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More about registered capital (part 2)

July 31, 2019

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?

Prepare enough funds for your company, though there is no more requirement for minimum registered capital

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

cost for running company in China, maintain a company, registered capital

Negative List for Foreign Investment –2019 Edition

July 1, 2019

On June 30^th 2019, the National Development and Reform Commission and the Ministry of Commerce issued the Special Management Measures for Foreign Investment Access, also known as the “Negative List 2019 Edition”. With the number of entries reduced from forty-eight to forty, the negative list will come into effect on July 30^th 2019.

Updated Negative list for foreign investment in China

The negative list controls which industries can be invested in by foreign companies. Foreign investment outside the negative list shall be managed in accordance with the principle of consistency of domestic and foreign investment. For more information related, please check the previous post: Abstract of Foreign Investment Law of PRC.

The 2019 edition of the negative list introduces new opening measures in a range of areas:

1. The service industry

In the field of transportation, the restriction that domestic shipping agents must be controlled by the Chinese side shall be lifted.

In the area of infrastructure, the restriction that the gas and thermal pipe networks in cities with a population of more than half a million must be controlled by the Chinese side shall be lifted.

In the field of culture, the restriction that cinemas and performance agencies must be controlled by the Chinese side shall be lifted.

In the field of value-added telecommunications, the restrictions on foreign investment in domestic multi-party communications, storage and forwarding, and call centers have been removed.

2. The agriculture, mining and manufacturing industries

In the field of agriculture, the prohibition on foreign investment in the development of wildlife resources shall be lifted.

In the mining sector, the restrictions on oil and gas exploration and development restricted to joint ventures and cooperation shall be lifted, and the prohibition of foreign investment in tantalum, tin, palladium and fluorite exploration and usage shall be lifted as well.

In the manufacturing sector, the prohibition on foreign investment in the production of paper and ingots shall be lifted.

Generally speaking, this revision of the negative list allows foreign ownership or sole proprietorship in more areas. At the same time, Free Trade Areas will continue to play the role of a testing area for foreign investment. On the basis of the national opening measures, the negative list in the 2019 edition of the Free Trade Area has removed restrictions on foreign investment in the fields of aquaculture, fishing and publication printing, and continues to expand the “opening-up test”.

Useful link:

MINISTRY OF COMMERCE OF THE PEOPLE’S REPUBLIC OF CHINA

updated negative list

Tax Incentive Policy for Overseas Talents in GBA

June 24, 2019

On the 22nd of June 2019, the financial and tax authority of Guangdong province announced the Implementing Notice (Guangdong cai shui # 3 2019) of the IIT incentive policy in the Greater Bay Area.

According to the Notice, for overseas high-end talents and talents in demand who work in the Greater Bay Area, the amount of individual income tax（IIT）paid in the nine cities of the Pearl River Delta in excess of 15% of their taxable income shall be granted as a financial subsidy by the local government.

The “amount of IIT paid” here refers to the following amounts of IIT paid in accordance with the provisions of the Individual Income Tax Law of PRC: wages, salaries, remuneration for services, contribution remuneration, royalties, income from business operations, and subsidized income from selected talent projects or talent projects.

The above mentioned financial subsidy is distributed once a year on the basis of individual income items, in the form of a sub-calculation and a combined subsidy.

Guangdong government announced the detailed tax incentive policy for high-end or in-demand overseas talents in nine cities in Guangdong, China

Since January 1st 2019, the new IIT law of PRC become effective. On March 15th, 2019, the Ministry of Finance and the General Administration of Taxation issued the Notice on Individual Income Tax Incentives for the Greater Bay Area (Cai Shui (2019) No. 31), which clearly implements the subsidy policy for the IIT burden of overseas talents in Mainland and Hong Kong. Subsidies are granted to overseas (including Hong Kong, Macao and Taiwan) high-end and in demand talents working in the Greater Bay Area, and the subsidies themselves are exempt from IIT.

This Notice issued on the 22nd of June, 2019 gives out more detailed provisions of the IIT incentives policy that was announced on March 15th, 2019.

Who is qualified for the tax difference subsidy?

1. Permanent residents of Hong Kong and Macao, Hong Kong residents who have obtained the Hong Kong Entry Scheme (excellent talents, professionals and entrepreneurs), residents of Taiwan, foreign nationals, or returning students and overseas Chinese who have obtained permanent residence abroad.

2. Those that work in the nine cities in the Pearl River Delta and pay IIT here in accordance with the law.

3. Comply with laws and regulations, scientific research ethics and scientific research integrity.

At the same time, they shall meet one of the following conditions:

1. Selected into National, provincial or municipal major talent projects, or obtained the Guangdong Province “Guangdong Excellent Talent Card”, or holding a foreign work permit (class A) or foreign high-end talent confirmation letter, as well as the state, province or city other foreign high-level talent identification;

2. Scientific research and technical team members in hospitals and other related institutions, technical backbone and excellent management personnel in provincial key development industries, as well as other special expertise identified by the Pearl River Delta nine cities identification.

What are the Rights of Employee in China?

June 23, 2019

According to the Labor Contract Law of the People’s Republic of China, employee’s rights including the following items:

Liberty to terminate the contract

1. General situations

According to the Labor Contract Law of the People's Republic of China, employees enjoy the following rights

Employees may terminate the labor contract if they give 30 days written notice. During the probation period, employees may terminate the labor contract if they give 3 days written notice.

2. when the employer did something illegal

Employees may terminate the labor contract in the case of any of the following circumstances. Furthermore, employees can claim compensation under such situations. It means the employees can quit their job without suffering much loss.

(1) The employer fails to provide labor protection or work conditions as stipulated in the labor contract;

(2) The employer fails to pay the full amount of remunerations in a timely manner;

(3) The employer fails to pay social security premiums for the workers according to the law;

(4) The bylaws of the employer are inconsistent with any law or regulation and impair the rights and interests of the workers;

(5) A labor contract is invalid if it is signed by way of deception or coercion, or taking advantage of the other party’s difficulties, to force the other party to conclude an employment contract, or to make an amendment thereto that is contrary to that party’s true will;

(6) Any other circumstance as prescribed by any law or administrative regulation under which the labor contract may be terminated.

Get compensation when the contract is terminated

Except for the situations we discussed in previous paragraphs, in any of the following circumstances, the employer shall also compensate the employee:

(1) Both parties agree to terminate the labor contract through negotiation;

(2) In the case of any of the following circumstances, the employer may discharge the labor contract after giving the employee 30 days written notice or after they pay the employee one extra month’s salary:

a. The employee is ill or is injured for a non-work-related reason and can’t do their original work after the expiration of the medical treatment period, and can’t do another job arranged by the employer;

b. The employee is incapable of doing their job and remains so even after the employer provides training or changes their job

(3) For some objective reason the labor contract can’t be performed any more, such as financial difficulties of the employer.

a. It is under revitalization in accordance with the Enterprise Bankruptcy Law;

b. The employer has their business license revoked, is ordered to close down, is discharged, or goes into liquidation before schedule;

(4) When the contract expires, unless the employer is willing to pay the same or higher salary, but the employee refuses to renew the contract;

(5) If no contract is signed from the second till the twelfth month of employment, the company will be deemed at fault, and will have to compensate the employee with double salary for each month they worked for the employer.

Under the following situations, the employer cannot terminate the contract:

(1) Any worker is suffering from illness or has been injured that is irrelevant to his job, and the period of medical treatment as prescribed has not expired;

(2) Any female worker is in her pregnancy, confinement or nursing period;

Punitive compensation

The employee also has the right to get punitive compensation when the labor contract is terminated illegal, which equals two months salary for each year the employee work for the employer.

Participate in internal management

Additionally, the employees have the right to participate in discussion over the content of employee handbook and other internal regulations， which may influence their interests and rights, which will become valid only if the majority of the employees approve it.

Useful link:

Ministry of Human Resources and Social Security of the People’s Republic of China

employee's right, employment law, labor contract, labor law in china

More about Registered Capital

June 10, 2019

As we mentioned in previous articles：What Does Registered Capital Mean? the law does not specify a time limit for capital injection, and no longer requires submitting a financial report after the capital injection. However, it is not always better to declare more registered capital when submitting the company incorporation application with local AIC. So, what should we pay attention to?

shareholders contributions could be currency, a tangible asset, intellectual property rights or land use rights, which can be valued and transferred

According to relevant laws, the shareholders contributions could be currency, a tangible asset, intellectual property rights or land use rights, which can be valued and transferred in accordance with the law. After the establishment of the company, all the above-mentioned assets must be transferred to the name of the newly established company.

However, labor, franchise, the name and goodwill of a natural person may not be used as capital contribution. So, it is not permissible for some shareholders to contribute their “management of the new company”, because management is actually a kind of labor.

Of course, shareholders can also use their equity in other companies in China to contribute, but the ownership of the equity should be clear, transparent and should be transferred according to the law.

It is also important to note that the increase and decrease of registered capital must be subject to the consent of the shareholders representing more than two-thirds of the voting rights of the Company, and they must file the change of registered capital with local AIC and change the business license accordingly.

However, if the registered capital is to be reduced, it is necessary to comply with certain procedures, including notifying all creditors and making an announcement in local newspapers before filing with the local AIC. Because reducing registered capital means reducing a company’s ability to repay debt, it will have an impact on the interests of creditors.

So our suggestion is: don’t declare too much registered capital beyond the amount you are going to inject or the actual fund you have. It’s a wise move to do it step by step, because it’s comparatively easier to increase the registered capital once you have more fund. And it will save you from unnecessary risk at all.

Related provisions in Company Law of PRC

Article 177 Where it is necessary for a company to reduce its registered capital, it shall prepare the balance sheet and a list of property.
The company shall notify its creditors within ten days after the resolution on the reduction of the registered capital is made, and shall publish an announcement in newspapers within 30 days. The creditors shall, within 30 days upon receipt of the written notice, or in the case of the failure to receive the written notice, within 45 days after the public announcement, be entitled to request the company to repay the debts or provide the corresponding guaranty.

company law, reduce registered capital, registered capital

What Does Registered Capital Mean?

June 1, 2019

In our previous blog, we explained “legal representative” of a company in China, now let’s explain the concept of “ registered capital” and related legal provisions.

What does registered capital means for a China company? Investors has to think about a suitable amount of if to avoid unnecessary risk

According to Company Law of PRC, registered capital is the fund all the shareholders contribute or promise to contribute to the company as they apply with local Administration of Industry and Commerce (“ AIC” ) for incorporation of the company. They shall declare the company’s registered capital in the Articles of Association of the company (which shall be submitted to the local AIC for review) and the amount of the registered capital will be showed in the company’s business license, as it’s an information open to public.

Furthermore, if the shareholders decide to increase or reduce the registered capital of a company, they also have to file the change of registered capital with local AIC and their business license shall be changed accordingly.

Generally speaking, registered capital of a company shows the fund strength or capacity of a company to certain extent, which could be used as reference for other company to choose their cooperative partner or for bank to evaluate if or not they will grant a loan application.

And for some industries, there are a minimum requirement for registered capital for the company to enter into this industry. For example, if you want to set up a labor dispatch company, the registered capital has to be at least 2 million RMB. Registered capital will also be used to grant qualification in some industries and also an evaluate standard in bidding for projects.

However, it doesn’t mean that the more registered capital the shareholder declare, the better. Though there is no time limit for fund injection and no requirement for an audit for fund injection now. Why so? Because registered capital means not only the capacity of the company, but also the liability to public, especially to creditors.

For example, if a company claimed they have 1 million RMB as registered capital, then they are expected to be responsible to their debt as much as 1 million RMB， even if the shareholder only injected 50 thousands RMB.

And in the other hand, registered capital is just one of the evaluate standards for judging a company’s capacity, as it’s often found that some companies with a huge registered capital actually has no asset at all. So it’s important to understand that it’s better to declare the registered capital as the actual capacity and financial situation of the company, otherwise, the shareholder will be exposed to some unexpected risk.

Related provisions in Company Law of PRC:

Article 26 The registered capital of a limited liability company shall be the amount of capital contribution subscribed to by all shareholders as registered with the relevant company registration authority.
The provisions otherwise prescribed by laws, administrative regulations and the decisions of the State Council on the actual payment of registered capital and the minimum registered capital of a limited liability company shall prevail.

Article 198 Where, in violation of this Law, a company has been registered by false reporting of the registered capital, submission of false materials, or concealment of any important fact by other fraudulent means, the company registration authority concerned shall order correction to be made. Where a company falsely reports its registered capital, a fine of not less than five percent but not more than 15 percent of the falsely-reported registered capital shall be imposed. Where a company submits false materials or conceals any important facts by other fraudulent means, a fine of not less than RMB 50,000 but not more than RMB 500,000 shall be imposed. Under grave circumstances, the company shall be deregistered or its business license shall be revoked.

registered capital

Reporting Loss of Passport

May 30, 2019

If your passport is lost or stolen, the first thing you have to do is to report it to the closet police station where the loss or theft happened as soon as possible. you shall complete the following procedures:

Step 1:

Obtain a “Receipt of Report” from the police station. the loss or theft of a foreign passport must first be reported to the police station closed to wear the loss/theft occurred. A receipt will be issued by the Police Station.

Step 2:

Obtain a “Confirmation of Reporting the Loss of Passport” from local Exit and Entry Administration Department of Public Security Bureau.

1. Documents required

Report the loss or theft of your passport ASAP to local police

To obtain the “Confirmation of Reporting the Loss of Passport”, you should provide the following:

1. Original and photocopy of “Receipt of the Report” from Police Station where the passport was stolen or lost (see step 1);

2. Two (2) recent photographs of the applicant;

3. Report Form with completed statement regarding the lost or stolen or passport;

4. Photocopy of evidence for your nationality or citizenship in the foreign country (passport, ID card etc.)

Notice: Obtaining a “Confirmation of Reporting the Loss of Passport” is not a compulsory formality for applying for a new passport or temporary travel document.

2. Fees

Not required.

3. Time processing

It will normally take to working days for processing upon receipt of all the required documents.

4. Important Notice

The validity of a “Confirmation of Reporting the Loss of Passport” is thirty days. Within thirty days, you must apply for a new passport or replacing certificate at your country’s embassy or consulate in China and apply for a visa or residence permit to the Exit and Entry Administration Department of local Public Security Bureau with this “Confirmation of Reporting the Loss of Passport”

Those who failed to finish such proceedings within thirty days will constitute illegal stay in China and will be punished according to the law, meaning they will be charged fine and be deported to their home countries. You may check our previous post for more information: Application for Residence Permit for Work

So apply for a new passport is not the only thing you have to do, you can only stay in China with proper visa and residence permit.

Useful link:

Ministry of Public Security of the People’s Republic of China

illegal stay in China, loss of passport, passport, reporing loss of passport

Application for Residence Permit for Work

May 27, 2019

Foreigner who enter China with Z Visa and come to work in China shall apply for work-type of residence permit within thirty (30) days from the date of their entry.

When applying for a residence permit for work the applicant is obliged to answer relevant inquiries and submit the following documents:

Residence permit for work is the legal document expat need to live legally in China while they work in China

1. Original and photocopies of valid passport or other international travel documents, and the visa used in the latest entry;

2. A completed “Visa Application Form for Foreigners”;

3. A visa photo, which has met the requirement of the Entry & Exit Administration Department of local Public Security and a Receipt of China Visa Photograph for Foreigners。4. A valid “Registration Form of Temporary Residence for Visitors” in local city

5. A health certificate issued by local Entry and Exit Inspection and Quarantine Bureau ( Sub mission is required at the first application for residence permit):

6. Photocopies (to be checked against the original) of “Foreign Expert Certificate”, “Employment Permit for Foreigners”;

7. Letter of certification from work unit;

8. Photocopies ( to be checked against the original) of registration certificate of work units (such as duplicate of the business license, duplicate of registration certificate of institution as legal person);

9. Where foreigners enter China with other types of visa and need to apply for work-type residence permits, they should also submit certification documents testifying that they are investors, or persons who meet the qualification and requirements set by the competent authorities of the Chinese government for inviting persons of high talent or urgently needed specialists.

Please be noted that this information is provided based on the current provisions in Guangzhou, Guangdong and is for reference only.

It’s strongly recommended that people in other cities consult with local authorities for exact and updated information.

residence permit, work permit, Z visa

More about registered capital (part 2)

1. Rent

2. Bookkeeping service

3. Salary

4. Reminder:

Negative List for Foreign Investment –2019 Edition

1. The service industry

2. The agriculture, mining and manufacturing industries

Tax Incentive Policy for Overseas Talents in GBA

Who is qualified for the tax difference subsidy?

At the same time, they shall meet one of the following conditions:

What are the Rights of Employee in China?

Liberty to terminate the contract

1. General situations

2. when the employer did something illegal

Get compensation when the contract is terminated

Under the following situations, the employer cannot terminate the contract:

Punitive compensation

Participate in internal management

More about Registered Capital

What Does Registered Capital Mean?

Reporting Loss of Passport

Step 1:

Step 2:

1. Documents required

2. Fees

3. Time processing

4. Important Notice

Application for Residence Permit for Work

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