In recent years, there has been a significant increase in overseas mergers and acquisitions (“M&A”) transactions conducted by Chinese domestic enterprises. This has prompted the Chinese regulatory authorities to implement a string of new regulations.
This includes simplifying the administration processes to support outbound investments (e.g. replacing pre-approval applications for most outbound investments with a simplified recordal filing). At the same time, other regulations have enhanced supervision of outbound investments. Part of the reason for this is to limit the extent to which outbound investment transactions may be used as a cover for moving funds out of China, circumventing capital controls.
In the latest development, on 25 January 2018, seven government authorities jointly issued Interim Measures for Recordal / Pre-approval of Outbound Investment (Shang He Fa  No. 24, (“Circular 24”)). The relevant authorities were the Ministry of Commerce (MOFCOM), People’s Bank of China (PBOC), State-owned Assets Supervision and Administration of the State Council (SASAC), China Banking Regulatory Commission (CBRC), China Securities Regulatory Commission (CSRC), China Insurance Regulatory Commission (CIRC), and State Administration of Foreign Exchange (SAFE).
Outbound investment management protocols
Circular 24 also clarifies that the “encouraged industries + negative list” approach will be adopted for outbound investment recordals and pre-approvals. For outbound investments on the ‘encouraged industries’ list, or those not on the ‘negative list’, a recordal filing may be made (i.e. no pre-approval needed).
Interim/follow-up inspections will be carried out by relevant regulatory authorities for the following investments:
Circular 24 sets out the framework system for the oversight of outbound investment activity, and will be referred by all relevant regulatory authorities in formulating their respective outbound investment measures.
Other recent regulatory circulars for outbound investment:
In relation to key corporate tax issues that “going out” enterprises may face, and how the SAT is supporting Chinese companies navigate through these overseas tax challenges, see an article entitle A thousand miles begin with a single step: tax challenges under the BRI in the following publication which was produced by KPMG China in association with the International Tax Review (ITR):
A large number of special customs supervision zones (SCSZs) have been established, around China, to facilitate trading and production activity. Enterprises located in SCSZs are (for most regulatory and administrative purposes) deemed to be established outside China. Consequently, they have, in the past, been excluded from the VAT system administrative chain for output tax collection and input tax credit, as it relates to domestic sales and purchases. Instead, where goods are sold from an SCSZ into the domestic market, Customs duty, VAT and consumption tax (CT), arises at the time the goods enter “China proper” (buyer in the domestic market then pays the taxes as ‘importer of record’). In order to facilitate the domestic sale of finished products from overseas, and the supply of materials to the domestic market, SCSZ based enterprises are now permitted to obtain VAT general taxpayer qualifications (allowing them to claim the input VAT credits).
On 14 October 2016, the SAT, MOF and the General Administration of Customs (GAC) jointly issued Announcement  No. 65 (‘Announcement 65”). Effective from 1 November 2016, a pilot program granted VAT general taxpayer status to particular enterprises located in certain SCSZs. The pilot SCSZs include comprehensive bonded zones of Kunshan, Suzhou Industrial Part, Chongqing Xiyong, Shenzhen Yantian and Zhengzhou Xinzheng as well as export processing zones of Shanghai Songjiang and Henan Zhengzhou (see KPMG China Tax Weekly Update (Issue 40, October 2016) for details).
Further, on 12 January 2018, the SAT, MOF and the General Administration of Customs (GAC) jointly issued SAT Announcement  No. 5 (“Announcement 5”). This further expands the pilot program to cover an additional 17 SCSZs (bringing the total pilot zones to 24), effective from 1 February 2018.
According to Announcement 65, tax policies which applied in the pilot areas are as follows:
Announcement 5 builds on Announcement 65 and clarifies the following:
With regard to the detailed analysis on the VAT general taxpayer rule in SCSZs, please read the following KPMG publication:
On 15 January 2018, the State Administration for Industry and Commerce (SAIC) and SAT jointly issued Notice on Intensifying Information Sharing and Joint Supervision (Gong Shang Qi Zhu Zi  No. 11, “Circular 11”). This aims to (i) enhance SAIC-SAT information sharing and joint supervision activities and (ii) to roll out simplified enterprise de-registration procedures. Circular 11, in particular, clarifies the following:
For a taxpayer who still has outstanding tax matters, the tax authority is required to raise an objection to the SAIC and subordinate local AICs.
Circular 11 also clarifies that SAIC and SAT will establish a collaborative mechanism to oversee the obtaining of VAT invoices, and will carry out joint supervision on ‘blacklisted’ enterprises as a result of breaching tax laws and regulations.
* Inter-agency collaborative agreements are an increasingly prominent feature of the Chinese regulatory landscape. On 21 April 2017, GAC, SAT and SAFE had jointly signed a Cooperative Framework Agreement on Information Sharing and Joint Supervision. This framework, and parallel agreements, underpin the development of mechanisms for information sharing, mutual recognition of supervision activity, and mutual enforcement assistance, among the authorities (See KPMG China Tax Weekly Update (Issue 17, May 2017) for details).
In October 2016, 40 Chinese regulatory authorities, including NDRC, PBOC and GAC, etc., jointly signed a Cooperation Memorandum to Grant Joint Incentives for Customs’ Advanced Certified Enterprises. Prior to that, in July 2016, 29 Chinese regulatory authorities, including NDRC, SAT, PBOC etc., also jointly signed a cooperation memorandum to grant 41 incentives to taxpayers with class-A tax credit rating. You may click KPMG China Tax Weekly Update (Issue 42, November 2016) and (Issue 27, July 2016) for details.