Ministry of Finance, Financial Handling Issues Concerning Increases and Decreases in Valuation of External Investment Assets of Foreign-invested Enterprises Circular

Issued: July 4 2003

Main contents: The Circular stipulates that in the case of the book value of the assets (physical goods or intangible assets) contributed by a foreign-invested enterprise for external investment, together with taxes and fees payable, (collectively, the initial investment cost) being greater than its shares of owner's equity in the investee, the difference should be treated as a difference in equity investment and amortized as profits and losses. In this case the enterprise should, when distributing profits, also take into consideration that increase or decrease in valuation of the assets contributed does not generate a cash flow. In the case of the initial investment cost being smaller than the share of owner's equity in the investee, the difference should be treated as capital common reserve.
Related legislation: Issue of the « Implementation of the New Enterprise Financial System by Foreign-invested Enterprises Supplementary Provisions» Circular, 1993