As we all know, PRC government allows a foreign investor to make capital contribution to the registered capital of a foreign invested enterprise (“FIE”) by installment. However, there are discrepancy existing in rules regarding requirement on the amount of initial payment to the registered capital.
The PRC Wholly Foreign Owned Enterprise Law Implementing Rules
(revised in 2001) (“WFOE Implementing Rules”)stipulates that the initial payment for the registered capital of a FIE should be 15 % of the registered capital while the
PRC Company Law
(which became effective on January 1, 2006)stipulates that the initial payment by the shareholder of a company should be at least 20 % of the registered capital. In April of 2006, State Administration for Industry and Commerce issued the
Implementation Opinions on the Issues concerning Law Application for the Examination, Approval and Registration of Foreign-Invested Enterprises
(“Implementation Opinions”), which says that the initial payment for the registered capital of a foreign invested enterprise should be 15 % of the registered capital.
The aforesaid laws or regulations provide different requirements on the amount of initial payment to the registered capital, which cause the confusion for those foreign investors intending to make capital contribution by installment.
We hold the view that the initial payment of registered capital of a FIE should be at least 20% of the registered capital, as stipulated by PRC Company Law, because the PRC Company Law, as a law which was formulated by the Standing Committee of National People’s Congress, should prevail over the WFOE Implementing Rules or Implementation Opinions, which are the administration rules or regulations formulated by State Council or State Administration for Industry and Commerce, according to Laws of Legislation of the PRC.
Also, in practice, the examination and approval authority clarify this issue further and apply PRC Company Law to the amount of initial payment of the registered capital of a FIE and request a foreign investor should make initial payment with 20% of the registered capital of a FIE.
By Adam Li