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Administrative change


Registration of equity change in China

Chinese companies applying for Sino-foreign equity joint ventures, Sino-foreign contractual joint ventures, and wholly foreign-owned enterprises (hereinafter referred to as “three types foreign-invested enterprises”), if the Chinese company is established, due to various reasons, the original registered capital or the investment proportion of the investment subject may vary. Changes may occur, resulting in changes in the investor’s investment share.
Based on the registration place of overseas companies often chosen by Taiwanese businessmen, the method of equity transfer of overseas companies in mainland China makes the procedures for equity change and transfer simple and fast. However, the ultimate target of equity transfer is an entity operating enterprise in China after all. Whether it is expected to be listed in Taiwan or overseas, introduce strategic investors or simply adjust the shareholding structure by shareholders, it is necessary to restructure the group’s investment structure and indirectly occur. Circumstances of transferring the equity of enterprises in mainland China.

I.What is Equity Transfer?

In China, the shareholder of a Wholly Foreign-Owned Enterprise (WFOE) is the investor and represents the highest authority of the company. According to the Company Law, the powers of shareholders are defined as follows:

  • Decide on the company’s business policy and investment plan;
  • To elect or replace non-employee representatives of directors and supervisors, and to decide on the remuneration of directors and supervisors;
  • Reviewed and approved the report of the board of directors, the report of the supervisors, and the company’s annual financial budget and final accounts plan;
  • Review and approve the company’s profit distribution and loss recovery plan;
  • By increasing or reducing the company’s registered capital, issuing corporate bonds and resolutions on merger, division, dissolution, liquidation or transformation of the company;
  • Amend the articles of association and other powers stipulated in the articles of association.

However, for various reasons, sometimes a company has to change its shareholder structure by transferring shares from the shareholder to another person (either a new shareholder or an existing shareholder). The process of transferring existing shares from one person to another, either by sale or gift, is called a transfer of shares. Often, shares are transferred to bring in new shareholders. This is done by adding new shareholders or changing the existing share ratio among shareholders.

II.What are the methods of equity transfer in China?

If a foreign-funded enterprise invests in a Chinese enterprise and wants to change/transfer its equity, it can be divided into two transaction methods: “direct equity transfer” and “indirect equity transfer”, as follows:

  1. Direct transfer” of Chinese company equity

    When a foreign-funded company sells equity directly to another person (a new shareholder or an existing shareholder) in a Chinese company, after the transaction is completed, the Chinese company needs to register with the local industry and commerce bureau to change the company’s shareholder. This transaction method is called “direct transfer of Chinese company equity”

    Article 72 of the “Company Law of the People’s Republic of China”: There are no restrictions on the transfer of shares between shareholders. But if shareholders of a China limited liability company intend to transfer their shares to non-shareholders, certain requirements must be met. First, the transfer requires the consent of more than 50% of the other shareholders. Shareholders who transfer their shares must notify other shareholders in writing. If other shareholders do not object to the transfer within 30 days from the date of receipt of the notice, they shall be deemed to agree. If at least 50% of the other shareholders object to the transfer, they are obliged to buy the shares, otherwise, they are also deemed to agree. In addition, Article 72/2 of the Companies Act provides for the pre-emptive right of other shareholders for the shares to be transferred. After the transfer is approved, other shareholders can exercise their pre-emptive rights under the same conditions.

    Chinese company law does not specify when a purchaser acquires ownership of the shares. Therefore, in China, the transfer of shares of a Chinese limited liability company is a common source of disputes, and the signing of a transfer agreement is not enough to transfer the shares. The new shareholder must be registered with the Chinese limited liability company’s shareholder list and the industry and commerce department. After registration with the industry and commerce administration To complete the replacement of the old shareholders. Although the information of the company’s shareholders is not clearly listed on the Chinese business license, the company still needs to apply for a new business license and update all corporate documents, making the entire application process quite complicated.

  2. “Indirect transfer” of Chinese company equity

    When a foreign investor indirectly transfers the equity of a Chinese domestic enterprise by controlling the shares of an overseas holding company, this transaction method is called “indirect transfer of equity of a Chinese company”.

    For example, Company B owns 100% of Company C through many intermediate holding companies in many different jurisdictions, while Company Y (a non-Chinese tax resident enterprise) purchases all issued share capital of Company B from Company A.Foreign companies doing business in China often indirectly hold Chinese domestic companies through offshore companies (such as Seychelles or Viking BVI, etc.), and control domestic Chinese companies by holding the equity of overseas companies (offshore companies). If a foreign company changes/transfers and sells the equity of an “overseas holding company that holds shares of a Chinese company” to a new shareholder, the local Chinese domestic company does not need to register with the local industry and commerce bureau for changing the company’s shareholder. This transaction method is simpler and faster. .

III.Taxes should be paid for shareholding changes in China

Enterprises engaged in equity changes may have subtle differences due to the regulations of various provinces in mainland China, but the basic taxes are as follows:

  • Stamp duty:
    According to the Mainland’s “Interim Regulations on Stamp Duty”, the property transfer certificate is a taxable certificate. The equity transfer contract belongs to the “property transfer document” referred to in this article, and the stamp duty shall be paid according to 5/10,000 of the stated amount according to law. Increase of capital and shareholding: If the mainland equity is a new shareholding in the form of increasing the registered capital, that is to say, the company only needs to pay stamp duty.
  • Corporate income tax:

a.The transferor is a foreign-
funded enterprise

The tax rate is 10% (capital gains tax). Offshore company share transfer/change in accordance with China's current offshore indirect transfer reporting and tax rules, if a non-Chinese resident makes an offshore indirect transfer of China's taxable assets (including stocks, real estate, etc.), if the company is considered "no Reasonable business purpose”, the transaction will be re-characterized as a direct transfer of Chinese taxable assets and subject to Chinese corporate income tax at the rate of 10%.


b.Resale and transfer by
individual shareholders

If the mainland company does not change the registered capital, but only adds new shareholders, it is equivalent to the company's original shareholders transferring part of the equity to the new shareholders, and the transferor should pay 20% of the property transfer. (Personal Income Tax).


c.Legal person shareholder
equity transfer

Corporate income tax = (income from equity transfer - principal - reasonable expenses) × 25% or 20%.
Reasonable expenditures actually incurred by an enterprise in connection with obtaining income, including costs, expenses, taxes, losses and other expenses, are allowed to be deducted when calculating taxable income. The corporate income tax rate is 25%; in the case of non-resident enterprises, the applicable tax rate is 20%.

IV.What are the ways of capital flow for equity change in China?

  1. Foreign-funded to foreign-funded companies
    Because the beneficiaries of the transaction are all overseas, there is no need to provide a receipt for the flow of funds for resale in China.
  2. Domestic-funded to foreign-funded companies
    After the approval of the relevant industrial and commercial departments, the transference must remit the corresponding funds from overseas to the special account designated by the transfer-or, and provide the relevant water bill certificates to the relevant mainland authorities for redecoration.
  3. Foreign-funded to domestic-funded companies
    After being approved by the Ministry of Commerce and other ministries, the transference of domestic capital must remit the transferred funds to the investor’s account of the foreign-funded company through foreign exchange approval, and provide relevant documents for filing.

V.Documents that should be prepared for the equity change of Chinese companies

  1. The original documents related to the equity transfer of the mainland company: an equity transfer agreement should be signed between the transfer-or and the new shareholder. The company must issue a capital contribution certificate for the new shareholder (if applicable).
  2. The subject qualification certificate of the mainland equity transference. (provided according to local requirements, subject to local country verification)
  3. Amended Articles of Association and other approvals for investors to transfer equity.
  4. Recent financial statements or related asset reports of the mainland company.
  5. Other relevant documents for the equity transfer in mainland China. (provided according to local requirements)

(The above information is for reference only, the actual documents are still subject to local requirements. If you want to know more about the equity transfer information of mainland companies, please contact a professional agent.)

VI.Simple process of equity change/transfer of foreign-funded companies in China

01.Propose to change application

The shareholders who transfer the equity shall submit an application to the company’s board of directors, and the board of directors shall submit it to the shareholders’ meeting for discussion and voting.

04.Cancellation of original shareholders

Recover the capital contribution certificate of the original shareholder, issue the capital contribution certificate to the new shareholder, and register the change in the company’s shareholder register.

02.Sign the equity transfer agreement

The old and new shareholders shall sign an equity transfer agreement, specifying the amount and price of the transferred equity.

05.Amend the Articles of Association

The new shareholder obtains the right to operate the company in mainland China, and the new shareholder redraws the company’s articles of association.

03.Notarization of transfer documents

Since the transfer contract is required to be legally effective, new shareholders must submit valid notarized documents.

06.Replace business license

After all the procedures are completed, the Industry and Commerce Bureau will re-issue the business license and revise the relevant information of the company’s shareholders. In addition, the company also needs to file with relevant departments such as the customs, the State Administration of Foreign Exchange and the local Commerce Bureau.

VII.Notice of equity transfer by foreign capital in China

  1. Resolutions of shareholders meeting or other shareholders
    The equity transfer of Sino-foreign joint ventures and cooperative enterprises must be approved by all shareholders:
    The external transfer of equity of a domestic limited liability company requires the consent of half of the shareholders. In contrast to this, foreign capital or Sino-foreign joint ventures stipulate that the transfer of capital by one shareholder must be approved by all shareholders.
  2. Approval by the pre-approval procedure authority
    The transfer of foreign equity must be approved by the original examination and approval authority of the enterprise, and the industrial and commercial change registration must be processed:
    First of all, just as the law requires approval for the establishment of new foreign-invested enterprises and the acquisition of equity in domestic enterprises by foreign investors, the transfer of foreign-invested equity in foreign-invested enterprises must also be approved by the original competent government department. Secondly, after the equity transfer is approved, it must go through the modification registration procedures with the registration management authority. If the modification registration is not completed, the transfer will be invalid.
  3. Equity transfer Conditions
    Restrictions on the transfer to a third party and the transfer conditions of mainland equity: When one party to the joint venture transfers all or part of its equity, the other party to the joint venture has the right of first refusal. The conditions for transferring equity to a third party by one party to the joint venture shall not be more favorable than those for transferring the equity to the other party to the joint venture.
  4. Taxpayer regulations
    In the equity transfer transaction in mainland China, the transferor is the taxpayer, and the party receiving the equity is the withholding agent, performing the obligation to withhold and pay taxes.
  5. Inherited shares must be notarized
    When examining and approving equity transfer/change in mainland China, it should be noted that if a foreigner or legal person inherits equity, it should be witnessed by a lawyer or a court. If a creditor inherits the equity, it shall hold a notarized or attorney-witnessed inheritance agreement signed by the creditor and the original investor, or a legally effective judgment.
  6. Asset Valuation
    The equity change of the company covers the value of all assets under the name of the company. It is necessary to re-evaluate all the assets and liabilities of the company and the current value of various movable and immovable properties. If necessary, it is necessary to entrust an asset assessment unit to issue a relevant assessment report for tax assessment by the tax authority.

VIII.Inter Area is committed to the sustainability and efficiency of enterprise development

If you want to change and transfer shareholders/investors after the establishment of the company, you must make a very careful assessment, because this is not only to submit documents for industrial and commercial changes in accordance with regulations, but also involves many aspects such as taxation/capital/assets. Be sure to understand the local regulations and possible derived issues in advance, such as: whether the domestic legal representative/overseas authorized signatory needs to be changed together, or the relevant taxes that need to be levied after the transfer. If it is confirmed that the company’s equity transfer is carried out, it is strongly recommended to consult a professional agency company to assist the company in confirming whether the relevant documents are complete and compliant, the tax burden and the related cost. Some matters must be paid attention to when transferring equity, so as to avoid time-consuming and labor-intensive waste of money due to wrong evaluation.

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