FIEs that choose to follow the ratio between registered capital and total investment mode, the registered capital amount can affect the amount of offshore debt that an FIE can take on from other investors or foreign banks. We created two calculators to provide an indicative assessment of the corresponding requirements.
When establishing a foreign-invested enterprise (FIE) in China, investors face a number of strategic considerations that can have long-term effects on their businesses – including determining the right amount of registered capital to commit to the company.
Registered capital is the initial cash investment dedicated by the shareholder(s) to an FIE, investment that is registered with China’s Administration for Industry and Commerce (AIC) and, once injected, instrumental to begin operations. This is not to be confused with the total investment prescribed to the company, also stipulated in the articles of association, which not only encompasses registered capital but also the possible foreign loan amount that can be lent to the FIE.
Company loans are an attractive way to inject extra funds into an FIE without undergoing the process of changing registered capital. Shareholders or related parties can provide the FIE with a loan to be returned according to the terms in the loan agreement, which can be amended with the approval of relevant authorities. However, company loans are capped at a certain percentage of the total investment, depending on its size.
Although since 2018, how much foreign loan an FIE can borrow can also be decided by a new method called “macroprudential management of foreign debt, the pre-existing ratio requirement between registered capital and total investment is still being applied in practice.
For FIEs that choose to follow this foreign debt management mode, the registered capital amount can therefore affect the amount of offshore debt that an FIE can take on from other investors or foreign banks.
The below calculators are tools foreign investors can use to explore the option of utilizing company loans based on the statutory ratios between registered capital and total investment. Please note that Dezan Shira & Associates designed these calculators to provide only an indicative assessment of the loan-to-total investment ratio.
Investors should consult a professional financial advisor before making any decisions regarding registered capital and the corresponding total investment.
China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors into China and has done so since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the firm for assistance in China at email@example.com.
Dezan Shira & Associates has offices in Vietnam, Indonesia, Singapore, United States, Germany, Italy, India, Dubai (UAE), and Russia, in addition to our trade research facilities along the Belt & Road Initiative. We also have partner firms assisting foreign investors in The Philippines, Malaysia, Thailand, Bangladesh.
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