What issues should foreign investors pay attention to when acquiring companies in China?

Based on over a decade of experience in handling such issues, Xu Baotong's legal team shares the following.

When foreign investors acquire companies in China, they need to consider several key issues:

Investment Access: Foreign acquisitions of domestic companies must comply with China's regulations on foreign investment access. They must engage in commercial activities within the scope of industries listed in the Catalogue of Industries for Guiding Foreign Investment, which specifies industries encouraged, permitted, or restricted for foreign investment. Additionally, depending on the industry and investment scale, different levels of approvals and filings may be required for foreign acquisitions of domestic companies.

Antitrust Review: Foreign acquisitions of domestic companies also need to undergo antitrust reviews to prevent adverse effects on market competition. Transactions that meet one of the following conditions should be reported for antitrust review: (1) the transaction involves certain levels of global or domestic sales; (2) the transaction may have the potential to exclude or restrict competition in the market.

Tax Treatment: Foreign acquisitions of domestic companies must comply with China's tax laws and related regulations. During the transaction process, various taxes such as income tax, stamp duty, and land value-added tax may be applicable. Foreign investors should consult professional tax advisors to ensure compliance.

In summary, foreign acquisitions of domestic companies in China need to comply with special regulations concerning foreign investment access, antitrust review, and tax treatment. Comprehensive due diligence and risk assessment should be conducted to ensure the feasibility of the transaction and compliance with Chinese laws and regulations.