Chinese law prescribes debt to equity quotas for different types of investment structures. The rules have an impact on the financial structure of the enterprise type selected. The debt rules were implemented in order to prevent use of debt to establish highly debt leveraged foreign invested enterprises. The quotas are set to match total investment and registered capital. For example if the total investment is up US$ 3-10 million the registered capital should be 70% of the aggregate investment. If the total investment is US$ 10-30, the registered capital should be 40% of the aggregate investment. If the investment is more than US$ 30 million, the registered capital must be 33.3% of the aggregate investment. The time periods prescribed for making the capital contributions depends on the amount of the registered capital, ranging from 1-3 years. 1 year is prescribed for registered capital up to and including 500,000US$. Time limits for WFOEs are stricter than for other foreign invested enterprises and must state the time limit at the time of filing for establishment of the company.
