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M&T Lawyers: Tax considerations of PE Foreign Investment Framework

M&T Lawyers: Tax considerations of PE Foreign Investment Framework     Download

Two factors are  very important for foreign PE to consider in  investing in China. First, how to choose between traditional modes like red chip, VIE and new models like foreign-invested venture investment enterprises, limited-liability partnership fund, parallel fund, etc. Second, tax cost of investment and withdrawal.
Author: Libin Wu; Zhiqun Shi
With the constant high increased rate of China economic, many Foreign Private Equity fund was fascinated nowadays to seek opportunity to invest in China. According to the statistics by China Merger, in 2013, China Private equity fund market made 349 foreign PE fund to invest in mainland China, amounting to 345 06 hundred million dollars. The fund number decreased slightly than that of 2012, but the sum money, at the meantime, soared up by 36.3%.For currency of new fund, RMB fund still dominates. Other currencies’ better than before. Early Foreign PE indirectly invested or controlled the domestic enterprises mainly by red chip and VIE mode; nowadays however, foreign PE prefer more to try new modes like foreign-invested venture investment enterprises, limited-liability partnership fund, parallel fund, etc. When design investment framework, foreign PE mainly considers many factors as below:
A. the scale and difficulty of fund raising,
B. the choice of future withdrawal ways and methods,
C. The market environment and legal environment of host nation’s investment project
D. Others
Tax costs of investment and withdrawal is a very important factor. Since distinct differences exist between tax costs of investment and withdrawal in different modes. It has significant meaning for deciding a investment framework.
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