Registered Capital and Total Investment

After a foreign investor purchases the equity rights of a domestic company, and the domestic company has been changed to an FIE, the FIE’s registered capital shall be the registered capital of the original domestic enterprise, and the investment contribution by the foreign investor shall be the proportion of the purchased equity in the original registered capital.

The M&A Rules provides that, where the ratio of a foreign investors’ capital contribution to the registered capital of an FIE established as a result of M&A is less than 25 percent, the enterprise shall not be entitled to the treatment for FIEs.

Additionally, when a foreign investor merges with a domestic enterprise by equity merger, the M&A Rules places upper limits on the total investment amount of the foreign-funded enterprise established after the merger. The upper limit on investment is determined by the total amount of registered capital as following:

1)  Registered Capital is less than US$2.1 million, total Investment cannot exceed 1.43 times the amount of registered capital

2)  Registered Capital is US$2.1 million to US$5 million , total Investment cannot exceed 2 times the amount of registered capital

3)  Registered Capital is US$5 million to US$12 million , total Investment cannot exceed 2.5 times the amount of registered capital

4)  Registered Capital is More than US$12 million , total Investment cannot exceed 3 times the amount of registered capital

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