Preferential Tax Policy for Foreign Acquisition of Chinese Enterprises

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The China State Taxation Administration recently released its Notice on Taxation Issues Concerning Acquisition of Domestic Enterprises by Foreign Investors that came into effect on January 1, 2003. The notice states that domestic enterprises acquired by foreign investors are subject to preferential taxation policies as stipulated in the Taxation Law and related regulations regarding Income Tax on Foreign-invested and Foreign-owned Enterprises. A domestic enterprise is deemed so acquired when a foreign investor buys 25% or more of its shares, in line with the Provisional Regulations for Acquisitions by Foreign Investors of Domestic Enterprises. The status of a domestic enterprise then changes to foreign-invested enterprise, and tax is levied accordingly.

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