The newly revised Company Law (hereinafter referred to as the "New Law") has been voted and passed by the seventh meeting of the Standing Committee of the 14th National People's Congress on December 29, 2023, and will come into force on July 1, 2024. If the original registered capital contribution time exceeds June 30, 2032, it must be changed to within 3 years to June 30, 2032, and then paid in place within June 30, 2032.
Regarding the content of the new law that requires paid-in registered capital, there are several ways for enterprises to deal with it:
1. Paid-in place, which is the simplest, that is, shareholders can use monetary funds or non-monetary funds to pay in: (1) If monetary funds are used, the prominent shareholders of the enterprise need to transfer the funds to the company through bank transfer in accordance with the corresponding proportion of capital contribution, note the equity investment funds, if the transfer is greater than the amount of subscribed capital contribution, it will be included in the capital reserve, and after the transfer, financial bookkeeping is required and stamp duty declaration in electronic tax declaration, and finally it can be publicized in the national enterprise credit information system.
Paid-in accounting treatment:
Borrow: bank deposit - so-and-so bank.
Credit: Paid-in capital - a shareholder.
It should be noted that the paid-in registered capital belongs to the company, and the shareholders cannot transfer it back, but can only be used for the company's normal operation or investment expenses, such as payroll, purchase of equipment, investment in subsidiaries, etc.
2) The use of non-monetary funds to contribute, including in-kind, intellectual property, creditor's rights, etc., here we mainly explain the situation of in-kind, intellectual property, creditor's rights contribution.
a. Contributions in kind.
According to Article 27 of the Company Law, shareholders may make capital contributions in kind. However, the physical object must have the following conditions and characteristics:
First of all, the physical object must have practical value and calculation conditions, that is, it must be evaluated by professionals for the equity and value of the physical object, and a clear appraisal report must be formulated.
Second, the physical object must have the attribute that it can be transferred according to law, in other words, the physical object can be transferred and realized.
Third, the physical investment must be beneficial to the invested company, which means that the investment in kind will enhance the company's strength and ability, and bring more benefits and benefits.
When the physical object is actually received (if the property right is involved, the property right transfer procedures need to be handled), the enterprise shall deal with it according to the market value and relevant taxes and fees at the time of receipt of the physical object. The specific accounting entries are:
Borrow: fixed assets, inventory goods, etc.
Credit: paid-up capital.
Capital reserve (if the value of the asset exceeds the registered capital).
In the case of self-produced products, commissioned processing or purchased inventory used as investment capital, it shall be regarded as a sale, and the appreciation shall be calculated and paid at a reasonable selling price. If the investee is a general VAT taxpayer and meets the deduction conditions, the corresponding VAT can be deducted (the shareholder is required to issue the VAT invoice to the investee enterprise at the same time).
For fixed assets, if they are within the scope of VAT, the investor is subject to VAT at the time of investment. However, the investee does not enjoy the right to deduct this VAT input tax, but includes it as part of the cost of the asset, thereby increasing the book value of the asset, that is, the investee enterprise is included in the fixed or inventory goods according to the total amount of price and tax.
After receiving the physical goods, the invested enterprises need to declare stamp duty, which will be publicized in the national enterprise credit information publicity system, just like the monetary funds received.
As an investor (i.e., a shareholder), in addition to paying VAT and surcharges, the use of physical goods is also subject to income tax as sales (if the investor is an enterprise, the enterprise income tax is paid, and if the individual is an individual, the individual income tax is paid).
In summary, the tax treatment of contributions in kind is a complex process that requires assessment and tax planning on a case-by-case basis to ensure compliance and reduce the tax burden.
b. About intellectual property contribution:
Intellectual property rights generally refer to software copyrights, trademarks, patents, etc., but it is necessary to ensure that such intellectual property rights are in the name of shareholders, and the same kind of capital contribution needs to be valued by a professional appraisal agency, and then handle the change of property rights (if involved), and finally make accounts and tax returns, industrial and commercial publicity, and the relevant accounting treatment is as follows:
Borrow: Intangible assets
Credit: Paid-in capital - a shareholder.
Unlike in-kind contributions, intellectual property contributions enjoy preferential tax policies.
Preferential VAT policy.
According to the relevant provisions of the Notice of the Ministry of Finance and the State Administration of Taxation on Comprehensively Promoting the Pilot Program of Replacing Business Tax with Value-Added Tax (Cai Shui [2016] No. 36), the transfer of technological achievements is the sale of intangible assets and is exempt from VAT.
Preferential income tax policies.
In September 2016, the State Finance Bureau and the State Administration of Taxation issued the Notice on Improving the Income Tax Policies Related to Equity Incentives and Technology Shareholding, also known as Cai Shui 2016 No. 101, to implement the collection and administration of individual income tax related to the investment of individual non-monetary assets. Since September 1, 2016, individuals or enterprises can choose the preferential policy of deferred tax payment for technology investment, and the tax can be temporarily exempted from tax in the current period of investment and equity transfer, and the tax shall be calculated according to the difference between the equity transfer income minus the original value of the technology and reasonable taxes and fees.
c. Debt contribution (often referred to as debt-to-equity swap):
Debt-to-equity swap generally refers to the fact that shareholders have paid money to the company in the form of loans, and need to have relevant loan contracts and transfer records, and then let the appraisal agency issue a report, and at the same time, the shareholders will form a resolution or decision on the debt-to-equity swap, hire a professional firm to issue a capital verification report, and finally, the accountant makes a statement and amends and publicizes the articles of association, and the relevant accounting treatment is as follows:
Debit: Other payables - a shareholder.
Credit: Paid-in capital - a shareholder.
2. If you don't want to pay in or the original registered capital is too high, you can choose to cancel and reduce the capital, but whether you choose to cancel or reduce the capital, it is necessary to carry out industrial and commercial publicity, that is, to publicize it in the national enterprise credit information publicity.
About cancellation: the steps of cancellation is first tax and then industry and commerce, after getting the tax clearance certificate, it needs to be publicized for 10-45 days, the publicity period of the proposed cancellation in the Lingang area of Shanghai is 10 days, the publicity period in other regions is 20 days, and the publicity period for ordinary cancellation in general areas is 45 days, and the detailed cancellation steps can be "how to handle enterprise cancellation - tax cancellation", "how to handle enterprise cancellation - industrial and commercial cancellation (ordinary cancellation)", "how to handle enterprise cancellation - industrial and commercial cancellation (simple) about capital reduction:
1. The announcement steps of the public announcement system to reduce the registered capital are logged in to the national enterprise credit information**.
Then select the company to reduce the registered capital to fill in.
Fill in the company's information and click "Save & Public". (Note: The announcement of capital reduction should be made within 30 days after the shareholders' meeting makes a decision).
After submission, you can view the details on the view page, and submit relevant materials to the competent authority online or offline after the publicity is over.
2. List of materials for reducing registered capital 1. Application for company registration (filing). 2. Resolutions and decisions to amend the articles of association. 3. The amended articles of association or amendments to the articles of association of the company, and the legal representative of the company shall sign and confirm the articles of association or amendments to the articles of association. 4. Explanation of the company's debt repayment or debt guarantee. 5. If the announcement of the reduction of registered capital is only published through newspapers, it is necessary to submit a sample of the newspaper that publishes the announcement in accordance with the law. An application for modification of registration shall be made after 45 days from the date of announcement. Where an announcement on the reduction of registered capital has been issued through the national enterprise credit information publicity system, it may be exempted from submitting the announcement materials for the reduction of capital. 6. If the paper version of the business license has been obtained, the original and copy of the business license shall be returned.