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China China Company Registration Wholly Foreign Owned Enterprise Guide to Equity Transfer of Chinese Enterprises
KNOWLEDGE|
(1) |
Shareholder Identity Right (status as the company's owner) |
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(2) |
Decision-Making Right (voting on major company matters) |
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(3) |
Asset Profit Right (entitlement to company profit dividends) |
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(4) |
Right to Information (access to the company's operating status) |
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(5) |
Transfer Right (transferring shares to others) |
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(1) |
Individual Income Tax Taxpayer: Natural person shareholders (transferors) Tax Calculation Method: Classified under "income from property transfer" with a 20% tax rate Formula: Individual Income Tax = (Equity Transfer Income - Original Equity Value - Reasonable Expenses) × 20% |
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(2) |
Stamp Duty Taxpayer: Both parties to the equity transfer (both transferor and transferee are required to pay) Tax Calculation Method: Levied at 0.05% of the amount stated in the property rights transfer document |
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(3) |
Standard Accounting Treatment
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(1) |
Tax Declaration Process Step 1: Declare Individual Income Tax (handled by the transferor) Step 2: Declare Stamp Duty |
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(2) |
Industrial and Commercial Change Registration Process (a) Preparations Convene a shareholders' meeting and formulate a resolution on equity changes *Note: Pre-emptive right refers to the right of existing shareholders to purchase the transferred shares at the same terms before they are offered to third parties. (b) Document Preparation Business license, Amended articles of association, Shareholders' register and equity structure change form, Equity transfer agreement, Tax clearance certificate, Power of attorney for the legal representative |
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(3) |
Submission and Approval Submit the change registration application to the industrial and commercial authority Review of documents by the industrial and commercial bureau (15-30 days) |
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(4) |
Completion of change registration |
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(5) |
Collection of the new business license |
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(6) |
Update information with banks, tax authorities, etc. Key Reminder: Tax declaration must be completed and a tax clearance certificate obtained before proceeding with industrial and commercial change registration. |
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(1) |
Risk of Defects in the Target Equity
Focus on verifying whether the target equity is pledged, frozen, or held in trust. Require the transferor to issue a commitment clause on asset integrity. It is recommended to conduct multiple due diligence checks through the National Enterprise Credit Information Publicity System and judicial investigation platforms. Purchasing equity transfer guarantee insurance when necessary is advisable.
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(2) |
Risk of Procedural Legitimacy
Strictly comply with statutory procedures such as evaluation and filing, and trading on designated platforms (for state-owned asset transfers). Ensure each link complies with the requirements of the Company Law and judicial interpretations. It is recommended to engage a notary public to preserve evidence for key nodes such as shareholders' meeting resolutions and notice delivery.
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(3) |
Tax Compliance Optimization Strategies
Plan the payment method of the transfer consideration in advance and reasonably use tax planning tools such as instalment payments and capital reserve conversion. For high-premium transfers, consider applying the special tax restructuring policy, but ensure the unity of business substance and formal compliance.
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Disclaimer All information in this article is only for the purpose of information sharing, instead of professional suggestion. Kaizen will not assume any responsibility for loss or damage. |
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