The Standing Committee of National People's Congress amended China Company Law, and the State Council amended the Implementing Rules for the Laws on Wholly Foreign-owned Enterprises, the Implementing Rules for the Laws on Cooperative Sino-foreign Joint Ventures and the Implementing Rules for the Laws  on Equity Sino-foreign Joint Ventures (collectively "Amendaments",which were all effective as from March 1, 2014 ) ,which significantly lower the entries barriers to foreign invested enterprises in China. On June 17,2014, the Ministry of Commerce issued a directive with respect to review and management of foreign investment "Notice of the Ministry of Commerce on Improvement of Foreign Investment Review & Management",which makes the amendments aforementioned much more operable.

1.Subscribed Registered Capital System Applied
The change from“paid-in registered capital” to “subscribed registered capital” is the most significant change in the Amendments. Before the Amendments, foreing investors had been required to pay-in a fixed amount of registered capital within two years, 15% of which was required to be paid-in within 90 days after the issuance of the business license. Failure to do so could make the FIE subject to a fine, or revocation of business license under several circumstances.
The Amendments abolished the paid-in registered capital requirement and permit investors of an FIE to determine the amount of registered capital and the timing of the capital contributions, which may be necessary to carry out the company’s business plan. However, the foregoing change does not apply to 27 kinds of special companies, such as companies limited by shares established by public offer, foreign-invested banks, financial asset management companies, financial leasing companies, labor dispatch enterprises and so on.

2. the Minimum Registered Capital Requirements Scrapped
Before the Amendments, the Company Law, which mainly governs domestic companies, specified the minimum amount of registered capital of a company. Although there was no specified minimum amount of registered capital in the laws and regulations, in practice the Chinese concerned authorities used internal guidance to determinethe minimum amount of the registered capital for a particular type of FIE. The Amendments abolish the minimum registered capital requirement for domestic companies, and delete the requirement that “the registered capital of a WFOE matches the scale of its business operation.”

3. the Ratio Requirement between Cash Contribution and In-kind Contribution Removed
Before the Amendments, the Company Law required that shareholders’ cash contributions for a company shall not be less than 30% of the registered capital, and the Implementing Rules on WFOEs provided that the capitalized value of industrial property rights or proprietary technology invested by foreign investors shall not exceed 20% of a WFOE’s registered capital. With the effectiveness of the Amendments, these provisions were abolished.

4.the Annual Inspection Procedure Simplied
Before the Amendments, the annual inspection that FIEs were required to go through each year was complicated and time consuming as the procedure involved many Chinese authorities (such as Commerce Bureaus, tax bureaus, statistic bureau, and quality supervision bureau), and required an individual representative from the company to go to the AIC where the company is registered in order to submit various required documents in person.
An online reporting system was established with the Amendments to replace the annual inspection procedure. Between January 1to June 30 of each year, all companies and other entities, including FIEs, are required to file their annual reports for the preceding year, which should include contributions of shareholders, equity transfer information, business operation information, and change of management officers, to the Administration & Commerce(AIC) where the company is registered through an online “Enterprise Credit Information System.”However, so far (July 1) the State AIC has not released a directive about online reporting,and consequently no company in China has made the report mentioned above.

In addition, from March 1, 2014, a new version of business license is available to new companies or existing companies applying for changes in their registration.  Companies with old versions of business licenses have the discretion to apply for the new version.  However, the old version of business license can not be in use after February 28, 2015.

By Linchang Shen, Attorney at Law
Contact: law@fdi-law.com