According to the relevant laws and regulations in China, foreign investors should make their capital contribution to their foreign invested enterprises established in China in foreign exchange or offshore RMB, except for the circumstances explicitly stipulated by laws and regulations that onshore RMB can be used for capital contribution.
Currently, the specific circumstances explicitly stipulated by laws and regulation that onshore RMB contribution can be made are as follows:
RMB profits acquired from the foreign invested enterprise within China
RMB funds acquired from equity transfer within China
RMB funds acquired from capital reduction within China
RMB funds acquired from liquidation within China
RMB funds acquired from early recovery of investment
RMB funds acquired from foreign exchange settlement of security deposits from abroad
Besides the above circumstances, it is possible for the foreign investors to make capital contributions to the foreign invested enterprises with other lawful RMB funds obtained within China, for example, foreign natural persons’ wages and salaries acquired within China, income acquired from disposal of assets within China and so on?
Although the current laws and regulations of the PRC do not explicitly prohibit foreign investors from using other onshore RMB to make capital contributions, most foreign exchange administration authorities and banks do not recognize such capital contribution in practice and foreign natural persons are required to remit their wages and salaries acquired within China, income acquired from disposal of assets within China and so on to their overseas or offshore accounts first, and then use foreign exchange to make capital contributions to the foreign invested enterprises.
Even though the foreign exchange administration authorities and banks in some areas recognize the use of foreign natural persons' wages and salaries acquired within China, income acquired from disposal of assets within China and so on to make capital contribution under specific circumstances, there is still a legal risk that such capital contribution will be deemed illegal.
Therefore, it is not recommended for foreign investors to use onshore RMB that is not explicitly stipulated by laws and regulations to make capital contributions to the foreign invested enterprises in order to avoid risks.
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Disclaimer
All information in this article is only for the purpose of information sharing, instead of professional suggestion. Kaizen will not assume any responsibility for loss or damage.
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