Asia Tax Bulletin - Spring 2015

CHINA Tax Free Reorganisations

• With circulars 109 and 116 jointly issued in December 2014 by the Ministry of Finance and the State Administration of Taxation, the Chinese authorities have relaxed the conditions for internal reorganisations.
  
  
• Circular 109 deals with internal reorganisations. Provided the pertinent requirements are met, the transfer of shares of a Chinese company within the group will not be subject to Chinese income tax. There must be a reasonable commercial reason for the transfer, the equity acquired must be at least 50 percent (previously: 75 percent) of the total equity of the target company (in an asset transaction, the assets acquired should be at least 50 percent (previously 75 percent) of the total assets of the transferor), there must be no change in the original operating activities for a prescribed period of time, shareholder equity must comprise at least 85 percent of the total consideration (thus: the debt may be up to 15 percent