MOFCOM issues rules on equity as capital contribution for FIEs

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The Ministry of Commerce (MOFCOM) recently issued regulations on how to contribute equity in one Chinese company to the registered capital of another Chinese company in order to establish a foreign-invested enterprise (FIE) or change an FIE’s equity.

These regulations are based on the draft for comment issued on 4 May 2011, so their contents are not new. But their formal issuance creates greater certainty for foreign investors wanting to use equity in one Chinese company to invest in another.

They may also enable certain types of tax-free reorganisations involving share swaps under China’s enterprise income tax rules, although the scope for such reorganisations is still relatively narrow.

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Business Law Digest is compiled with the assistance of Baker & McKenzie. Readers should not act on this information without seeking professional legal advice. You can contact Baker & McKenzie by e-mail at: Zhang Danian (Shanghai) danian.zhang@bakermckenzie.com

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