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China WFOE Registered Capital

Updated:2018-4-4 14:41:51    Source:www.tannet-group.comViews:1327

China WFOE, which is the most popular company type most foreign investors will select to start up the business in China, as the WFOE has many advantages over RO and FIPE. As the state council of People’s Republic of China in 2016 carried out the new policies to eliminate the minimum registered capital and initial capital to register the WFOE in China, many WFOE has already registered in China, but when talking about the registered capital, there are some important points the foreign investors should take into consideration before going forward during the incorporation of the WFOE in China.

In determining how much you should contribute in registered capital for your China WFOE, you should start out by considering how much money you will need to sustain your China WFOE until it can generate enough China revenues to sustain itself.

If you inject less than needed to sustain your WFOE until it generates enough in revenues to sustain itself, your WFOE will need a cash injection from somewhere else at some point. If you transfer money to your WFOE from overseas but you do not go through the correct process of re-registering your registered capital (which typically takes at least six weeks and involves having to secure government approval ) the funds that you (or anyone else) send to your WFOE will count as income to your WFOE and will be taxed accordingly by China’s tax authorities.

Registered capital is an initial investment that may be immediately used in operating your WFOE. It is not a deposit that must just sit in a bank and never be touched. It can be used to pay salaries and rent, to purchase product, or for any other normal start up operating expense. Registered capital may include contributed real and personal property used in operating the business.

Many foreign investors think registered capital is some sort of security deposit that they can never utilize. This is not true. The registered capital is usually transferred from investing company bank account into the company capital account, and later changing into the RMB currency based on the latest currency rate and put into the corporate basic account for the company use.

On the other hand, some foreign enterprises believe they can simply withdraw their registered capital to their home country after the Chinese company begins normal business operations. This also is not true. The only way to get funds from the Chinese company out of China is by repatriating profits or by liquidating the Chinese company. Both of these methods will work, but they both require paying Chinese taxes and meeting other requirements under Chinese law.

Investors should also note that the RMB is not a freely convertible currency. For companies that will earn RMB income, the issue of conversion to U.S. dollars or other foreign currency should be carefully considered.

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