A number of tax regulations in China have recently been updated.
To summarise these updates, we have prepared a detailed table on
the changes showing how they will affect organisations.
To view the table, please see below:
What is new?
Ministry of Commerce Decree  No. 8
Provisional Regulations on Capital Contribution by Means of
Shares in Foreign Invested Enterprises
For various reasons, a foreign company holding direct shares in
its Chinese subsidiaries may wish to transfer such shares to a
Chinese entity ("Transferee Company"). In the past, such
share transfer could be made in the form of a capital contribution
only if the Transferee Company had a Chinese Holding Company
("Holdco") status. Otherwise, it had to be structured as
a share transfer where the Transferee Company paid a share price to
the foreign company. Under PRC tax law, such share transfer with
cash payment will trigger PRC withholding tax of 10% on the capital
gains arising from the share transfer.
On 21 September 2012, the PRC Ministry of Commerce issued the
Provisional Regulations on Capital Contribution by Means of Shares
in Foreign Invested Enterprises ("the Regulations"),
which took effect on 22 October 2012. The Regulations now generally
allow domestic and foreign investors to contribute their shares in
foreign invested enterprises ("FIEs") as capital
contribution to a Chinese company (not limited to Holdcos). This
may enable foreign investors to avoid the 10% withholding tax for
the gains from the share transfer. Under the Tax Circular Caishui
 No. 59, the withholding tax is not payable if all of the
following conditions are met:
1. The share transfer has its reasonable commercial purposes and
is not conducted mainly for purposes of reducing, avoiding or
postponing tax payments;
2. The transferred shares constitute no less than 75% of the
shares in the target company;
3. More than 85% of the considerations for the share transfer
are new shares in the transferee company;
4. The target company will continue its previous business
operation for more than 12 months after the share transfer;
5. The transferor will not transfer its new shares in the
transferee company within 12 months after the share transfer;
6. The Chinese transferee company is 100% directly held by the
foreign transferor company.
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