Maintaining currency consistencies in the articles and business license
When applying for your business license, it is important to pay attention to detail when completing the business license application and cross-referencing this against the articles. If, for example, as does occur, sometimes the capital amount to be registered on their business license is shown in renminbi, however, the articles identify this amount in euros or U.S. dollars.
Consequently, if the exchange rate fluctuates, the injection verified by the local accounting firm may no longer match the figures on the business license. The registered capital converted into renminbi may be less than the promised capital amount. So, you, the investor, have to transfer more funds. You also have to complete another capital verification, which you need to arrange with a local accounting firm and pay for.
Sending start-up funds to China before WFOE license is issued
It takes normally three to four months to complete a properly structured wholly foreign-owned enterprise (WFOE) application. However, some foreign investors are advised of tighter time frames, and advised to send the start-up funds to their local agent or local staff to cover the cost for the initial office fit-out, overhead or even equipment purchases. The problem is that these funds from the WFOE parent overseas cannot be recognized as part of your capital injection once the business license is issued, as the capital injection has to be transferred by the foreign investor from their overseas account to the nominated capital account directly, and not via any third party. Even if the money originated from overseas, as soon as it arrives in China it cannot be re-sent to the WFOE account as registered capital. In fact, it will be deemed taxable income.
One way is to arrange this as an internal loan between the parent and the WFOE, and book it as a "rollover" amount not included as part of the WFOE registered capital requirements. Alternatively, the investor, after the WFOE name is registered with the State Administration for Industry and Commerce (prior to the actual license being issued), can open a temporary bank account with the State Administration of Foreign Exchange (SAFE) for limited transactions related to construction and other start-up costs, which can then be permitted to count towards the registered capital contribution, and normally this would be the preferred solution.
Other business application and financial planning issues
Other relatively common oversight problems include the following:
- Under budgeting for staff welfare costs
When calculating salaries, pay attention to the social insurance and housing funds. These are also mandatory along with pension and unemployment funds. How much is dependent on your location as there are variants on a national basis. As a general rule of thumb it will be an amount equivalent to 30-60 percent of total salaries.
- Corporate name translations
It is important to spend time to obtain an appropriate translation of the company name, and to try to use it as a uniform translation, when applying for business registration, trademark registrations and so on. It is your corporate identity in China.