Mergers
A merger involves two or more enterprises forming a single legal entity through combining their assets and liabilities. In China, the absorption of an existing company or the creation of a new entity are the two methods through which a merger can be transacted. Though the former resembles an acquisition, different tax rules apply if the transaction is recognized as a merger.
On January 26, 2010, the State Administration of Tax (the "SAT") issued another Notice on Issues Concerning Implementing Royalty Clauses in Tax Treaties (Guishuifa [2010] 46, also referred to as "Circular 46"), further clarifying treaty treatment for technical know-how.
Continue Reading...Acquisitions: Share Deals
One of the two typical methods in which foreign investors can acquire a domestic Chinese company is through a share deal, which involves buying the shares or equity in the target company. As a result, liabilities will be inherited with the target company since the legal entity remains unchanged. In China, certain restrictions on foreign ownership of domestic companies prevent share deals from being transacted.
China’s new tax law went into effect in January of 2008. This development has had important effects on tax structures used by foreign investors doing mergers and acquisitions in China. It has influenced the strategies firms employ in pursuing “enterprise reorganization” projects involving domestic Chinese enterprises, including mergers, demergers, share acquisitions, and asset acquisitions. In April of 2009, China’s Ministry of Finance and State Administration of Taxation ("SAT") issued Caishui [2009] No. 59 (the "M&A Rules"). Some of the most significant aspects of the new tax law are described below.
Continue Reading...After Shanghai allowed foreign private equity and venture capital funds to incorporate in Shanghai in August 2008, Beijing recently became another pioneer in giving legal status to foreign investment funds. On December 20, 2009, Beijing Municipality released a circular entitled Interim Measures on Establishing Foreign Invested Equity Investment Fund Management Enterprises (the "Measures"). The Measures are effective as of January 1, 2010, for a trial period of three years.
Continue Reading...On December 7, 2009, the Ministry of Commerce and the Ministry of Science and Technology jointly announced their opinions on encouraging technology export ("opinions"). Opinions on encouraging technology export focus mainly on three areas: implementing preferential policies, closer international cooperation and improvement of the related public administration. The aim is to support enterprises in their export of well developed industrial technologies.
Continue Reading...By Jennifer Ding
China’s State Administration for Industry and Commerce (“SAIC”) and Ministry of Public Security issued a joint Notice on Further Administration of Registration of Foreign Companies’ Resident Representative Offices (the “Notice”) on January 4, 2010, in light of increased problems with foreign representative offices providing counterfeit registration materials and violating rules regulating their business operations in China. The Notice heightens the scrutiny over registration procedures, personnel structure, and operations of foreign representative offices, which the issuing administrations claim will enhance the enforcement of current regulations and help maintain economic and market order. There is no direct requirement in such Notice that the new restrictions established will be applied to foreign representative offices of certain professional-services firms (including law firms) and liaison offices of foreign-invested enterprises. A summary of changes outlined by the Notice is as follows:
The third amendment of Chinese Patent Law went into effect on October 1, 2009, and since then there has been a need for new rules detailing its implementation. On January 18, 2010, the Chinese State Council published the third revision of the Implementing Rules For Patent Law (the "Rules"). The Rules are set to take effect on February 1, 2010.
Continue Reading...On December 8, 2009, the largest Bit Torrent ("BT") download base, BTChina, was shut down by the State Administration of Radio, Film, and Television ("SARFT") for "lack of Certificate". SARFT explained that the regulation of Internet audio-visual services is a long-term project. Until the site resolves its piracy issue it can not be re-opened. According to a CCTV report on December 17, 2009, SARFT announced that it had shut down more than 700 websites, including nearly 30 of the BT download sites. This incident raises deep concern among Chinese netizens: why did the Chinese government suddenly intensify efforts to crack down BT sites? Does this mean that the peer-to-peer (P2P) download technology will meet its end in the near future?
Continue Reading...On October 27, 2009, the Chinese State Administration of Taxation (“SAT”) issued a Notice, "How to Understand and Determine the 'Beneficial Owner' in Tax Agreements" (Circular No. 601, hereinafter referred as to the “Notice”). This Notice clarifies the definition of beneficial ownership for purposes of avoiding double-taxation and appropriately reducing tax burdens.
Continue Reading...Enter keywords:
