The Chinese Ministry of Finance and the State Administration of Taxation released two policies meant to encourage company mergers and acquisitions (M&A) in the country. Two additional Public Notices also help regulate the administration of corporate restructuring as well as the tax treatment for this process, especially when it involved natural persons. Our lawyers in China can provide detailed information as well as legal advice and assistance for company mergers and acquisitions in the country.
Tax treatment for M&As involving natural persons
Public Notice 48
offers additional information about the tax treatment for corporate restructurings involving natural persons. The transferor in the equity transfer, the shareholder of the merged and the enterprise being absorbed in the merger could be a natural person. Regardless of the corporate income tax
treatment implemented by the corporate parties involved in the merger, the natural persons are still subject to individual income tax.
The same public notice stipulates that the parties involved in the transaction should submit a special tax treatment form as well as other relevant documents, when the annual corporate income tax is filed. The level of disclosure for the transacting parties is now more detailed. The special tax treatment form requires the parties to fill in more detailed information about the transaction, such as the gain or loss arising from the transaction, book value, tax base for the transaction targets, non-monetary asset payments.
Public Notice 48 clarifies the corporate requirements, but at the same time, the disclosure requirements are more stringent. Companies planning mergers and acquisitions or those that are already in the process or merging should seek qualified assistance in order to make sure that the filing requirements are met. The companies will also have to meet the requirements for submitting additional documents as well as post-filing internal control.
For a better understanding of the tax treatment for company mergers and acquisitions involving natural persons, you can contact our law firm in China