Equity Transfer

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CHINA

EQUITY TRANSFER

大陸股權變更英文

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 shareholder 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 examples: 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 examples: We have to understand the stock transfer agreement and the necessary oversea certification to avoid the waste time and capital.

 

 

The involving tax for transfer stocks

1.Only need to pay the stamp duty for changing the registered capital to get the continental equity.
2.If only add new shareholder, not change the registered capital, original shareholder transfer a part of stocks to new shareholder 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 expenditure. 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

 

A capital flow of changing mainland equity ownership01

Foreign capital transfer to foreign capital: Because beneficiaries are overseas,

so they do not need to provide capital flow receipt in China.

 

A capital flow of changing mainland equity ownership02

Domestic capital company transfer to the foreign capital company: After

relevant industry department's approval, transferor has to remit capital to

transferee's account from overseas and provide a relevant certificate to the

relevant department for the record.

 

A capital flow of changing mainland equity ownership03

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 document.
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 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 new shareholder.

(If 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 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

1.Equity change about domestic & foreign joint venture and domestic & foreign cooperative enterprise must get the 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.

2.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.

3.Equity ownership transfer to third party condition and limit:
When 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.

4.In China, the transferor is the taxpayer, the transferee is the tax withholder obligation to perform tax withholding.

5.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.

6.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 investor 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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