In order to establish a new business in China, complete the WFOE registration process or utilize financial services in China, companies need to prove they have enough funds to run their business. This article explores the ins and outs of registered capital.
Calculating the Registered Capital
Money makes the business go round
In China, a company’s registered capital isn’t merely needed for its day-to-day operation – it is an essential credit tool. The lower the registered capital, the hardest it is to do business (e.g., obtaining loans, entering into commercial contracts, benefitting from financial services in China), and vice versa.
The big numbers
Companies with a business license in China must understand the concept of registered capital.
Registered capital refers to the total amount of capital injected in full by the investors into the Chinese company and registered with the Chinese authorities. This money is injected into a designated bank account supervised by the SAFE. Money injected into this account is expected to be used for operational expenses only and therefore will not be taxed as a revenue.
The total amount of investment includes the registered capital paid or subscribed by investors plus the loans of the foreign-invested enterprise. Therefore, the difference between the total investment and the registered capital is the amount that can be used to borrow from the parent company.
If the total expected investment is less than 3 million US$, the company’s registered capital should comprise at least 70% of the total investment.
No minimum threshold
Setting up a WFOE in China? There is no legal requirement for the minimal threshold of registered capital. However, in practice China still has a minimum registered capital amount requirement (which no one can truly ascertain). Having said that, the main factors that determine the amount of registered capital are the location of the business, and its scope.
Our two cents
You should not aim for the minimum because getting more money into China or increasing the capital are time and money consuming. If the registered capital is too low in the beginning, the company might experience costly problems in the long run. Therefore, it is better to set a higher bar for registered capital, which covers the company’s expected expenses for the first two years, without considering any income.
/The small print
- According to the latest amendments to China’s Company Law, shareholders of Limited Liability Companies in China, established after July 1st, 2024, must fully contribute their committed registered capital within five years of the company’s establishment. This marks a major shift from the previous regulation, which permitted more open-ended injection timeframes. While seemingly strict, the change intends to foster more equitable business practices and financial credibility.
/ - In addition to the registered capital payment, companies doing business in China are required to allocate 10% of their annual profits after-tax into a reserve fund. When this statutory fund reaches the amount proportionate to 50% of the original registered capital, the company can stop the allocation.
/ - The capital deposited in the bank is not frozen, so it can be used for immediate business operations.
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Last updated: Feb 2025
