China WFOE Maintenance and Compliance Guide (1) – China’s Statutory Capital Verification Requirement

Introduction

According to the Verification of Capital Contributions, after the shareholder (investor) of the a Wholly Foreign Owned Enterprise contributes and pays the registered capital into the WFOE’s Foreign Currency Capital Account, it should arrange to engage a local certified public accounting firm to perform an audit so as to verify that the capital is contributed and paid in accordance with requirements of the China Company Law and Articles of Association. The capital verification report issued thereafter is deemed as the legal proof of capital contribution.

Immediately after the capital verification is done, the WFOE could then convert the capital to RMB and use it for daily operation.

Capital Verification Procedures and Expected Time

Overall, the whole process takes about 3 to 4 weeks.

(1) Bank confirmation: Normally 3-5 working days, depending on different banks
(2) Local State Administration of Foreign Exchange (SAFE) confirmation: Normally 5 working days, depending on different cities
(3) Verification process and report issuance by CPA firm: Normally 3 to 4 weeks

Conversion of Paid-up Capital

Per SAFE’s regulations, capital verification should be conducted on the paid-up capital before its conversion into RMB. The total convertible amount of paid-up capital (in Foreign Currency) should not exceed the accumulated paid-up capital which has been verified by the CPA firm. The converted RMB will be retained in the FIE’s RMB basic account as working capital.

Please note according to SAFE Circular [2008] No.142, when converting amounts greater than US$50,000 into RMB, a detailed documentation is required to justify the conversion.

Important Points to Note

1. Timing and Proportion of Capital Injection

Investor(s) should follow strictly the injection schedule as stipulated in the Articles of Association (AOA).
Please note the minimum legal requirement for the timing and proportion of capital injection is:

~ One-off Injection
The investor(s) should inject the total registered capital within 180 days after the issuance of Temporary Business License.

~ Injection by Installments
The 1st injection should be no less than 15% of the total Registered Capital and be injected within 90 days after the issuance of Temporary Business License. The remaining Registered Capital should be paid up within 2 years after the issuance of Temporary Business License.

2. Names of the Remitter(s) and Receiver of Capital

Per SAFE’s regulations, the names of the remitter(s) and receiver should be the same as the shareholder (investor) and the WFOE in the AOA.

3. Remittance Fee

Investor(s) should consult the bank for the remittance fee before wiring the capital. This is to ensure that the amount received in the FIE’s Foreign Currency Capital Account after the deduction of remittance fee, is no less than the amount stipulated in the AOA.

4. Renewal of WFOE’s Certificates

After each capital injection and verification, WFOE should go to local Administration for Industry & Commerce for the renewal of business license. The accumulated paid-up capital in the license will be renewed accordingly.

Corporate Services by Kaizen

Kaizen offers the following Corporate Compliance and Corporate Secretarial Services:

~ Entity establishment/incorporation advisory for WFOE, JV, FICE, RO etc.

~ Branch companies’ establishment in China

~ Intermediate holding companies’ establishment e.g. in Singapore and Hong Kong, BVI etc.

~ Corporate Secretarial Services

(1) Custodian for key documents
(2) Custodian for seals/stamps
(3) BOD meeting and minutes

~ Company de-registration and Liquidation

~ Non-routine Corporate Secretarial Services

(1) Change of directors
(2) Change of business address

~ Change of Chief Representative, etc.