Tax Treatment of Capital Reductions: Part II Substantive Capital Reductions

November 25, 2024 | BY

Daisy Duan &Yingjie Yang &Cuishi Li

In Part I of this series, Daisy Duan, Yingjie Yang and Cuishi Li of King & Wood Mallesons introduced the implications of the amended PRC Company Law for Formal Capital Reductions. In Part II, the authors focus on the accounting and tax treatments of Substantive Capital Reductions, and analyze the tax risks of shareholders with regard to capital reductions not made at fair market value.

Summary

●     Different from Formal Capital Reductions, Substantive Capital Reductions will lead to a net asset outflow from the company.
●     As such, the tax treatment of shareholders under the Substantive Capital Reduction route will be more complicated.

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