When it comes up
- Selling a WFOE or a JV stake to a buyer
- Buying out a joint venture partner
- Moving a WFOE under a Hong Kong holding company as part of a group restructuring
- Taking over a domestic Chinese company
The process for a limited liability company
- Due diligence. Check the target’s licences, tax, labour, litigation and, under the 2024 Company Law, whether the capital has been paid in. A buyer takes on the seller’s unpaid contribution. See due diligence.
- Notice to other shareholders. Under Article 84 of the 2024 Company Law, a shareholder selling to an outsider gives written notice of the price and terms. The others have a pre-emptive right, which lapses if they don’t answer within 30 days. A single-shareholder WFOE skips this step.
- Transfer agreement and resolutions. The equity transfer agreement, a shareholder decision, and amended articles of association.
- Tax. File and pay the tax on the gain (see below) before or at registration, depending on local practice.
- SAMR registration. File the change of shareholder within 30 days and receive the updated business licence. The buyer becomes the shareholder of record when registration is complete.
- Foreign exchange and bank. Update the foreign-investment registration with the bank, then pay the price. Payment abroad needs the tax filing and the SAMR change in place.
- Follow-on changes: directors, the legal representative, bank signatories, chops and the beneficial ownership filing.
Tax
| Seller | Tax on the gain | How it’s collected |
|---|---|---|
| Foreign company (non-resident enterprise) | 10% corporate income tax, possibly reduced by a tax treaty | Withheld by the buyer |
| Chinese company | 25% CIT, as part of its annual profits | Paid by the seller |
| Individual | 20% individual income tax | Withheld by the buyer |
Both sides also pay stamp duty of 0.05% of the price.
The tax bureau compares the price with the target’s net assets. A transfer at par or below net asset value without a good reason can be adjusted upward.
Indirect transfers, where the shares of an offshore holding company owning a Chinese company are sold, can also be taxed in China if the offshore layer lacks commercial substance.
Joint ventures and restricted sectors
If the company’s business is on the Foreign Investment Negative List, the transfer must keep within the foreign ownership limits. Transfers involving state-owned shareholders need an appraisal and often a public exchange. A transfer that triggers merger-control thresholds needs SAMR antitrust clearance first.
Our Company Law and due diligence teams handle transfers from the term sheet to the new business licence.