Equity Transfer

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CHINA

EQUITY TRANSFER

CHINA  EQUITY TRANSFER PROCEDURE

China and foreign countries joint venture, cooperative enterprise, and exclusively foreign-owned enterprise (three kinds of investment enterprise). In accordance with the law, after the registered establishment of the company in China (Shanghai, Shenzhen, Xiamen) due to various reasons, the proportion of original registered capital or investment subject may be changed, the result in changed the investment amount. Most of oversea companies investor chose the place where can simply transact the stock transfer and the transfer procedure. The final purpose of the stock transfer is to manage the entity enterprise in China. Whether plan on listed in Taiwan or overseas, introduce strategic investors or shareholders directly adjust the equity structure. It is inevitable to transfer the stock of enterprise in China when the enterprise recombining the investment structure.

Inter Area Business Provider has many years of overseas transnational investment entities. If you want to transfer shareholder or investment, not only change industry and commerce but also involving industry and commerce, tax, fund, etc. It is necessary to understand the local provisions and the involving problems before the change. For example: Do disorder legal representative and offshore authorized signatories both need to change? Inter Area Business Provider will confirm all the necessary documents are prepared before stock transfer. For example, We have to understand the stock transfer agreement and the necessary oversea certification to avoid waste time and capital.

 

Table of Contents

  • The involving tax for transfer stocks
  • A capital flow of changing mainland equity ownership
  • Required documents for equity change of foreigner investment company in China
  • The procedure of equity change or transfer of foreign capital company
  • The notice of foreign capital equity change for foreign investors

 

 

The involving tax for transfer stocks

  1. Only need to pay the stamp duty for changing the registered capital to get continental equity.
  2. If only add new shareholders, not change the registered capital, original shareholders transfer a part of stocks to new shareholders and have to pay personal income tax (20%).
    In China, the personal income tax calculation formula for transfer stock is Personal income tax=(Equity ownership transfer income - Principal – Reasonable fee)×20%.
  3. Tax about juridical person transfer the equity ownership? Equity ownership transfer enterprise income tax=(Equity ownership transfer income- cost - expenditure)×25% or 20%

Counting income tax can deduct enterprise occurred, related income, and reasonable expenditure including cost, expenses, tax, closing cost, and other expenditures. According to enterprise income tax rate 25%, if not the resident enterprise gets the income tax, the tax rate is 20%. Equity ownership transfer enterprise income tax=(Income of Equity Transfer-cost- expenditure)×25% or 20%.

  

A capital flow of changing mainland equity ownership

 

Foreign capital transfer to foreign capital

Foreign capital transfer to foreign capital: Because beneficiaries are overseas,
so they do not need to provide capital flow receipts in China.

 

Domestic capital  transfer Domestic capital company transfer to the foreign capital company: After
relevant industry department's approval, transfer or has to remit capital to
transferee's account from overseas and provide a relevant certificate to the     
relevant department for the record. 

 

Foreign capital company transfer

Foreign capital company transfer to the domestic capital company: Through
commerce department approval, the domestic capital transferee has to get
foreign exchange examination and remit capital to foreign investor's
account and provide a relevant certificate to the relevant department for the
record.

 

 

Required documents for equity change of foreigner investment company in China

  1. Original document for equity change of company.
  2. Transferor qualification of equity change. (provide as required and certified)
  3. Transferee and transferor provide relevant equity change documents.
  4. Equity transferee subject qualification. (provide as certified)
  5. Accounting or asset report. (provide as required)
  6. Other relevant documents of equity change. (The above information is for reference only, it still depends on local requirements, please contact Inter Area Business Provider for further information.)

 

 

The procedure of equity change or transfer of foreign capital company

 

1

If a shareholder wants to transfer the equity ownership to other than shareholders, the transferor must apply for the
approval from the board of directors and discuss it at the shareholder conference. Small and medium enterprises do
not have the board of directors, shareholders can directly send the equity change notification to other shareholders.
Shareholder transfer stock to another shareholder only needs to notice the other shareholders.


2

Both sides sign the stock transfer agreement and make the specific provisions of quantity, price, program, benefit,
and obligation as an effective legal instrument to constraint behavior.


3

Take back funding certification from an original shareholder. Send the new funding certification to the new shareholders.
(If a new shareholder doesn't fund total amount, should hold the certification or mark the amount on the certification.)
Change the register and fill in new shareholder's name, address, and the amount of capital. But the funding
certification is a certificate of the company's obligations to the investors and the ownership of the shareholders. 
A certification about shareholders confronts the company, not enough to effective external publicity.


4

Registering the new MA, shareholders, and funding amount at the Administration for Industry and Commerce.

 

 

 

The notice of foreign capital equity change for foreign investors

  • Equity change about domestic & foreign joint venture and domestic & foreign cooperative enterprise must get approval from all the shareholders. Domestic limited liability company's equity ownership transfer to the foreign investor must get the approval from half of the shareholders. Different from this is the shareholder of a foreign investor or domestic & foreign joint venture wants to transfer capital must get the approval from all the shareholders.

Foreign investor transfer equity ownership must get the approval from the original examination of the enterprise and registration:

  • First, the same as new foreign investor enterprise and foreign investor acquisition domestic enterprise must get the approval, foreign investor enterprise transfer the foreign equity ownership also need approval from competent government departments. Second, after getting the approval, must register at registration authority, if not, it turns invalid.

Equity ownership transfer to third party condition and limit:

  • When a business partner transfers all or a part of equity ownership, the other partner has the first qualification to buy the stock and the cost should higher than transfer to the third party.
  • In China, the transferor is the taxpayer, the transferee is the tax withholder obligation to perform tax withholding.
  • Foreign or legal person inherits equity ownership should certificate with lawyer or certificate at court. Creditor inherits equity ownership should have succession protocol or a legally effective judgment.
  • According to IRS regulations No. 698 and No. 7:

foreign enterprises transfer will strike range of anti-avoidance in indirect equity transfer limit of 698, and the declaration of the transaction limit where the transferred overseas company country (region) the scope of the actual tax burden is lower than 12.5% of the equity transfer or income for its residents outside does not levy the income tax. The announcement of No.7 will extend the scope of regulation from indirect equity transfer to indirect transfer of Chinese taxable property. The so-called indirect transfer of Chinese taxable property refers to a non-resident enterprise directly or indirectly through the transfer of China taxable property of foreign enterprises (equity and other similar rights, and direct transfer of China taxable property the same or similar substance of the transaction,
including the non-resident enterprise shareholder restructuring caused by the changing situation of overseas enterprises.

In conclusion, currently, foreign investment is commonly used as an overseas holding company registered a place. For example:B.V.I., Cayman Island, Samoa, Hong Kong, etc. All accord with the actual tax burden of the country (region) of an overseas holding company is less than 12.5% or the income tax on its residents' overseas income is not required, so the equity transfer of overseas company shall have the obligation to file with the tax authorities. In China, some of the tax authorities identify foreign investors transfer equity ownership to the overseas holding company if oversea company, not an entity company, foreign enterprise transfer equity ownership behavior deemed as transfer domestic enterprise's equity ownership.

 

 

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