Can Foreign-Invested Companies be capitalized?

Capitalization: A FIC, like a domestically owned company, can be capitalized through contribution of any ‘non-cash asset that can be monetarily valued and legally transferred’. ‘Ownership’ of such assets is no longer required, which suggests that contributions can be made through sub-licenses of intellectual property rights. Cash must make up at least 30 percent of contributions to a FIC’s or a domestically owned company’s registered capital, while there is no longer any limit on the percentage made up by intellectual property rights. Capitalization cannot be accomplished by contribution of labor services, credit standing, goodwill, franchising rights, mortgaged property (whether movable or immovable), or individuals’ (as opposed to enterprises’) names. Valuation is required of non-cash contributed assets, by a (PRC-licensed) appraisal entity or, also permitted for a Sino-foreign equity joint venture, by agreement between the parties.

Pledges: FIC equity pledges have become more reliable, through provisions for issuance of pledge registration certificates and through prohibitions against transfer or re-pledge of the pledged equity – or reduction of the ‘corresponding-invested capital’ –except with the consent of pledges.
Onward investment: A FIC’s investment in other companies is no longer limited to 50 percent of its net asset value. Tax next: The next major convergence step, expected to be rolled out in 2007, will be reform and unification of corporate income tax.

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