Circular of the State Administration of Taxation on Issues concerning Income Tax on the Transfer of Shares of Foreign-Invested Enterprises and Foreign Enterprises

Circular of the State Administration of Taxation on Issues concerning Income Tax on the Transfer of Shares of Foreign-Invested Enterprises and Foreign Enterprises

Guo Shui Han Fa [1997] No.207

April 17, 1997

The national and local tax bureaus of each province, autonomous region, and cities specifically designated in the state plan,

Recently some locations have enquired as follows: In cases where, due to the establishment of foreign-invested enterprises (FIE) with the sole purpose of making investments (hereinafter referred to as "Investment Companies" and other forms of group re-organization, the foreign investor transfers its shares of other FIEs in China to the Investment Company, will it be allowed to transfer those shares at cost? Upon research, the following clarification is hereby presented:

In a group reorganization with a legitimate business purpose, if a foreign investor transfers the FIE shares it owns, or if a FIE transfers its shares of enterprises within or outside of China, to another enterprise that is either directly or indirectly owned by it or commonly 100% owned by another individual (including transfers to an Investment Company that meet the above shareholding requirements), such transfers may be handled at cost.
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