More about registered capital (part 2)

As we mentioned in our previous post: WFOE Formation in China—Simplified Now, for most industries, there is no requirement for minimum registered capital any more. So it seems funds will not be as much of a problem for most startups as a couple of years ago, but no minimum capital requirement doesn’t mean you can run a company in China with zero funds.

Practically, how much funds will be needed to maintain a company?

1. Rent

Virtual offices are not allowed in mainland China. In most cities, business is not allowed to be done in residential property. This means you have to rent an office to run your company.

2. Bookkeeping service

Once the company is incorporated, a tax report has to be submitted to the tax authority from the first month the business license is granted (the day the business license is granted is the day the company is incorporated). Most startups will hire a part time accountant to do the bookkeeping in line with related requirements.

Another thing startups should keep in mind is that they have to submit the annual tax report and go through a joint annual compliance inspection by the end of June each year.  Otherwise, they will be put on the blacklist of the AIC, their business license will be revoked and they cannot do business any more. Usually, they will pay someone to do it.

3. Salary

For some startups, they won’t hire any employees in the beginning. However, they have at least one employee, the owner themselves. They have to apply for a work permit and residence permit as an employee of their startups. Local authorities have a stricter requirement for work permit issuance now. They are reluctant to issue work permits to people who did not pay any individual income tax.

The above mentioned costs are the minimum funds that will be needed to maintain a company in China. Of course, however, extra funds will be needed to develop the business.  There is no more minimum capital requirement from a legal perspective, but there still is from business perspective, so people need to consider all costs carefully before they start up their business.

4. Reminder:

More than once, we noticed that for the purpose of controlling costs, sometimes people will hire a local agency to help them to incorporate a company and do bookkeeping. However, they didn’t do enough homework to really know the agency, they just hired the agency because it was cheap. Afterwards, they find they got stuck somewhere, because the agency was too unprofessional. Eventually, they had to pay more fees to get it fixed, if at all possible.  In our opinion, leaving the job to professionals is actually the key to cost control in the long term.

Useful link:

State Administration for Market Regulation